3 Tips for Consumer-Oriented Companies Looking to Grow in 2023
Predictions for what will happen in 2023 may appear negative, but that doesn’t apply equally to all businesses and industries. Many consumer-oriented businesses will choose to use the next 12 months to grow their business, enter new markets, acquire at relatively more friendly valuations, and take steps to execute on long-term strategy.
We see businesses across industries continuing to plan for growth, and 2023 represents the next evolution of where and how they’ll be serving customers.
For expanding consumer-oriented companies, we have three tips to keep in mind for the coming year:
Start with current markets
Make informed - not opportunistic - new market decisions
Follow the population
Start with Current Markets
Understand current market activity and potential before dedicating your full resources and energy to new markets
It’s common to look at entering new markets as the most compelling new growth opportunity, but a near universal truth is that it’s easier, more cost effective, and lower risk to first increase revenue in current markets. It may have lower upside, but also lower downside.
Businesses oftentimes underestimate the upside that remains in their current markets.
When considering the uncertainty of 2023, it can be worthwhile to understand the size of opportunity remaining in and around current markets.
You might be surprised to learn that there’s significant upside to the places where you currently operate through targeting certain market segments, increasing customer concentration is specific areas, and/or expanding your service area.
There’s strategic value to new markets for a variety of reasons, but short-term opportunity and growth may be available much closer to home.
Of course, this is easier said than done. Any business would increase current revenues if it were as easy as saying “grow revenue”. To identify opportunity, we typically do an in-depth current market diagnosis that covers:
What is the size of the market? What is the company’s current share or presence?
How and where does a company generate revenue today?
Where is the target customer and/or activity happening in the market?
What is a realistic and achievable revenue potential for the market?
This analysis may reveal underserved market segments, expansion opportunities at the outer boundaries of current service areas, or surprising insights about where business is being generated today. It may also reveal that the market opportunity is largely saturated, in which case it’s time to look to new markets for growth.
Key Questions
Have you fully realized the opportunity in your current markets?
If not, how much revenue potential remains, and where is that revenue geographically?
Are there natural extensions to your service area, like a neighboring large city?
Make Informed - not Opportunistic - New Market Decisions
Equip yourself with the right information when deciding to acquire or expand in a new market.
We work primarily with small-to-midsize growing businesses. One common theme we find is that early expansions decisions are driven by the opportunities presented to the business owner. A couple examples might be:
A well-known company is coming up for sale
A connection in the industry reaches out
A key supplier passes word about an owner looking to exit their business.
Whatever the reason, we see the first new markets outside of a company’s core territory are oftentimes something that came inbound to the business.
As a company grows, scales, and matures, more and more opportunities come to the business. At this point there are employees relying on the company’s success and constraints on funding.
A business now has to decide - of the options available, where do we go next, and how do I develop conviction with the decision?
We see information left on the table when making these key strategic decisions about a business’ future.
Informed decisions means utilizing all relevant and available information available at the time of purchase. It doesn’t mean a decision will be right or perfect - there are no crystal balls to the future - but it does bring more confidence and rigor to how a decision is made.
Among other considerations, this might mean having a deep understanding of:
The market size for the product or service
Level of competition in the area
Alignment of the area with the company’s target market
Additional data points as relevant to the business’ success
A pediatric dentist might want to understand the K-12 enrollment, number and location of elementary schools, and frequency of new families moving to the area, in addition to market size and competition.
A developer of luxury apartment complexes might want to know home ownership rates, area income, presence of major employers, and population growth.
We find that businesses are oftentimes surprised at the availability of information, and identifying which data points are relevant, then bringing them into one place for discussion, helps fuel better conversation and decisions for how and where a business expands.
Key Questions:
How do you make decisions about where to expand next?
What information do you wish you had last time you made the decision?
What needs to be in place in a market for you to be successful? Which markets have that today?
Follow the Population
New opportunities are emerging in the Sunbelt as people move away from coastal urban cities.
Many businesses, one way or another, rely on the size of the market as a key indicator for success, and for consumer-facing businesses this usually means some metric for the number of people - population, households, population by age, etc.
Large metros have long attracted businesses for their market size, but those metros are losing population and opening opportunities in new places.
Migration patterns are shifting toward the Sunbelt.
Markets that were previously smaller and less attractive are growing. Markets that were on the brink are now attractive growth markets.
As people move, they bring their hobbies, food preferences, and lifestyles, in addition to the need for core services like healthcare, groceries, and living.
People that move from cities are used to variety and choice. In their new hometown, they’ll seek out options that are as close as possible to what they enjoyed in a past life.
As an example, there are many sweetgreen locations - a healthy salad and bowl fast casual restaurant - in Boston, but none in Raleigh, NC. Instead, Raleigh has Chopt Salads, which for all intents and purposes is the same thing.
Chopt has lower competition for the market segment of people looking for made-to-order healthy salads and bowls and they’re establishing a brand presence with the urban millennials that typically fit this niche.
The market might not be big enough for sweetgreen yet, but Raleigh has seen an influx of people from urban metros - the exact places where sweetgreen has been over the past couple years - and Chopt is catering to this market demand.
Long-term trends around relatively more affordable housing, better climates, and increasing distributed work are likely to make many of these population shifts durable. We see significant interest in companies looking at the Raleigh area from the Mid-Atlantic region and expect other emerging metros like Charlotte, NC, Tampa, and Miami to become more attractive Southern markets.
Key Questions:
Are the areas that you’re considering expansion growing or shrinking?
Where is your target market moving, if at all? Who serves the region for your product today?
What is your minimum criteria for success for a market? Are there new markets that fit that today that previously did not?
The effect of market conditions will vary depending on the company, industry, and local trends. It may be a tough year for some, but it may also be a banner year for others.
Companies looking to expand may find lower competition and more attractive acquisition valuations, in addition to runway for growth in their current markets
Data and analytics can help make more focused and targeted growth decisions through identifying where your target market is today in current and new markets, helping surface novel and insightful information to drive better conversation, and bringing a new perspective to the table to help develop and execute on long-term strategy.