Nelophobia fearing broken glass, could be the reason for an idea that grew into a brand new business which went from nil to $60 million in only three years. We had a solid core business , and an excellent idea. Within 3 years, we achieved an expansion of $60 million without acquiring a company, without construction of a factory, and with almost no capital investment and an increase in staff to… three.
This book, Double-Digit Growth in a slow Economy examines the strategies that have been successfully used to boost growth even in times when you can’t expect a rising economy. We provide actual examples and businesses that have been turned into engines of growth that went beyond the normal buoyancy of economic growth. This article discusses the growth-driven process by the introduction of new types of goods as part of the general strategy for growth.
Growth via near adjacencies
After you have bolstered your core business and are able to make use of your strengths, you’ll likely discover that markets are open to expanding your business through close adjacencies. They are possibilities that direct benefit from certain or all aspects of your core business. Moving too far away from the core business can be beneficial for certain, but it’s more difficult, requires greater resources and ultimately it doesn’t leverage the strengths of your core business. Utilizing the strengths and resources of your core business is less of a hindrance when the project is a close adjacency. The idea of starting a.com company may be strategic however, it may not be an immediate proximity. If it’s strategically important it is important to make the possibility of launching a business with its own independent resources. This can also prevent the incorporation of the majority of your existing business structure into what is an entirely new company. It’s tempting to utilize the resources you have at hand, however the different business models can lead to discord within your team and the diversion of resources. If you are looking to expand but do not fit the definition of close adjacency, setting up an initial business is the best method. Once the company is up and running and has its own operational stable, you may consider strategies to expand or integrate, spin off and so on. In this case, it’s crucial to determine a close proximity.
Near adjacency can be an expansion opportunity that taps into the broad spectrum of your core competences. The more of your core competencies can be utilized, the simpler it is to implement and achieve financial success through your expansion efforts. Near adjacency can be more profitable and accretive than in the analysis of margins for products by themselves. Since this expansion draws on many of the existing business’s strengths, the drop into that EBITDA line is substantial. If the expansion is requiring substantial capital investment and staffing to manage it , it might not yield the same returns as the expansion that fits within the framework of the present business. The ones that are more easily incorporated within the existing structure are typically less risky for similar reasons. The process of defining a near adjacency begins by defining the key capabilities you can draw upon. They must be relevant competencies for your clients in order to provide an opportunity to expand your business with a value proposition.
Potentially, there are certain competencies that can be leveraged include:
- Key strengths of the channel and connections
- Supply chain and sourcing
- Patents or IP
- Service efficiency and logistics
- Brands that are relevant and have equity in broad categories
- Capacity – Physical space processes, and individuals
The first step is to identify channels with strong relationships that can be leveraged, or a solid product offering that could be expanded into a new area. It is also beneficial to use an objective scoring system to evaluate the advantages of investment, risks, and benefits that come with expanding a category.
Customer requirement is an important point of entry
Expanding through close adjacencies could be an opportunity. It is crucial to pay attention attentively to the concerns of the customer. In several instances I’ve been requested to join an entirely new category of products by the client. They were concerned about the supply chain of their company and perceived our company as a reliable supplier which could be expanded to something completely new. Opportunities for expansion that are opportunistic are particularly interesting because there is already a chance to disrupt the existing supply chain. It is much easier to get an audience for your proposition when there is an actual need on the part of the client. If it’s not an opportunity it is essential to develop a value proposition that is a hit with the client or, even better, the user in general. One of the most basic is an advantage in the cost of acquisition for the customer. The old-fashioned lower cost is usually an offer that is too attractive to miss. Do you have an advantage in cost? If so this, it could work however if not, it is likely only cutting down your competitors’ margins. They may respond to your offering of a lower price. If this is the only aspect of your proposition, it will likely not be able to attract new business for you , or more likely, you will end up supplying an opportunity with low margins.
