Growth and Development of an Enterprise
Enterprise Growth Strategies — why growth is essential, and the two routes: internal expansion and external expansion
The Imperative to Grow
Before the mechanics, the mindset: why must an enterprise keep growing at all? Four ideas carry the argument.
Growth keeps an enterprise alive
Growth is always essential for the existence of a business concern. A concern is bound to die if it does not try to expand its activities. The entrepreneur is an endless challenge seeker — once the small business is humming along, growth is the next exciting challenge.
Expand only when opportunity exists
The decision to extend the scope of one’s business must follow thoughtful consideration of financial, logistical, and even emotional readiness. The rule of thumb: expand only when there are untapped opportunities that can benefit the business — a niche you want to capture, or a location not serviced even by competitors. Expansion is often one of the most daunting challenges a successful business will face.
Momentum through flexibility and change
The successful entrepreneur ensures a constant flow of new ideas and commits to trying at least some of them. An organization has to maintain its momentum through the interplay of flexibility and change — this calls for growth and development, achieved through constant strife.
Two roles, one entrepreneur
The entrepreneur has a dual role: as leader — providing direction and energy — and as manager — processing the input and giving the output. To ensure continued efficiency, profitable functioning and growth, extra managerial ability is required.
Where you come from matters less than where you are going
Two Routes to Growth — Internal and External Expansion
An enterprise can grow in one of two fundamental ways — from within by expanding its own activities, or by combining with other concerns. Tap each route to unfold its full detail.
Growth of an enterprise
The expansion of a concern may be in its activities, or in the acquisition of ownership and control of other concerns.
The Two Routes Side by Side
| Aspect | Internal expansion | External expansion (business combination) |
|---|---|---|
| How growth happens | Gradual increase in the activities of the concern itself | Two or more concerns combine and expand their business activities together |
| Who is involved | The single concern — no other firm joins | Two or more units in similar or related business, processes or stages — competing units or units in different processes |
| Ways to grow | Add more machines or replace with higher-capacity machines; produce more units; enter new fields of production and marketing | Combine with other units and shape policies on a common basis, in coordination, for mutual benefit or maximum profits |
| How it is financed | Issue of more share capital; funds from old profits; issue of long-term securities | Combination itself is the growth vehicle — the combined firm pursues common objectives |
| End result | Increase in business activities and a broadened capital structure | A constituted firm pursuing common objectives or goals |
Main forms of external expansion
Case Study I — Goli Vada Pav, a Franchise-Driven Growth Story
Launched in 2004, Goli Vada Pav repackaged ‘Vada Pav’ — a humble street food popular in Mumbai — into a branded fast-food concept. It follows a franchise business model and today is uniquely positioned in the Indian QSR (quick service restaurant) segment.
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What the case teaches
Key Takeaways
Key Takeaways
- Growth is essential for the existence of a business — a concern that stops expanding is bound to die; expand only when untapped opportunities exist. (So what? — that ‘second outlet’ idea works only when real demand exists for it.)
- The entrepreneur plays a dual role — leader (direction and energy) and manager (processing inputs into outputs) — and needs extra managerial ability as the enterprise grows.
- Internal expansion is the gradual increase in the concern’s own activities — more or better machines, more units, or new fields of production and marketing.
- Internal expansion is financed by issuing more share capital, generating funds from old profits, or issuing long-term securities; its result is increased activity and a broadened capital structure.
- External expansion (business combination) joins two or more concerns in similar or related business so they coordinate policies on a common basis for mutual benefit or maximum profit, pursuing common objectives.
- The two main forms of external expansion studied in this chapter are franchising and mergers and acquisitions.
- Goli Vada Pav (2004, Mumbai, founded by Venkatesh Iyer and Shiv Menon) scaled through the franchise model — about 150 stores across 40 cities and six states, over 140 of them franchised, with a planned 500 outlets by end-2015. (So what? — a street snack at ₹15 holding its own against McDonald’s proves a home-grown idea plus the right growth route wins.)