From survival to growth: the first switch a business makes

1. A new business starts with survival as its objective, which means covering its costs, keeping enough cash in the bank to pay suppliers and holding on until custom becomes regular.
2. Once the business is established and sales are steady, that objective becomes growth, so profit that was being held as a cash cushion is reinvested instead.
   1. Spending changes direction, because money that sat in the account now buys a second van, more stock and an extra member of staff.
   2. The measure of success changes with it, since the owner stops watching the closing bank balance each week and starts watching sales, orders and the number of outlets.

From growth to profit or market share: two different directions

1. Once a business is large, growing for its own sake stops being a useful target, so the objective narrows to either profit or market share.
   1. A profit objective points the business inwards at its margins, so it cuts costs, drops lines that sell steadily but earn little and raises prices where the brand allows it.
   2. A market share objective points it outwards at rivals, so it holds prices down and spends on promotion to take customers from them.
2. The two pull against each other, because winning share by undercutting rivals lowers the profit earned on every sale, which means a business cannot chase both hard at the same time.

Entering new markets and changing the product range

1. Entering a new market: once the home market is saturated and almost everyone who wants the product already buys it, further growth has to come from somewhere else, including overseas.
   1. The business then judges itself on sales made outside its original market, and money moves into distribution, translated packaging and adapting the product to local tastes.
2. Increasing the product range: when an existing product reaches the end of its life and its sales fall away, adding new lines beside it becomes an objective in its own right.
   1. Spending shifts towards design and development, and progress is measured by how much revenue comes from products launched in the last year or two.
3. Decreasing the product range: dropping the slow sellers frees shelf space, releases the cash tied up in stock nobody is buying and simplifies deliveries, which is how Aldi and Lidl hold costs down with a narrower range than Tesco or Sainsbury's.

Exiting a market: why a business pulls out and what leaving costs

1. Exiting a market means pulling out of it altogether: the shops or the website serving it close, the product is withdrawn and the customers there are let go.
2. It never became profitable: sales never rose far enough above the cost of serving that market, so the firm has been covering the losses out of what it earns elsewhere.
3. A rival took it: a competitor with lower costs or a better product won the customers, and matching its price would mean selling at a loss, so staying costs more than going.
4. The cost of serving it rose: higher rent, a tariff added to exports or a supplier putting prices up can turn a market that just about paid into one that does not.
5. The firm wants to concentrate where it is strong: money and managers are limited, so a market that earns an average return is dropped to put both behind the one that earns most.
6. Leaving is expensive at the moment it happens, because stock that nobody will now buy and equipment fitted for that market alone are written off.
   1. The customers built up there are lost, and a firm that returns later has to win them back from whoever served them in the meantime.
   2. What the business gains is the cash and the management time released, which it can put behind a market where the same effort earns more, so exiting can be part of a growth objective rather than a retreat.

A change of objective changes what the business measures

Every objective brings its own measure of success, and the table sets out what a business watches and where its money goes under each one.

1. The workforce moves with the objective, since growth means recruiting salespeople and adding a layer of managers, while a profit objective reduces the workforce by merging roles and leaving vacancies unfilled.
2. In a downturn the direction reverses, so a business that was chasing growth goes back to survival, exiting its weakest markets, cutting the product range to the profitable core and reducing its workforce.