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Growth in a Developing Market
First, you have to persuade customers that they need you
For companies trying to grow in the developing stage of a market, the big challenge is gaining market acceptance. During this stage, participants are still educating the market about their newfangled good or service, and the biggest competitors are the established ways of doing things .
Pluses: Big potential for growth
Minuses: Big potential for failure
If that's the type of marketplace you're exploring, consider these observations of Inc. 500 CEOs who started their companies in new markets:
1. Can you become a supplier to an infant industry rather than a direct participant in it? Think about it this way: comparatively few of the miners who followed the lure of the California gold rush became rich, but Levi Strauss, who made their jeans, founded a company that now has $5.9 billion in sales. By supplying products or services for the new start-ups in an emerging industry, you reduce your risk: whether or not the market those start-ups are pursuing ever develops, yours already exists -- at least for a while. Plus, that initial market is often a tight-knit community well suited to small-company marketing styles, as Gregory Swistak, founder of Factura Composites (#305), in Rochester, N.Y., discovered. Factura constructs interactive multimedia kiosks for use in places like malls and airports; it's a business Swistak stumbled into while doing work for a former colleague. Swistak launched the company in 1986 by borrowing his friend's file of information and clippings about the interactive-kiosks industry, such as it was. With that sophisticated database in hand, Swistak began making cold calls to the people he'd read about, using his newly completed project as a track record. Factura Composites' main competition at the time, as far as Swistak could tell? People who were making their own kiosks or hiring the kitchen-and-bathroom contractor down the street to do so.
Swistak's customers could readily see how his services worked; in contrast, most participants in an emerging market have to spend time explaining their offerings. In 1988, when Mike Van Dalsum Sr. of Oasis Imaging Products (#15), in Hudson, N.H., started out as a one-person remanufacturer of laser-printer cartridges, he not only had to sell his service to businesses but also had to explain the service -- during a cold call, no less. Once Van Dalsum switched from remanufacturing cartridges to supplying other remanufacturers, the sale got a lot easier -- and sales took off with the market, growing from $118,000 in 1989 to $11 million last year.
2. Are you prepared to be in the education business -- as well as your original business? Legal Information Technology's founders saw early on that their business would entail a lot of customer education, so they began giving seminars to educate law firms about imaging and CD-ROMs. Resolute Systems (#66), in Brookfield, Wis., also had to take on the role of guide. "We spent a lot of money educating" the marketplace at first, says James Dutton, CEO of the company, which supplies alternative dispute-resolution (ADR) services, an alternative to litigation. That kind of marketing evangelism is necessary internally as well as externally, notes Marion McGovern, president of M2 (#223), a San Francisco-based supplier of managers for short-term assignments. As M2 has grown, McGovern has found she must sell the concept of temporary executives not just to potential customers but also to potential salespeople for the company.
3. Are there alternatives to advertising to reach your customer? If customers don't know what your product or service is, they're unlikely to be looking for it in the Yellow Pages. Several of the emerging-industry veterans we talked to still don't use advertising. Perhaps it's no coincidence that all the Inc. 500 companies we identified in developing markets are in business-to-business markets, so they don't have the expense of either reaching or educating a mass consumer market. Instead they face more manageable marketing challenges -- for instance, selling directly with the aid of referrals and manufacturers' representatives, the way Factura Composites does.
4. Can you bring an established concept to a new location? On one hand, a market full of sophisticated users is more likely to try brand-new products and services: Legal Information Technology, for example, is happy with its location in legal-hub New York City. On the other hand, if you can bring a concept established elsewhere to your hometown, you can (for a while at least) enjoy the limited competition that characterizes the introduction stage, without having to go through all the educating and trial and error of the pioneers. Resolute Systems founders James Dutton and Gregory Borca, for example, were able to get into the ADR business after reading about its growth in the Wall Street Journal and determining that ADR was little used in the Milwaukee area. Because their industry had a track record elsewhere, Borca and Dutton were able to use library research on ADR usage to identify a promising target market to start off with: the insurance industry. Resolute had an additional advantage: although most of its initial prospects weren't yet using ADR, they had at least heard of it.
