Building Your Wealth
The 3 Methods Of Expansion: Which Is Right For Your Business?
Most companies want to grow. Often, the very survival of a business depends on steady growth. Yet when many companies try to expand, they end up stagnating instead. Expansion problems are both common and various. It can be a new market, vertical, product, or service that just doesn’t work out. As a result, leaders can become timid about further expansion.
But since standing still is not an option, what’s the trick to successful expansion? Sangram Vajre says it’s knowing when and how to grow. Vajre is the co-founder of Terminus, a go-to-market platform provider founded in 2014 that has since acquired five companies, opened a second office in London, been named an Inc. 5000 company, and surpassed 1,000 customers. Along with his co-author Bryan Brown, Vajre shared a framework for growth in their book, MOVE.
“There are three essential ways a company can expand,” Vajre said. “They are sales, coverage and solutions. Once you know how each method works, you can decide when to expand.”
If you’re a startup with a great product, Vajre said a small, passionate sales team can get the company on its feet. It can even experience energizing growth by simply expanding its team.
“Eventually, though, things plateau,” he said. “You can only hire so many salespeople.”
Direct sales is a good first move, but at some point, Vajre said “you’ll need to shift your focus to building referral and channel partner programs to avoid the plateau. Investing in external partnerships and network building will help distribute your sales as widely as possible.”
Vajre points out that many companies have successfully used this model. For example, in 2017, 40 percent of HubSpot’s revenue came from its partner program. Similarly, more than 50 percent of sales for the data warehousing company Snowflake are “partner-assisted.”
“Done right, this process incrementally builds capacity outside of your company,” Vajre said. Building and maintaining networks and distribution partners should be an ongoing strategy for any stage in your company’s development. It’s especially critical work, Vajre said, for newer businesses, especially those transitioning out of early ideation stages.
“Once you hit critical capacity without distribution partners in place, no amount of passion or pluck will save your company,” Vajre explained. “These external channels and networks will also make or break further growth when it’s time to expand coverage and market solutions.”
Because of this, leaders should have a sound sales expansion strategy in mind as soon as possible, ideally before even bringing products and services to market.
The second way to grow is through expanded coverage, which Vajre explained can happen in different ways. A company with success in the U.S. might take their products and services to an Asian market, for example. Or they might expand into a different vertical.
“Imagine a company that’s had success in the manufacturing industry,” Vajre said. “They could expand by marketing to relevant sectors of a related industry, like finance.”
Finally, Vajre pointed out you can consider moving upmarket (to customers with larger needs and budgets) or downmarket (to those with less complex needs and leaner budgets).
“Think about Zoom,” Vajre advised. “After finding its product fit, it first went upmarket to reach executives. Then, during the pandemic, Zoom became a household name by moving downmarket to address the urgent needs of nonprofits, governments, schools and everyone else.”
Vajre explained you need a few pieces in place before expanding coverage. First, a solid sales expansion strategy. Second, a revenues team that’s aligned with customer success. Third, you need to have graduated from lead-generation to a successful account-based revenue model.
“If those pieces are in place, coverage expansion may be a next viable way to scale,” Vajre said. “Where you go now depends on product relevance to new market needs, plus opportunities presented by those networks and distribution partners set up through sales expansion.”
Before making a decision, consider what percentage of your revenue is coming from each coverage area. How can you increase your annual contract value (ACV)? How do you sell multi-year deals? How do you secure prepaid commitments? All of these will allow you to increase the value of your business so you can go to a bigger market and create a larger valuation.
The third way to grow is through expanding solutions. “There’s only so much mileage you can get out of your existing product because you’re trying to sell the same thing to the same customers,” Vajre said. “Also, as competition or consolidation grows in the market, you face more challenges in differentiating yourself.”
To become a multi-product company, you must centralize customer success. Gain as much data as possible about your current customers, develop solid account-based marketing and sales operations and make sure new products and services offer solutions your customers need.
Whether you’re a startup in ideation stage or a thriving, multi-platform company ready to further scale your business, growing pains are real. But Vajre says don’t give up and don’t rely on what worked for others. At the end of the day, only you can determine when and how to grow.
“You know your operations and customers best,” he said. “Let that inform which new solutions fit your market, which new categories to move into and when to acquire new companies.”
A sound sales expansion is key, but this method will only get you so far. So, does your next move involve expanding coverage to new markets, or new solutions for your existing customers? Maybe some combination of the two? Vajre offered a final piece of advice for leaders looking to expand.
“Make sure you’re maxing out your current value at every stage and that you’ve optimized your operations, he said. “Doing so will help you understand your center of gravity better than the adjacent category players around you, which leads to smarter expansion decisions.”
The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.