Any business with real longevity will naturally need to consider how to scale up, expanding beyond where they started when they first launched. This will look different depending on the company, but the end goal remains the same: to grow faster than the competition and avoid missing out on big opportunities. This always comes with a degree of risk, as it can be difficult to properly balance growth and stability. The key to success here is to focus on developing new capabilities and offerings.
For businesses, an additional capability or service is an extra offering that can be presented to customers that generates greater value or convenience. These can range from additions or improvements to existing products or services, or entirely new offerings that appeal to old and new customers. Yet while they are often necessary for business growth, they also come with a degree of risk: not all new capabilities are successful and even a seemingly small addition can come at a hefty cost if it isn’t carefully considered.
Understanding the Risks of Capability Expansion
When looking to expand your capabilities, there are two major elements that need to be considered: your current capabilities and your current customers. The more you move away from what you have already established, the more risk there is. So obviously, if you can expand upon your existing capabilities and/or your existing customer base, you’ll face less risk and likely be able to secure capital more easily. By comparison, developing a new capability targeted at an entirely different customer segment is risky and challenging, meaning investors will likely be hesitant to get on board.
This doesn’t necessarily mean that sticking with existing customers and capabilities is always the best option or that there is no value to be found in expanding into uncharted territory. But it highlights the importance of working with your strengths and understanding which capabilities will offer the most value. The biggest mistake that business leaders will make in terms of growth and expansion is that they’ll decide their company must grow without considering how it will be done. Before making any real efforts to expand your capabilities, you should consider the following:
- Market size
- Product-market fit
- Product relevance
- Potential customer response
- Working capital needs
- Emerging trends and technologies
- CX scalability
All of these can play a role in determining which capabilities should be developed and when.
Securing Funding & Support
Once you have a strong sense of your existing capabilities, your customer base, and how you plan to expand your business, you’re prepared to seek out and secure funding. What approach you take to fund your expansion will depend both on your available resources and the interests of potential capital investors. This can be complicated, as not every investor is interested in the same things.
For example, venture capitalists are often uninterested in pure profits, instead caring more about revenue growth (and the ability to generate it quickly). Additionally, if you don’t have unique technologies or marketing that would lock competition, the VC model doesn’t work. Others turn to project finance, a loan structure that relies primarily on a project’s cash flow for repayment. Even if your expansion will turn a profit, you need to be aware of how, when, and where that money will likely come in, as this will decide what your path to funding will look like.
No matter how you fund your project though, the most important thing to remember is the value proposition you bring to the table. If you can balance the risks involved and identify untapped potential in your capabilities and customers, you generate significant, long-lasting growth.
