Planning for growth refers to the formation of various strategies and policies as well as implication of these tactics in business operations for achieving higher growth in market place (Achtenhagen and et. al., 2014). This report is based on planning of an entrepreneur to establish its new venture in UK market named as “Food Supplier Ltd”, which offers fresh and organic food items.For establishing their business, company is bidding for a contract of £180k named as “Data collection and modelling for food business compliance indicators”. For entering into the contract company is required to raise sufficient fund. This report explains about main key consideration for evaluating growth opportunities and various sources of fund that can be used by company to raise capital. Further it provide business plan of Food Supplier Ltd and succession strategies that can be used by company for eliminating future uncertainty.
P1. Key consideration for evaluating growth opportunities
For starting a new venture, it is very essential for an entrepreneur to evaluate every positive or negative aspects of its plan and area in which it is going to setup its business. This supports in finding different growth opportunities available in marketplace and threats that might impact business operations. Food Supplier Ltd, can make use of “Porter's generic strategy model” introduced by Michael porter which advises four strategy which can used by organisation to achieve competitive advantage in chosen market. This model will help Food Supplier Ltd in achieving higher market share and in achieving competitive edge. As company is planning for expanding its business by offering its food and grocery items in the market of the UK (Porter's Generic Competitive Strategies, 2016).Below mentioned are strategies stated under Porter's generic competitive model:-
- Cost leadership:- In this, Porter suggested that organisation must target the larger market by offering product at lowest possible price. Firm have two options either they sell product and services at moderate industry cost in order to earn high level profit or to sell beneath industry cost to gain higher market share. By applying this strategy Food Supplier Ltd can capture larger market share by offering products at low prices. The lower pricing strategy tends to influence more customers towards this business.
- Differentiation:- It refers to the strategy where a company target a broader market with a product that have unique features. By applying this strategy an Food Supplier Ltd can offer their product at higher price by making them more attractive as compare to competitors product. Offering organic products can be referred to a differentiation strategy which could be beneficial for business. But for achieving success in differential pricing strategy company is require to invest more over promotional activities. This help in communicating the importance of product to the market.
- Cost Focus:- It suggests that organisation should target a niche market having minimum competition and offer their product at lower manageable cost.By using this strategy, company can achieve maximum profit by developing proper understanding of market dynamics and needs of customer (Arzaghi and et. al., 2017). Cost focus help Food Supplier Ltd in achieving competitive advantage offering lower priced products availed through economies of scale and use of technology.
- Differentiation focus:- Under this strategy company target a niche market with a product or service that have unique feature. Differentiation focus involve strong brand loyalty among customers. For getting success in this strategy, it is very essential for company to ensure that product remains unique so that competition can stay ahead. By using this strategy Food Supplier Ltd can differentiate their product in marketplace which further help in achieving competitive edge.
These all are competitive strategies given by Michael porter, among which cost leadership is most appropriate for strategy for Food Suppliers Ltd. As they want to start its new venture in UK market. This strategy will help in achieving higher market share as low price will grab the attention of large number of people. So, by using cost leadership strategy company can achieve higher market sustainability. Apart from this it is also necessary for Food Supplier Ltd to analyse the macro environmental factor before entering into new market. Evaluation of macro environmental factor can be done with the help of a strategical tool named as PESTEL analysis (PESTEL analysis of the UK, 2018). This tool includes various external factors that have an direct impact over functioning of business organisation. Following points describe the external environmental factors:
- Political:- This includes factors like governmental policies, political stability, tax policies etc., which directly affect the business operations. UK is consider as a most powerful country and enjoys greater political stability. It provide higher growth opportunities to industries like real estate, grocery, technology etc. Therefore, UK is consider to be best possible place for Food Supplier Ltd to start their venture.
- Economical:- It generally includes factors like economical growth, interest rate, exchange rate, inflation rate etc. UK has the 5th largest economy in world and is a popular destination for FDI. Hence, it provide greater opportunity to Food Supplier Ltd for establishing their business in UK market which is consider to be a Hub for FDI investors.
- Social:- The social factor includes customer taste, preferences, value, culture and norms of the society in which company operates.Social factors directly influences demand of product or services. UK market is consists of larger number of consumers, therefore Food Supplier Ltd has various opportunities for catering the diverse needs of people (Batabyal and Nijkamp, 2014). This help in achieving maximum market share and profitability for the venture.
- Technological:- It involves different factors like up-gradation of technologies and launching of new method or innovative approach of doing business which directly affect the choice of consumer toward product. UK is one of the most technologically advanced country. Therefore, it is essential for Food Supplier Ltd to offer the product using some innovative approach so that they can survive in this market. For example, it can use mobile application for providing a home delivery option to their customers.
- Environmental:- This factor includes change in weather condition, rules or regulation related to the environmental protection. UK government has formulated various regulation regarding environment protection for avoiding negative impact and creating environmental awareness. So, Food Supplier Ltd is required to comply with these rules while operating their business activities.
