Nelophobia fearing broken glass, may have sparked an idea that evolved into a business idea that went from zero to $60 million within three years. We had a strong core business and a good idea. Within three years, we experienced an increase of $60 million in business without the need to acquire, without construction of a factory, and with nearly zero capital investment, and a staff increase that was… 3.
This article, Double-Digit Growth in a Slow Economy explores strategies that have successfully been used to stimulate growth in times when you’re not able to count on a growing economy. We provide actual examples and companies that have been transformed into growth engines despite the inherent buoyancy of economic growth. This article discusses the growth-driven process by entering new categories of goods , as an expansion of overall growth strategy.
Growth via near adjacencies
After you have bolstered your core business, and you are able to utilize your strengths, then you will likely find the market is open to the expansion of your business via near adjacencies. This is a chance to directly benefit from certain or all elements of your core business. Leaping too far from the core business works for some, but it’s more difficult, requires more resources, and, most importantly, it fails to leverage the strengths of the core business. The ability to leverage those strengths and resources is more of a benefit when the venture is close adjacency. Start a.com business might be important from a strategic perspective however, it may not be a near relationship. If it’s crucial to your strategic plan, you need to consider it a start up with its own resources. This will also stop you from to incorporate too much of your existing design into an entirely new business. It’s tempting to leverage your current resources, but the different business models cause distractions in your team and dilution of resources. In the case of expansion that doesn’t meet the definition of a near adjacency, creating a start up is the best approach. When the business is off the ground and has it’s own operational stabilization, you can think about ways to expand or integrate, spin off or spin off. For this , it’s essential to establish a near relationship.
A near adjacency is an expansion opportunity that taps into a broad cross section of your core competencies. The more that can be leveraged, the easier it is to manage and improve financial performance through your expansion efforts. Near adjacency can be more profitable and accretive than by looking at the margins of products in isolation. Since this expansion draws on all of the current company’s strengths, the fall through in that EBITDA line is significant. If an expansion needs significant capital and staffing to manage it , it might not yield the same returns as an expansion that will fit inside the confines of the present business. Those that fit more neatly within the current structure are usually less risky due to similar reasons. Determining a near adjacency is starting with defining the core abilities you could leverage. They must be relevant competencies to your customers to establish an opportunity to expand your business with a value proposition.
Certain potential skills that can be leveraged include:
- Key strengths of the channel and connections
- Sourcing and supply chain
- Patents, IP or IP
- Logistics and service efficiency
- Relevant brands that have equity in broad categories
- Capacity – Physical space processes, and even people
A starting point is identifying the strongest channel relationships that can be leveraged, or a solid product that is able to be expanded to a new location. It’s also helpful to establish an objective scoring process to determine the advantages in terms of investment and the risks related to a category expansion.
Customer need is an important entry point
Expansion through near adjacencies may be an opportunity. It is crucial to pay attention carefully to the needs of the client. In several instances, I have been asked to add into a new category by the client. They were concerned about their supply chain and perceived our company as a reliable supplier that could grow into something different. Opportunities for expansion that are opportunistic are among the most exciting because there’s already a possibility for interrupting the current supply arrangements. It is much easier to find an audience for your proposal when there is a demand on the part of the client. If the need isn’t opportunistic you must make a value-based proposition that will resonate with the consumer or better yet, the end user as well. It is the simplest thing to do is gain in the cost of acquisition for the customer. Old-fashioned lower price is often not a good deal to pass up. Do you have a cost advantage? If yes you could benefit, but if you do not, it is likely all you will accomplish is cutting down your competitors’ margins. They may respond to your proposal with a price reduction. If that’s the sole focus of your offer, it is likely going to fall short of securing new business for you , or more likely, you will end up supplying your new business with poor margins.
