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Determining Your Business Investment Strategy: Evaluate Your Options
Now that you have a sense of what works for your company and what it will take to sustain your competitive advantage, it's time to consider how you will invest in the future.
The choice may not always be obvious. Solomon Choi knew that although his New York-based frozen yogurt retailer 16 Handles had just two locations—one in the East Village of Manhattan and one in Paramus, New Jersey—he wanted the company to become the go-to frozen yogurt brand for New Yorkers. The problem? He lacked the capital and resources he needed to open multiple corporate stores in the pricey Manhattan real estate market.
Lucky for Choi, his original East Village store was a runaway success when it opened in July 2008, and multiple customers actually inquired about franchising opportunities. Even though 16 Handles was still a relatively young, small company, Choi looked into the possibility of franchising, and ultimately decided to invest in it as his growth strategy.
'I didn't expect necessarily that we would franchise so soon, but we really wanted to identify ourselves as a New York brand as opposed to just another frozen yogurt shop,' Choi says. 'Timing was crucial—there would be other brands trying to copy us. I didn't want to lose out on the opportunity to expand, and how else could we at that point?'
There are a myriad of growth strategies you can invest in. Do you want to develop a new product that complements your existing product in the same category? Do you want to enter a new category in a new market? Do you want to expand territorially? Do you want to expand into a related business? Do you want to diversify and invest in many types of businesses? Do you want to pursue a merger or an acquisition?
Use caution, however, before jumping into new markets. 'If I've spent all this money to get a product or service in this particular market, and there is a lot of potential left that I haven't reached, expanding in the current market is the path of least resistance,' Warner says. 'Let's expand in this current market over a period of time we're comfortable with until it's saturated, and then we have to pick the right time in the future to say we've gone far enough in this market.'
To find that right time, Lavinsky suggests defining a metric, such as market share or a revenue figure, that you want to achieve in your current market before entering new markets. 'What is our real market potential in our existing market? I would want to be the dominant player before I considering expanding.'
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Determining Your Business Investment Strategy: Align Your Resources
Whatever direction you choose, it's critical that you support the initiative with the proper resources. More often than not, that means human resources.
'If you want to be innovative, you have to have the human capital to do this,' Hitt says. 'New ideas are not created by artificial intelligence; they're created by human intelligence.'
It's tricky to set a strategy for when it's time to add new staff, however. 'The fact is, virtually all organizations are resource constrained,' Lavinsky says. 'You don't have the finances to staff as much as you'd like, and a lot of time you don't have a choice to add staff until after you need them. Still, I would rather have a backlog of customer orders rather than the opposite.
The flipside is even trickier. Your investment strategy should also indicate how you will reduce resources when times are tough. 'The key question to understand is how much will it cost you to replace an employee,' Lavinsky says, 'especially if you have to replace that person in three months when customer demand returns.'
Whenever possible, Hitt recommends that small, new firms develop alliances with other companies, in and outside their industry, to collaborate on new ideas.
Dig Deeper: How to determine your growth strategy
Determining Your Business Investment Strategy: Reassess Constantly
Ultimately, you can't forecast when market conditions will change or how new technology will affect your existing market. (Look no further than the demise of Polaroid as a cautionary tale.)
As such, you can really never quite finish your business investment strategy. You have to tweak it as you go. 'You've got to have some sort of process set up that regularly evaluates what you're doing, where you are, and what you need to do,' Hitt says. 'You can't just do this every year or every couple of years—you have to constantly be evaluating.'
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