Specializing to Expand Opportunities
January 6, 2011 1 Comment
Many companies find success by creating or exploiting a niche – sometimes inadvertently. A company might, for example, start out as a provider of general-purpose steel bookshelves for offices and storerooms. Then, one day, a potential customer asks if the company can make a specific kind of shelf for a point-of-sale display. The company takes the order and produces the shelf, and the customer comes back for several re-orders.
Adjacent Markets Appear
A short time later, another prospect who saw the display shelf approaches the company and asks for a somewhat different version for their products. Once again, this is a successful piece of business, and both customer and producer are pleased with the result.
Sometime later, management realizes that the company has become a specialist in display shelving. The company phases out the commodity-type general-purpose shelving, and soon becomes a leading designer and builder of point-of-sale displays. This was not the original intention, but the company was aware enough to recognize an opportunity and built on early success to move into a higher-margin niche.
Autos to Food – Interesting Similarities
In this example, specialization narrowed the market focus for the shelving company. Specialization can lead to broader markets, as it did for my own company. Based in Michigan, Plex started out providing software for suppliers to the automotive industry. But automotive suppliers are a more diverse bunch than you might realize. One customer mixed rubber for coating steel coils before stamping out parts from the coated steel. We developed recipe management functionality and batch process management for this customer. After our initial success there, this functionality attracted the attention of a packaged-food company, and we soon had experience and a reference account in the food industry.
Recognizing this new opportunity, we expanded product features to better serve food companies, “beefed” up our marketing, and increased our footprint in this new direction. Customers drove initial product development in this new direction, but we recognized the new market opportunities and built the rest of the infrastructure to address it.
Sometimes, new opportunities are forced upon you when existing markets change or deteriorate. A number of automotive suppliers, faced with declining business during the industry shakeup over the last several years, have begun making products for emerging “green” industries. Making parts for wind turbines is not that different from making parts for automobiles. These companies are applying their capabilities to serve new markets that are projected to grow while their traditional markets shrink. Some remain as suppliers to the automotive market, while others are redirecting their business entirely in this new direction.
It is easy to get complacent, especially if your market is stable or growing. A market decline can force you to look at new markets, but new opportunities are out there even if your current business is doing well in its existing niche. It is always important to recognize your capabilities – your core competencies and the things you do particularly well – and think about other industries and markets that could benefit.