Cost Cutting and Growth Strategies to Prepare Your Business for 2024

The increased cost of capital caused by the Fed’s (failed) monetary policy in 2023 has created a dilemma for small business owners. Materials and equipment costs are historically high. Rent and mortgage rates make physical expansion cost-prohibitive. Growth seems impossible in this environment. To achieve it, SMBs need to get creative with their finances.

Let’s go back to business school for a moment to look at the “Ansoff Matrix.” It’s a breakdown of growth strategies developed by mathematician H. Igor Ansoff in 1957. He theorized that there are four primary areas in which businesses can achieve growth. In this article, we’re going to evaluate the feasibility of each of them in the new year. The four categories are:    

• Market development
• Diversification
• Market penetration
• Product development

As a provider of venture debt funding, we want to look at this from a financial perspective. You need to spend money to make money, but there’s a risk factor this year that hasn’t been present before. Interest rates are too high, and the economy hasn’t significantly slowed down. Spending money in this climate is a gamble. It’s important to limit costs as much as possible.  

Market Development: Embracing AI as a Tool

The acceleration of AI development in 2023 is a paradigm shift. We’re already seeing its effect on service industries. The film writers’ and SAG-AFTRA labor strikes weren’t just about revenue sharing. Jobs were in jeopardy because AI can do what people do without the labor cost. Your industry may be looking at the same scenario. Growth could require AI adoption.

This is a sensitive subject. No one wants to replace human workers with AI applications, but the numbers are hard to argue with. Labor is one of the more expensive costs for SMBs. Business owners under pressure will look at that and humans will lose jobs to AI in 2024. The dominoes should start falling in the first quarter after year-end budget reviews.

As a business owner, manager, or CFO, your job is to balance cost-cutting with the overall health of your company. Look for ways to adopt AI as a tool to increase the efficiency of your current employees. Keeping them working while boosting their output can help you develop new markets or expand existing ones. You need people and tools to accomplish that.

Market Penetration: Digging Deeper to Find New Customers

Boosting your marketing efforts can help your company increase penetration in an existing market, but that could involve increasing costs. One solution to that is the addition of an AI application to handle customer conversations. OpenAI is a good place to start. They’re best known for ChatGPT and open-source code that can be customized by developers.  

Market penetration is a growth strategy that provides multiple opportunities to use automation and technology. Email marketing programs that provide capture boxes for your website can be a passive way to acquire new leads. Automated email strings can be used to cultivate those leads and turn them into prospects and eventually new clients.  

From a cost perspective, market penetration should be the cheapest of the four strategies listed here. The technology available to expand your footprint in a market you’re already doing business in is inexpensive and can make your salespeople more effective. Your marketing people should be able to track the new contacts and measure the close rates/new revenues.  

Product Development: Using Venture Debt to Build New Products

High interest rates could be the root cause of a major economic crisis in 2024. Innovation and product development can’t happen without capital. Traditional banks and credit unions have raised the cost of acquiring that capital. SMBs have been conditioned to rely on their bank, so many will incur that cost. Others may choose to shut down product development.  

Using venture debt funding instead of a bank loan or line of credit can lower the cost of capital acquisition. Venture debt fund providers like Wise Ventures can offer lower interest rates and more flexible repayment terms than banks that are in the Federal Reserve system. The funds can be used for working capital or equipment leasing to develop new products.

The average interest rate for a traditional small business loan is in double digits as we close out 2023. If you go through the bank, your rate will be dependent on your personal credit score. Venture debt providers base their rates and terms on the creditworthiness of the business, not the individual. That could translate into capital acquisition savings for your company.    

Diversification: Finding Synergies in a New Prospect Pool

The Corporate Finance Institute categorizes the diversification growth strategy as the “highest risk endeavor” of the four. That’s because it requires a mix of product development and market development that needs to be carefully balanced. It’s recommended that you do extensive research on this before attempting to grow through diversification.

Know your market. Eco-conscious pet owners are the right target demographic for natural dog food. They’re probably not going to be big on buying fur coats. That’s a generality of course, but you can see the point. The only way to effectively diversify is to identify the needs and wants of your target audience. Find the synergies that allow you to cross-market different products.

Research your customers. Test market new ideas. Develop products that you can sell in the diversified market. It’s more complicated than penetrating deeper into an existing market or using AI to develop a new market, but each of those skills can be used in a diversification strategy. Acquiring some low-cost venture debt funding will help also.

The Bottom Line: Cut Funding Costs First

There are many ways to grow your business. You can do it more effectively if you cut the cost of capital acquisition. Going to your bank for a loan or line of credit won’t accomplish that. Reach out to our team here at Wise Venture to learn more. We can offer more cost-effective funding for your business and flexible terms for repayment.