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Case Study: A Hot-Tub Maker Hits Hard Times

Then, in April, Hedgecock and Jolley attended an energy conference in Chicago, at which they discovered a need for sturdier wind turbine parts. The duo figured Dimension One could make composite parts that would be stronger and last longer than traditional composite parts.

After Hedgecock and Jolley identified their markets, they got to work persuading a large military contractor and several wind power companies to let Dimension One build some prototype parts. At about the same time, Dimension One began producing prototype door panels for the electric vehicle company.

But as the months dragged on with no firm orders, Hedgecock and Jolley decided to look closer to home. Maybe their best bet was to land a deal in an industry that they understood better. Both are surfers, and Jolley, who once supplied foam to surfboard companies, has a long list of contacts.

One of these contacts, Surftech, sells standup paddleboards, which are like surfboards that riders stand on, using a paddle to balance and move through the water. In June, Jolley began discussions with Surftech to build what Dimension One says will be more durable boards. The two sides have signed a deal for Dimension One to produce a few thousand boards. Hallam has so far invested $10,000 in a new mold and is expecting to spend at least another $30,000 to get the first boards out the door. Assuming no setbacks, the boards will roll out of Dimension One's factory in the next few months. Boardmaking tends to be a low-margin business. Still, "what we learn here, we'll be able to transition into all other industries," Jolley says. "The possibilities could be endless."

Hallam knows not all the new initiatives will take off. But if just one hits big, he figures he can begin to rebuild his company. In fact, he wants to get 50 percent or more of revenue from business other than hot tubs within five years. That's ambitious, but Hallam says it is doable. "It's the tipping-point approach," he says. "Go down the road little by little until something shows promise, and then dump in the money."

The Experts Weigh In

DON'T NEGLECT YOUR CORE PRODUCT

This has been beyond a perfect storm for the spa industry. Many manufacturers are just hoping that the economy gets better, but hope is not a business plan. Dimension One is wise to diversify, but it needs to be very thoughtful about how it does it. It's risky in an industry where the dealer network is so relationship-based to say that you want more than half your revenue in the future to come from other things. Instead, Dimension One should be stressing that at the end of the day, new lines of business will make it a stronger company, which will make it a better spa brand.

David Wood
Publisher
SpaRetailer, Scottsdale, Arizona

FIND HIGH-MARGIN PRODUCTS

The idea of a small team acting like a start-up is the way to go. The one thing that is causing me some angst is that they are starting with a low-margin project. They should be leveraging their big strengths and going after high-margin work. It's OK to target a bunch of industries, but once they find one where they can make a nice margin, they should shut down the rest. The owner should also invest in reinventing the selling process. Identify a few dealers that aren't in a total panic and go out and educate them on the best ways to sell customers. Then use them as models to train the rest.

Doug Hall
Founder
Eureka! Ranch, Cincinnati

BEWARE OF OVEREXTENDING

My company recently launched a new division to go after a totally new market, so I'm familiar with what Dimension One is going through. The challenge of a small company diversifying is that you probably don't have the money to add people. The risk is that employees will now do two projects not very well instead of just focusing on doing one project well. And, the truth is, there's still plenty of room for growth in the spa industry. No matter how you spin it, you're not going to get better at your core by splitting the labor you have.

Mike Genova
Founder
Leisure Concepts, Spokane, Washington

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Jason Del Rey

Senior reporter Jason Del Rey covers technology, branding, and company culture for Inc. magazine and contributes to the From the Reporters daily blog. Before joining Inc., his work appeared in Newsday, The (Newark) Star-Ledger, and the Staten Island Advance, and on ESPN.com. He lives in New York City. @DelRey