Welcome to 2016!  Crossing over into the New Year brings with it a traditional rite of passage: completing your annual plan. Smart business owners routinely use the New Year transition as a time to both reflect on past performance and establish new priorities.  This year, let’s focus that plan on what really matters: growing the value of your company and returning value to shareholders. And what drives value? Growth. 

Is growing your business the best way to boost its value?

Yes. If you want to increase value, then you need to grow your company. Many factors can enhance value, but if you truly want to move the dial, the most important item is growing profit. To that end, let’s look at a few hacks for really kick starting growth.

Growth Hack 1: Scale Your Business

The foundation of your growth plan needs to be founded on scalability. How big can you get? How profitable will you be? How fast can you get there? And finally, what will scaling your business cost? When evaluating potential avenues for growth, keeping these questions in mind helps focus your efforts. Here’s a framework for thinking through scalability:

1. Look closely at your product lines. Which if your product lines has the largest addressable market? Identify and rank your product lines by potential. This starts to give you an order of priority to focus your efforts. Adding a product (or service) simply because it is easy doesn’t necessarily drive value to shareholders.
2. Consider the profitability of each product line. As you scale up a product line, can you achieve greater economies of scale, or do margins remain static? You are now creating a matrix. If Product Line A has a market 10 times bigger than Product B, but margins are slim, you may find that Product B ultimately has a greater potential value to it.
3. Determine how much scaling will cost. Growth costs money. Capital expenditures, adding distribution, a sales staff, research and development … there are myriad costs associated with scaling up. Don’t stop at understanding market and margins. Do the work to detail costs.
4. Figure out how fast you can get there. Some growth initiatives can start immediately while some may take a number of years. Ultimately, those that start sooner can start throwing off cash sooner. The trick is to balance “now” versus “volume.”

Example Data

So where does this scalability hack leave us? With a quantifiable, priority-driven, detailed road map of where to focus efforts. In our example, Product A has the largest potential market … but at greater costs, lower margins and a longer time horizon.  Product C, on the other hand, is smallest in terms of market, but can be both the most profitable and happen soonest. It’s pretty clear where to focus your efforts for 2016!

Growth Hack 2: Grow Via Acquisition

Acquisitions can go hand in hand with scalability. An acquisition is ultimately a “build vs. buy” decision. As part of the above analysis, you’ve conjectured what it will take to scale a part of your existing business. Acquisitions, when done right, can jumpstart this process. Consider an acquisition if:

• You don’t have the know-how to grow a product line.
• You don’t have the management resources to oversee a growth initiative.
• The target company can add a product line (or service) that currently isn’t an in-house capability or strength.
• You can access acquisition capital cheaper than working capital for growth.
• You can accelerate the timeline for realizing growth or margins on an in house capability.

Ultimately, growth drives value, and as a steward of your company, your obligation is to return value to shareholders. This is just as true when you are the only shareholder as when you are simply management. By following a structured plan to analyze growth opportunities—including acquisitions when appropriate—you are embarking on a path to returning real value to shareholders.