- Legal:- The legal factor includes various law or regulation regarding the running of business operation without legal compliances. Various law such as Employment Act 1996, Equality Act 2010 etc. along with consideration to food hygiene regulations and approval for food premises imposed by UK Government must be followed by Food Supplier Ltd for operating their business activities effectively.
P2. Evaluation of growth opportunities by applying Ansoff's growth vector matrix
For proper growth of business, it is important for an organisation to analyse the target market. This help in identifying various factor that are require to be address in order to eliminate future uncertainty. Further it also help in evaluating various growth opportunities while help a company to achieve higher market sustainability (Birley and Stockley, 2017). Ansoff growth vector matrix is consider as one of the best model for evaluating growth opportunities in the operating market. This model help Food Suppliers Ltd in identifying various areas of business growth. This matrix includes four quadrants which explains different growth strategies that can be opt by an entrepreneur for achieving higher success and growth in market place.
Above given image depict about four growth strategies given by Igor Ansoff in 1960, that help in identifying different working style which provide better growth opportunities. Following points describe about growth strategies of Ansoff matrix:
- Market penetration:-This strategy is consider to be less riskier as it uses maximum of firm's existing capabilities and resources. Market penetration strategy suggest through reducing the prices of products and services a business can further penetrate in the market to achieve higher market share (Byrne, Sipe and Dodson, 2014). Under this company sell its existing product or services in current place but at relatively low price to capture higher market share.
- Market development:-It refers to a strategy where company tries to approach new market by offering its product and services. This strategy involve high risk as compare to market penetration strategy because don't have knowledge regarding competitors and information about customers choices in the latest market (Esmaeeli and et. al., 2015). Market development requires more promotional activities for communicating about their product to target audience.
- Product development:- This strategy suggest that company can offer unique product or services to its existing customer base for achieving higher growth. Since this strategy involve development of new product, hence it include more risk along with expenditure which may not be possessed by this small business venture. But this strategy is also beneficial as customers need and preferences are already known to company.
- Diversification:-This strategy is consider to be more riskier as it require both market as well as product development i.e. company approach new market with new product or services. Diversification include higher risk but also provide higher return. It includes an potential to gain a foothold in industry and reduction in business portfolio risk.
These all are growth strategies of Ansoff matrix among which 'market development' is consider to be best growth strategy for Food Supplier Ltd, because they are new entrant in retail industry. Market development strategy help in capturing market share in UK market this in return will provide high growing opportunities.
P3 Potential sources of fund available to business
Finance is consider to be one of the basic necessity for an entrepreneur to operate its business operations (Fainstein and DeFilippis, 2015). Unavailability of fund may affect the activities performed by a firm and its growth. An entrepreneur is planning to launch its new venture, 'Food Supplier Ltd' in UK market. Therefore, it requires huge amount of capital to perform its various operations effectively .firm is decided to enter into a contract “Data collection and modelling for food business compliance indicators”. The highest value of bid is £180000 out of which it has £20000 and the remaining amount £160000 is required to be raised.This amount can be raised through external sources such as Bank loan, venture capital etc.There are two type ofsources which are available in front of Food Supplier Ltd for generating fund which are:
Internal sources:- It refers to the ways in which fund can be generated from within the business such as retained profit, sale of assets and controlling of working capital. These can be better understood using following points:
Sales of asset:- It refers to the process in which a business owner can arrange fund by selling out the company's asset. Food Supplier Ltd can arrange required capital by selling its fixed assets which is more secure option for them.
Controlling working capital:- Food Supplier Ltd can work over improving its operations which support them in reducing the expenses or extra costs that are incurred during performance of its operations. This support them in improving their working operations and in arranging the fund for reinvest in business for further expansion.
External sources:- It can be defined as the number of sources that are present outside the organisation through which company can generate fund. It includes bank loan, venture capital, angle investors and these can be better understood using following points.
Bank loan:- It considered as the process of taking credit from bank for specific time period and this amount is to be return after the completion of this period with frequent payment of interest fixed by Bank. Bank loans are mainly used as source of fund specially for small or medium size businesses (Viitanen and Kingston, 2014). Food Suppliers Ltd for fulfilling its financial need can raise short, medium or long term capital from bank. But in order to raise fund from bank company is required to put an assets as a collateral security. Following are the benefits and drawbacks of raising bank loan:
- One of the major benefit of bank loan is that when it is taken for business purpose than interest over loan is tax deductible.
- Another benefit is that, if the loan is taken at fixed interest rate then company can easily predict the instalment amount to be paid.
- Main drawback is that for taking bank loan collateral security is required and without an asset small businesses and start-ups find it difficult to get loan.
- Another disadvantage is that when a loan is taken at variable interest rate than the rate fluctuate according to the market condition. This make it difficult for a businessman to make sound financial plan as they don't know in advance the amount which is required to be paid.
