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To grow, companies need to optimize and protect their core business first (private businesses)

Growth remains top of mind for Canada’s private business owners and leaders. This is not surprising as growth has been flat in virtually every sector of the Canadian economy for years. Competition has intensified as new and disruptive businesses—both foreign and domestic—have entered the Canadian market attempting to take customers from existing players and capture a greater share of the market.

In this new economy, the recognized entry barriers are falling. The requirements for infrastructure, research and development and capital expenditure are lower than ever, and competitors are no longer defined by industry.

As a result, it’s becoming more and more challenging to achieve meaningful growth in this fast-changing, hypercompetitive and uncertain environment. Despite these headwinds, private business owners remain optimistic about their growth prospects. In fact, 89% of Canadian respondents to PwC’s Global Family Business Survey expect to grow over the next five years—by 10% annually or more, in many cases.

But are these growth objectives realistic? In the same survey, 81% of respondents said they planned to achieve growth by pursuing the status quo. Yet only 15% of Canadian family businesses achieved better than average revenue growth in at least 8 of the past 10 years. This strongly suggests that the status quo or business-as-usual approach doesn’t generate the type of incremental growth companies seek.

Creating a coherent and grounded growth strategy

In our experience, many companies focus on growth without having a well-articulated growth strategy that’s rooted in the organization’s capabilities and capacity to execute.

Such an unfocused and opportunistic growth approach is a recipe for failure. As a result, owners and management teams find themselves with a number of competing priorities, pulling their teams in different directions, which often leads to either unprofitable growth or paralysis.

To deliver sustainable and profitable growth, strategic growth thinking must come first, and only then can it be followed by strategic action, where owners and managers become aligned and laser focused on the priority growth initiatives that will deliver the company’s highest-impact results.

To begin constructing a growth strategy, owners and managers need to ask several simple but critical questions:

The answers to these critical questions will help shape a coherent and grounded growth strategy.

In principle, companies’ growth strategies should always focus on achieving sustainable, profitable growth over the long term (three to five years)—not short-term, opportunistic balance-sheet boosts that deliver no lasting impact. Companies should compete on value, not price, since price is a swift race to a commoditized bottom. They should also concentrate on driving revenue through higher prices and larger volumes; cost-cutting and austerity measures may increase profits, but their upside is capped and the impact is short-lived.

Core business growth comes first

In general, there are three overarching pathways to achieve company growth: optimize the core business; extend the boundaries of the core business; or re-scope and reinvent the core business. Undertaken together in a carefully sequenced and de-risked manner, these pathways will propel the transition of your company from its present business model to the future business model, with each move reinforcing the previous one.

So what are the sources of growth?

Based on our experience with private and public companies, owners and managers often overlook the headroom for growth in their core business and focus on either pursuing adjacent markets or searching for uncontested or new market spaces, truly believing that the grass is greener on the other side.

We often find that companies still have sufficient juice or upside opportunities to exploit in their core business. These opportunities are often hiding in plain sight in the companies’ own backyard, across their businesses and markets. These resident core business opportunities can be unlocked faster and easier than adjacent or transformational opportunities, and typically carry lower risk and up-front investment given the companies will be using existing capabilities and assets.

It’s best to always capture and maximize the untapped growth potential within the core business before pursuing riskier, more uncertain adjacent or new business opportunities.

Optimizing the core business involves penetrating the existing market even more from existing customers, products and services. Core business growth can be achieved through a number of growth strategies, including:

  • increased customer share of wallet
  • new customer acquisition
  • product or feature improvement
  • increased promotion and brand awareness
  • stronger reach through increased distribution channels
  • price calibration

A case in point is Google’s strong focus on its core business through continuous improvement of its email application and recent launch of its corporate email and digital calendar services to rival Microsoft Outlook in the enterprise and corporate space.

Despite the advantages of optimizing the core business, very few companies do this successfully. Instead, companies look for growth far beyond the boundaries of their business, which leaves their core vulnerable, drifting them to a highly uncertain course, and wasting their management efforts and resources.

Every business has significant profitable growth potential tucked away in the corners of its core business, customer base and offerings. Uncovering that potential is the first step of any company’s growth journey—and the foundation for more growth to come.

Look for the second part of our series on achieving growth soon.

Contact us

Joseph J. Lo

Partner, Private Equity Value Creation, PwC Canada

Tel: +1 416 815 5135

Michael Kamel

Acquisitions Leader, Partner, PwC Canada

Tel: +1 514 205 3976

Charles Losa

Partner, Deals Strategy Leader, PwC Canada

Tel: +1 416 687 8619

Contact us

Domenic Marino

Domenic Marino

National Deals Leader, Partner, PwC Canada

Tel: +1 416 941 8265

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