• How-to

The exhilaration of the entrepreneurial process reaches its peak when you first see your product/service enter the market. From the phase when the business is a mere idea playing in your head and conscience to a point when it consumes all the resources related to your existence, it goes through various challenges and you have to keep devising new strategies at every point to meet these challenges.

Once your idea has been executed successfully, it is time to sit back and devise a growth strategy. What are the options you have here? What can you do to take your startup to the next level of operations?

Choose the leveraged growth way
There are three kinds of growth strategies you can adopt to strengthen and expand your footprint in the market: organic growth, inorganic growth and leveraged growth. Organic growth is the most common approach that naturally comes to mind when you sit down to think of expansion and scale. Organic growth simply means expanding or increasing your own capacity of producing the goods/services that you offer in the market. Organic growth is so structured that it demands various investments in resources, plant and production capacity, service centers, branches, diversification, new product development etc. With some of these investments, long lead times to return on investment (RoI) are often tied in. And all else apart, organic growth requires huge capital investment, which is more often than not a constraining factor for startups.

Inorganic growth, on the other hand, refers to growth through acquisitions and mergers. This growth also requires financial resources and involves post-merger complications which may be out of a startup’s ambit. Leveraged growth simply leverages or capitalizes on the assets you already own or those that your business partners possess. It leverages the strength of networks and specialized skills and requires no upfront capital investment. It is a cost-effective way to grow the business (revenue) where risk-taking is also limited. Let us look at how you can tread the leveraged growth path successfully.

1. Build networks
The most important aspect of leveraged growth is building and investing in networks. Networks are the foundation on which the strategy of leveraged growth rests. Here’s an example: If you are into garment manufacturing, leveraged growth dictates that you build a network of local artisans/karigars, know their specialties and strengths and leverage them as assets when you cater to your customers i.e. retail chains. A particular kind of embroidery work may require investment in a particular kind of machine; you may not be using this embroidery for every garment you manufacture, so rather than investing in that machinery, it would do you good to know which entrepreneur possesses that skill/machinery and leverage him when needed. This is how the cycle of leveraged growth unfolds.

2. Identify ‘Pareto’ nodes in your network; become a ‘Pareto’ node in the long run
You can be a part of and build multiple networks. These could range from supplier, service provider to customer networks. To actually tap into the power of each of these networks and leverage them effectively, you can apply the Pareto 80/20 principle. Pareto’s law says that roughly 80 percent of the effects come from 20 percent of the causes. Within a network, it is often seen that very few nodes account for a wide share of the connections. So, it is the Pareto 80/20 rule at work again where 20 percent of the nodes control 80 percent of the connections. These 20 percent nodes are the Pareto nodes, which must be identified and targeted to tap into any network. They are often the ones influencing choices, decisions and leveraging power. If you build a value-sharing relationship with these Pareto nodes, tapping into networks becomes a smooth and easy process. Finally, to be in a position where you can orchestrate a network, command resources at will, you must become a Pareto node in the long run.

3. Be a knowledge broker
You can’t be a part of a network where the only thing you ask of your connections is ‘How can you be of use to me?’ That never works. You have to be able to add value to the network and to your connections in some way and foster a sense of mutual well-being for exchanges to be healthy. If leveraged growth is your strategy, it is very essential to play the role of a knowledge broker. This simply means you have to be a link between end-users (retailers in the example above) and producers facilitating a two-way exchange of knowledge and ideas. This exchange should be targeted at identifying customer needs and problems on the one hand and expertise and specialized skill sets on the other to resolve them. An organization that is a knowledge broker understands the space it operates in well, follows market trends, gives market access and insights to the supplier organizations on its network and builds trust-based and value-adding relationships.

4. Build a business ecosystem where you occupy the core
If you want to continue to use leveraged growth as part of your expansion strategy, you should aim at building an ecosystem of vendors and customers where you occupy the core. If you systematically work toward all of the above, you will automatically find yourself in the middle of an ecosystem where you will be the center of all economic activity. Such growth is difficult to replicate and can give you a good edge in the market.

Cost-effective Growth
• Make ‘leveraged growth’ your strategy of choice, grow cost-effectively by leveraging available assets from a pool of resources
• Lay a strong foundation, invest time and effort in building networks
• Apply the Pareto 80/20 principle, identify the Pareto nodes in your network and build value-adding relationships with them
• Facilitate exchange and flow of knowledge from where it is abundant—with experts, in the market etc.—to where it is lacking i.e. among specialized suppliers
• Occupy the core of an ecosystem, be in a position where you can orchestrate resources and use the power of ‘pull’

©Entrepreneur January 2011

Tags:
How-to, leveraged growth