Founder of Amazon, Jeff Bezos, says, “We cannot be in survival mode. We have to be in growth mode.” Any business must be growing to survive and flourish, especially in its initial years. No matter how compelling your mission statement is, as a business, you have one prime purpose: Making money.
In every possible scenario, you need to spend at least some money to make money. Most business ventures fail soon after launch or midway, when they have flaws in their strategies, so making the right decisions about what your business prioritizes and invests in is the most crucial part of being a founder or CEO.
Unfortunately, you see thousands of admirable of businesses and entrepreneurs who waste initial capital or seed funding by plunging money in some business functions while underinvesting in the initiatives that would’ve moved the needle. The primary cause of businesses to flounder is improper or maverick investment strategies.
Here we look at proven and workable means on how to invest your capital for maximum business growth.
Building a Proper Investment Strategy for Scaling Your Business
The best way to use your working capital to grow your bottom line is by drawing an astute plan that deals explicitly with every area of your business. This includes identifying how much you need to spend on various business functions such as staffing, advertising/marketing, product development, and building customer loyalty. Ultimately, you want to ensure you’re bringing superior products and services to market that offer value for customers.
Breaking Down the Astute Business Plan
Devising a business plan requires painstaking effort. You can either hire a professional or draw one yourself, but each starts with an outline the mission and vision of the organization and then dives into identifying customers for your products or services. This includes your unique selling points or advantages that differentiate your product or service from competitors. All business plans also include sales and marketing strategies and a projected return on investment (ROI).
To write a proper business plan, you need to study your target clientele, get familiar with similar offerings, and identify the core strengths of your business. Review and revise the business plan periodically to keep it updated with prevailing market conditions, government policies, and other elements that directly and indirectly impact your business.
As you start to break this down into areas of spend, there are several key areas where you need to build sub-strategies under the umbrella of your plan:
Investing in Advertising & Marketing
Globally acclaimed management consultant and author Peter F. Drucker aptly says: “business has two functions, marketing and innovation.” How you market the company brand, products, and services forms a backbone of your business.
The smartest startups invest moderately in marketing their brand aggressively. Marketing woos customers with techniques ranging from social, digital advertising, and media. However, the best marketing strategy remains word of mouth publicity when a client enjoys a great experience so much they feel compelled to share it.
Investing in customer loyalty and in ways to share client happiness across all marketing channels not only helps you acquire new customers but retain the customers you already have to the maximum lifetime value. Include digital marketing in your overall marketing budget because of its highly effective ability to create new client bases, share the customer loyalty and proof points, and increase ROI. Additionally, digital marketing cuts across geographical boundaries and is highly cost effective.
Investing in Innovation
Innovation is the key to survival in a highly competitive market. Your brand may have unique offerings, but most companies fail because they fail to innovate rapidly, losing out to rivals. The beautiful thing, though, is that innovating doesn’t have to be expensive.
Psst! The United States government even appreciates innovative companies, so much so that there are Research and Experimentation/Development (aka R&D) tax credits on both federal and state levels. The more groundbreaking companies we have on U.S. soil, the stronger the country and our dollar is in the global marketplace. Learn more about the R&D tax credit and how even pre-revenue/pre-profit startups see immediate and long-term financial benefits:
Finding new ways to enhance your product or service can be something as simple as enhanced delivery platforms, attractive packaging, better product quality, or anything that provides clients with more perceived value for their money.
The tricky part is making sure you’re always one step ahead. New and existing competitors will always be looking for ways to copy or imitate what starts as your unique selling point.
Investing in Talent
Most entrepreneurs who have built startups from the ground up will tell you that hiring your first employee can make things more chaotic. Staffing and payroll can both be time-intensive in different ways and feel like a drain on all resources, most of all time and money. And when building a hiring plan, you might start to feel a bit like Goldilocks.
Of course, you don’t want to overhire and overspend, but, on the flip side, a smaller staff can invariably lead to overworked, stressed employees and cause high attrition or increased expenses paying overtime. Avoiding both these scenarios as they tend to eat into your capital as well as profits.
