Natural Market Extensions
When I was asked to write this article, I thought it would be an easy task. My mission seemed straightforward: write 600 words outlining practical strategies for growing a business through “natural” market extensions. How hard could it be? There are so many ways to extend a business: geographic expansion, market expansion, product line extension, unbundling services, etc. All I had to do was make a few profitable recommendations.
And that’s where I ran into trouble.
As I researched the topic, I quickly came to the conclusion that there’s no such thing as a natural market extension. Changing your business in any way is a difficult and risky proposition. Make the wrong choices and not only do you doom the extension to failure, but you might even cause permanent damage to your core business.
So how do you expand your business in a recession?
First, let’s look at the options:
- Work harder.No doubt you’re already following this tried and true, back-to-basics approach.
- Geographic expansion.Extend your geographic reach—whether it’s within your hometown or by expanding to new cities or countries.
- Market expansion.Do you focus on serving larger employers? Then try smaller ones. Do you emphasize manufacturing clients? Then how about services firms? A market expansion simply means providing the services you already offer to a new group of potential clients.
- Product line extension. Adding a new line of service often seems like a natural way to expand. If you specialize in one discipline, you may be able to add a related or counter-cyclical discipline. Or maybe you could add temp staffing to your search business. Most often, a product line extension involves adding a complimentary product or service to current offerings based on your clients’ likely wants and needs.
- Unbundling.This is a subset of both product line extension and market extension. Essentially, you find new customers by selling a la carte services. This may allow you to make your services more affordable to smaller clients or more focused to complement the in-house capabilities of larger ones.
- Diversification.This is a product line extension strategy that goes beyond simply adding a new product. Diversification involves entering into a new business that compliments your current services. For example, many staffing firms already offer training services, others provide HR consulting, project management services, outplacement, and other services that provide alternative sources of income.
- Coopetition. You may recall a book by this title from the early 90’s. Essentially, this strategy means working with competitors and/or complimentary suppliers to open new markets. Smaller independent staffing companies have been doing this for years to serve regional and national clients.
- Intra-Competition.This one’s a more unusual strategy. Rather than being one staffing firm competing with others in your market, start multiple firms and compete with yourself. The goal is to capture more of the available spots on each larger client’s approved vendor list. This can also be an effective way to run staffing firms aimed at different segments of the market (e.g., a low-cost, low-priced service and a high-end, high-service firm).
As you can see, there are many choices when it comes to strategies for expanding your business. Now, here’s the problem…
An Extension is a Distraction
Managing one business in a slow economy is tough. Launching a second business, opening a new location, or introducing a new product line makes life even tougher…and in the worst cases, it can be a devastating distraction.
Where’s the problem? Two areas: first, your loss of focus. All the time you invest in your new venture is time not spent on your core business. Can your business succeed with only limited input from you? Will your people take the steps that are necessary to drive growth without constant supervision? If not, your natural expansion may become a natural disaster.
Second, there is the risk of market confusion. Right now, your customers see you as a specialist in whatever services you currently provide. Trying to extend your specialty may confuse people. For example, if you are a search consultant, adding temporary staffing services may seem like a logical extension, but to your clients it may look like you’ve lost focus on recruiting. And the further an extension deviates from your core business, the greater challenge of managing it (and your core business) profitably.
So is there a ‘Natural Extension’ that works?
Yes! Lots of businesses successfully introduce new products and new services, and expand to new markets. What’s the key to success?
- Planning – Create a business plan specifically for your service extension. Analyze your plans as if you were a potential investor, and only make the investment if the returns justify the risks.
- Infrastructure – Make sure you have the people and systems in place to manage your new venture. You may need to upgrade your staff or train your team to function with less direction from you. Conversely, you may want to consider a partner for the new venture—someone to manage the details while you focus on the core business. And don’t forget to verify that your computer and operating systems offer the capacity and flexibility to support the new venture.
- Create separate brands – No business can be all things to all people. As you launch new products, give them their own identity. Rather than being “All Things Staffing,” create separate brands for each line of service, for example, “All Clerical Staffing,” “All Industrial Staffing,” and “All Executive Search.” It’s okay to have multiple brands under one umbrella organization, but it’s best to differentiate each of your specialties.
- Manage each brand as its own business unit – Ideally, each of your brands will have its own management, staff, budgets and accountability. While sharing back office resources is fine, keep sales and service distinct. Otherwise, you’re likely to find that one area benefits at the expense of the others.
- Start with your top customers – These are the customers most likely to buy from you. Find out what they need, what they are willing to pay for, and what they see you as being able to deliver. Then, put the plan in place to deliver it!
Make the Natural Selection
So, what’s the best strategy for your business right now? That depends. In some market segments, the smartest decision is to re-focus on core business activities. Put more effort into out-hustling and out-servicing your competitors…and take away a greater share of their business.
However, if your market segment has become too small to support your operations, a business line extension may be more than a good idea—it may be a necessity! If so, evaluate your options and look for the opportunity that best fulfills a need in your market…and capitalizes on your ability to deliver value. And once you’ve found the right natural extension, put together a plan that clearly defines your brand, funding and management strategies.