Venture capital:- It refers to the financial help extended by investors to start up a company as well as small businesses which provide long-term growth potential. This investment may be done by well-off investors, investment bank and various financial institution. But in order to attract an investor to invest in a small business, a firm must have an feasible business idea (Hawkins, 2014). Food Supplier Ltd can attract investors by ensuring them about viability of business idea and return for which investors are seeking. Following are the advantage and disadvantage of venture capital:
- Venture capitalist are connected with larger business community that further help a new venture in developing a huge network.
- VC firms extend a greater support to business such as in legal, tax and personnel matter which help in achieving greater success and growth opportunity.
- Major drawback of venture capital investment is loss of management control.
- VC is a long and complex process as company is required to develop a business plan for attract investors.
These are external sources of fund which a Food Supplier Ltd can use for raising its fund to establish its business. From above explained sources, bank loan is more beneficial for firm as it is consider to be more secure sources of fund.
P4. Business plan for growth
Business plan refers to a written document or formal statement which elaborates about vision, goals, objectives and plans for attaining them. This document act as blueprint of activities which provide guidelines for achieving the goals (Mullaney, Lucke and Trueman, 2015). Business plan is prepared by management for summarizing its financial and operational objective for future perspectives. Following are the points includes in business plan:
Executive summary - Food supplier Ltd is planning to launch a venture in UK market as a retailer of food item. Bank loan, venture capital and bidding contract are some sources of capital through which company can raise fund for fulfilling its financial need.
Vision & Mission:-
- Vision:-To become best and more relied retailers of food items in UK.
- Mission:- To offer natural and organic food to customer for achieving higher satisfaction.
Strategic objective:- Main objective of Food Suppliers Ltd is to establishing their business in UK and achieve higher sustainability by providing organic and natural food items. This objective can be achieve through SMART objectives which are target specific, measurable, reliable and time bound.
- To capture 10% of the market share of Fresh and organic food industry within 1 year of time.
Financial information:- Finance is consider to be an most essential resources for operating business activities. For setting up of business venture, managers of Food Suppliers Ltd are required to consider both internal as well as external sources of fund (Piro, 2016). Company has £20,000 and requires additional funds of at least £160,000 to successful bid for the contract which have been raised through different sources such as Banks and Venture capitalist.This raised amount will help in performing business operations much effectively.
Total forecasted budget:-
From the above given report it can be assumed that food supplier Ltd are required to invest more on promotional expenses £2000 in first year than it is reduced to £900 and then £700 in order to create awareness among targeted market. Further company has to pay building rent of £2000 every year.
P5. Exit and succession plan for small business enterprises
While performing business operations, many difficulties may faced by an entrepreneur which may affect the functioning of an organisation and result in heavy loss. In order to deal with these situation a company must have contingency plan that help in eliminating or minimizing the impact of these situations (Sager, 2017). These contingency plans are known as Succession plan.
It is considered as the process of transferring the management rights of organisation to other person for ensuring the continuation of business operations effectively also in the absence of key persons. Below mentioned are types of Succession plan which can be adopted by Food Supplier Ltd:
Merger & Acquisition:- This strategy refers to the consolidation of two companies where merger refers to the combination of two companies to form a single entity whereas acquisition is when one company acquire take over by another.
- Merger between two companies create synergy which results in enhanced business performance and financial gain for long-term.
- It combines the resources and talent of new company that further help in achieving competitive edge.
- Increased in size due to merger may sometimes results in dis-economies of scale for new company.
- Acquisition may results in job losses as acquiring company may remove the segments that are under performing.
Strategic alliance:- It refers to an arrangement between two companies that have decided to share resources and capabilities for accomplishing the undertaken project (Stein, 2018). In strategic alliances company do not form any separate entity rather they collaborate while remaining distinct from one another.
- This strategy provides an opportunity of improving their skills by using experience and knowledge of one another.
- Help in developing competencies that can be exploited in other areas of business operation.
- Main disadvantage is that there is a risk of loss of operational control and confidentiality of information & technology.
Exit options:- It refers to the business exit strategy where an entrepreneur develop a strategic plan in order to sell his business to investors or another company at a time of contingency. Exit options are of following types:
Liquidation:- It refers to the process of selling out all the assets of the company in order to pay off the debts and shareholders.
Advantage:- Liquidation removes the chance of any legal action over the company.
Disadvantage:- Owner will become personally liable if the director guaranteed against the debt of company.
From the above given report,it has been analysed that planning is an important factor for an organisation which provide a guideline to perform task effectively that contribute toward organisational growth and success. Ansoff vector matrix consider to be most effective tool that help in selecting the most appropriate strategy for achieving growth in market place. Among these strategies market development is consider to be most appropriate strategy for Food Supplier Ltd. On the other hand application of Porters-generic competitive strategies help company in achieving competitive edge in new market place.
Books & Journal
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