Finding a sweet spot isn’t easy but focusing on the goals of each business function is a good place to start. Right off the bat, hiring highly experienced and proven experts to lead each function can set you up for success. If they’ve shown they can hit those goals before, that’s the best sign they can help you do it too.
For non-vital functions, consider hiring fresher trainees or remote contractors. The US Bureau of Labor Statistics indicates about three to four percent of America’s workforce now consists of telecommuting workers. The trend is showing an upswing since it allows employers to save $11,000 per employee on average each year.
Investing in New Markets
Venturing into uncharted territories should be an integral part of any digital marketing strategy. Often, unexplored markets give better ROI due to a higher demand for specific products and services or because customers seek alternatives to existing ones.
Allot sufficient capital for this function since it will ensure maximum business growth within a reasonable time span. Consider finding interested investors in the area to franchise for your brand’s products and services to investors at locations away from your home territory. Simultaneously, invest your capital to ensure a consistent supply of your products and services into newer areas for maximum business.
Investing in Investments
Regardless of how small or large your bank account may be, you should consider stashing away sufficient money in hedge funds and other investment options that offer good returns with zero or minimal risks.
Creating a hedge fund is worthwhile for every growth-oriented business but specifically for startups that get going without or with very little venture capital, crowdfunding, personal wealth, or money borrowed from formal or informal lenders.
Having a hedge fund can be an excellent enablement tool for small businesses. When it comes to your growth initiatives, drawing money from your profits isn’t always a good idea since it can disrupt the proper functioning of the business. Instead, a hedge fund is an alternative that can help you tide over these imminent expenses as your business is poised for growth.
Investing in High-Quality Technology and Tools
Admittedly, most companies would invest fairly moderate capital in the latest technology. However, this may not always be adequate, given the rapid pace at which technology develops today. While investing in any high-tech gadgetry or software, ensure that it can be upgraded to suit the business needs of your company for the foreseeable future. Additionally, invest in advancing your employees' skills to utilize the latest technology effectively for growing the business.
Smart investment in technology is the key. Often, companies find themselves saddled with top-of-the-line equipment or features they may never use. Rather, invest in technologies that will be useful in the short-term and long-term. Consider customizing your hardware or applications to meet your specific requirements instead of opting for off-the-shelf solutions. You may need to invest more, so make sure the ROI is there in time or headcount saved!
Legitimizing Your Business (If You Haven’t Already)
New startups often overlook exemptions to legitimize their business. This procrastination is understandable as getting the required licensing and permits can often be time-consuming at expensive. Additionally, you may have to cut across several bureaucratic hurdles and take painstaking efforts to submit forms to various concerned authorities.
However, investing some portion of your capital on legitimizing your business is worth every penny. First, a legit business instills confidence in consumers. Second, you can leverage various benefits like loans from banks and protection under the law for your business. Having the right paperwork in place saves you from undue lawsuits or criminal charges for running an illegal business. In the grand scheme of things, only legitimate businesses can reach their maximum profit potential when compared to those running with basic or no licensing.
What You Need Before You Start Deciding What to Invest In
From these examples and points of advice, it all comes down to what is going to move the needle for your business. The key to investing your capital for maximum business growth lies in putting your money that assures you highest ROI either directly or indirectly. You can start by studying business models from around the world to see what you can adapt to suit your business’s needs.
Once you have an idea of what models might work, it’s best to seek expert advice from those in your field and those with a background in finance. Combining the thoughts of these business experts will give you the most well-rounded idea of best practices for attaining high ROI. Some of their opinions may sound unconventional or cumbersome, but listening to experts often proves worth the while.
inDinero Clients: If you’re gearing up for growth, don’t forget to talk to your controller or CFO about financial modeling and FP&A!
“If you want to go somewhere, it is best to find someone who has already been there,” says Robert Kiyosaki, businessman and author of bestseller ‘Rich Dad, Poor Dad. Rightly so: only people who have reached a pinnacle can guide you with dos and don’ts for a successful business.