The growth of near adjacency will result in a better value proposition for customers. It could be a set of benefits which individually may not be significant, but when taken in all they add value. If you’re selling to a channel partner such as dealers, distributors, or retailer, the value proposition could be focused on increasing the margins of their business. If you’re selling directly to an end customer, your value proposition must provide an advantage to the customer. In the majority of cases, we’re better off not focusing on the cost of acquisition as a method to enter the market unless there is an ongoing cost advantage with the product.
The addition of improvements to the products that result in more revenue for channel partners can be a great chance to improve. Packaging, Merchandising, and easier to set up or service new designs or feature can create an argument that convinces customers to change. A variety of advantages creates the most convincing position. A product that is more successful in selling than the predecessor is a good beginning. Customers must be convinced that they will see greater business success after implementing the new extension. If the incumbent is having issues, the bar is higher, however, a list of clearly defined benefits that demonstrate the ways in which customer’s business outcomes will be improved is the best starting point. “New” isn’t enough. “New and improved”, you’re warming up.
From zero to 60… One million
The company that went from a slide to rapid growth, with an annual growth of 19% rate, driven by increases in shares, not by the economic benefits. We had reached 100percent of the biggest customer’s shelves in our core category, 60% for our second largest and 100% for our third. We were at the end of our growth opportunities. We had created a more efficient company that was built for growth and was doing so well that we were on the verge of running out of shares and gain.The sales team had been assigned to find new customers for our core products as well as expanding with customers that were smaller where there were growth opportunities. We analyzed our targets for growth , both with existing and new customers, and quickly realized that we needed to create a new category of products to offer. We started a plan to explore areas we could grow into which we could leverage our existing relationships with our customers, our supply chain and facilities. I appointed a director for new category development who will focus on the development of new categories for products to ensure continued growth at a pace that is much higher than the rate of growth in the overall economy. (Shout out to Pat Boehnen)
We were looking for a new market that could be leveraged by our most loyal “core” customers. They were the best at recognizing us and we were able to demonstrate credibility and expertise in serving them. The new category team developed an impressive list of potential opportunities and conducted research on current suppliers, their level of innovation and estimations of the size of markets, and utilized our scoring system to determine what categories could provide the most opportunity. There was no slam-dunk however, we began work on the three most important areas to determine if we could create a new business. It is a long-term endeavor in comparison to the growth of existing products that are ready to ship, as opposed to the goods that will take at least one year to develop, or even longer. This highlights the importance of coordinating efforts to control the performance of the company curve. We had been expanding at 19%, and didn’t wish to see our growth slow down to 5percent. In the near future, our sales team could bridge the gap by selling our existing products more effectively to a larger number of customers. We also established a sales presence within our closest international market, Canada. Canada was the most accessible geographic growth area considering our presence. It continued to grow during the period of category development until our categories were able to begin to show results.
We wanted to create a category that could provide a significant advantage over our current suppliers which, by the way, were probably years ahead in their core market we wanted to join and outdo them in. It’s an enormous task when you consider it that way. There must be some kind of entry point. A stale category perhaps. A sleepy competition. A new technology or innovation you could bring to the market first. Cost savings you can make use of to create value for your customer. More efficient services that complement your product. These are just a few advantages you could offer your competition. When you are a new company you must bring more value than one or two tweaks. If you are unable to provide an advantage that is significant on your own, you’ll need an invitation from your customer. They must be looking for to change their supplier and view your company as one with certain advantages. Maybe the incumbent is having issues with quality, fill rates, or perhaps the best reason to encourage changes… they’ve started a price hike.
Our group of category managers was performing an excellent job of identifying opportunities, and then began to develop programs and products to test in our supply chain, as well as with our key customers. In all three opportunities that were ranked the highest, there were some challenges. The field you want to join is not necessarily rapidly expanding. Many times, companies believe that they must pursue the fastest growing sector or geographic area in order to increase their revenue. This is fine however, you ignore the current revenues that are available to be taken in larger categories. In addition, rapidly growing categories attract more new participants. As a newcomer we aim to increase our share of the market by shares gained, not by the normal growth rates for categories. We prefer not to fight it out while we are getting familiar alongside other companies that are entering the category simultaneously.