The growth of near adjacency could result in a greater value proposition for the customer. It could be a set of benefits which individually may not be significant, but taken all they add value. If you’re selling to a channel partner like dealer, distributor, or retailer, the value-proposition could be focused on increasing the margins of their business. If you’re selling directly to a consumer or end user, the value proposition should provide an advantage to the user. Most of the time, we’re better off not considering acquisition cost as a means to enter the market unless there is an efficient cost advantage for the goods.
The addition of improvements to the products to create more selling for you channel partners provides a great opportunity to grow. Packaging, packaging, or Merchandising. to set up or service or a brand new design or features lead to an appealing reason for customers to switch. Offering a variety of advantages creates the most convincing position. The product that sells more than the predecessor is a fantastic beginning. Customers need to be convinced they’ll have better business results taking on your extension. If the incumbent has problems the bar is higher, however, a list of clearly articulated benefits demonstrating the ways in which customer’s business outcomes will be improved is the ideal starting point. “New” isn’t enough. “New and improved”, you’re warming up.
One to sixty… One million
The company which had turned from a slide to rapid growth with a 19% annual growth rate driven by gains in share, not as a gift to the economy. We had accumulated an 80% share of our largest customer’s shelf in our core category, 60% of our second largest and 100% with our third. We were closing in on our growth opportunities. We had built a far more efficient company that was created for growth and had been being so successful, we were about to run out of shares and gain.The Selling team was tasked to find new customers to sell our core products, and expanding with customers that were smaller where we could make growth. We assessed our goals for growth with existing and new customers, and soon realized that we needed to create a new category of products. We began to look at areas we could grow into that could benefit from our established relationships with customers, our supply chain and facilities. I set up a director of new category development, who is focused on developing new product categories to facilitate continued growth at a pace that is much higher than that in the overall economy. (Shout out to Pat Boehnen)
We needed a new category which we could use to leverage our biggest “core” customers. They knew us best and we had credibility and competency in serving them. Our new category team came up with an extensive list of possibilities and performed research around current suppliers, level of innovation and estimate of size and used our scoring system to project what categories could provide the greatest opportunity. There was no slam-dunk however, we began work on the three most important areas to see if could create a new business. It is a long-term endeavor when compared to the increasing sales of products currently ready to ship, as opposed to an item which would require at least a year to develop or, if not sooner. This is a good example of having simultaneous effort to manage the company performance curve. We had been expanding at 19%, and did not want to see growth slow to 5percent. In the near term our sales team was able to fill the need by selling our current items more effectively to a greater number of customers. We established more sales presence in our most immediate international target, Canada. Canada was the most accessible geographical area, given our presence. The growth continued throughout the development of categories until the new categories we created could be able to begin bearing fruit.
We needed a new category that gave us an advantage over current suppliers, who by the way were likely years ahead in their primary market we set out to be a part of and beat them in. Yes, it is quite a task to define it this way. There is a need for an opening point. A stale category perhaps. A sleepy competitor. A breakthrough or a new technology you can bring to the market first. A cost advantage you can utilize to create benefit for the customer. More efficient services that complement your products. These are just some of the forms of advantage you can offer a competitor. If you’re a brand new business it is essential to offer more benefits than just a tweak or two. If you can’t bring the most significant benefit on your own, you need an invitation from the customer. They will want a supplier change and see the company as one that has certain strengths. Perhaps the incumbent has issues with the quality of their products, fill rates or the most likely reason to stimulate change… they’ve begun a price increase.
Our Category team did a an excellent job of identifying opportunities, and then began to design products and programs to test our supply chain, and with key customers. In each of the three opportunities that were ranked the highest, there were some issues. The field you want to join is not necessarily rapidly expanding. Most companies feel that they must chase the fastest-growing segment or geography in order to expand. This is great to be sure, but it can also neglect the existing mature revenue that is available to be taken in larger categories. Also, the fastest growing categories draw more new participants. As a new entrant we are looking to grow much more by increase in share, and not the normal growth rate of categories. We do not want to battle it out once we have gotten familiar with others entering at the same time.