Tutor2u ™ GCSE Business Studies Revision Presentations 2004 Growing a Business.

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GCSE Business GCSE Business StudiesStudiesRevision Presentations 2004Revision Presentations 2004

Growing a Business


GCSE Business GCSE Business StudiesStudies

Introduction

Why should a business grow?

Once a business has achieved survival, growth is the natural next step

Higher sales and profits will result in the value of the business growing = better returns for the owners on their investment

Helps reduce the risk in the business by selling a wider range of products to a bigger customer base

However

Growth is not easy

It often requires more financial and other resources

Growing too fast or in the wrong way can mean there is a bigger risk of a business failing



New Skills Required by Growing Businesses

Finance

Finance needs may increase and become more complex

E.g. may need to raise outside finance

Marketing

Ability to develop and launch new products – possibly in new markets where customers have different needs

Expertise of a wider range of promotional methods (e.g. maybe start direct marketing or operating an e-commerce facility)

Human Resource Management

Ability to manage increasing numbers of employees

Create a management team / delegation

Important to recognise when new skills are needed

Temptation is for a small business owner to take on too much



Factors Which Help a Business Grow

Lower price - people will usually buy more at lower prices

Increased promotion (e.g. advertising, e-commerce, direct marketing campaigns) = customers more aware of products

Sell in different location- new set of customers, more potential

Sell on credit- customers are attracted by ability to buy now, pay later



Organic and Acquisitive Growth

Growth options are often categorised into…

Organic growth

Growth achieved from using the existing resources and structure of the business

Profits are re-invested developing new products and finding more customers

Acquisitive growth

Where business grows and expands by buying other businesses

Much quicker method of growth – but much higher risk



Why Grow Organically?

Learning In-house growth allows a business to learn from how its products

or service perform in the market. It limits the need to rely on others.

Innovation If a business has an expertise for new ideas and innovation a

‘dilution’ of people and resources from the outside could do more harm than good. There is also money to be made by licensing products or services after they have been developed

Where acquisitions are unsuitable Organic growth might be the only option if there is no other

suitable business to acquire or merge with.

Better Planning Maintaining growth within the existing business structure, where

knowledge is more freely available, can make business planning more accurate and easier



Why Grow by Acquisition?

A much quicker way to grow

Greater market share or complete dominance

Expansion into new markets

Potential spotted in another business that suggests it is undervalued

Brings new skills, experience, brands and customers into a business



Pitfalls of Acquisitions

High risk

May pay too much for the business

May buy the wrong business

May be investing in a market that the business does not understand (often a recipe for disaster)

Acquisitions are difficult to integrate into an existing business

Different cultures

Management – can roles be found for the management of the business that has been bought? If not – who stays?

Customers of the acquired business may be unsettled by the change in ownership

Employees in the acquired business become nervous about their futures



Diversification

What is diversification?

Diversification is simply the process of becoming diverse. A business is said to be diversifying when it starts or acquires activities which are different from its core activities

Why diversify?

Helps spread risks across a number of products

If one product fails due to market conditions then other products in different markets should not be affected

Good way of expanding if present market seems already full

Gives business fresh objectives and may act to motivate managers and staff



Advantages That Might Help a Business Grow

USP (unique selling point)

Something that makes product different from other products available

First in market

Chance to develop a loyal customer base before others have a chance to establish themselves

Market leader

Customers are prepared to pay higher prices for market leader

Shops want to sell market leader, – good for distribution

Lowest cost producer

Business that is able to produce products and services at lowest cost (perhaps because they are biggest business in an industry) is able to charge a lower price than any competitor

Brands

Brands that customers recognise and trust can be a vital kind of competitive advantage



Horizontal Integration

When a business buys another business which is making same sort of product

Does not have to be a competitor, but might be a business in another geographical region.



Vertical Integration

When a business buys another business which it either:

Sells to (forward integration), or

Buys from (backward integration)

Tutor2u ™ GCSE Business Studies Revision Presentations 2004 Growing a Business.

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