Most new businesses go through a progression of growth stages, starting with "existence," advancing to "survival," and culminating in "success," according to a classic case study on small business growth published in Harvard Business Review in the 1980s. While the study is dated, its findings have stood the test of time, as reported in the fourth and final white paper in the Enterprise Benchmarks series, "Expanding Your Market Reach". Chief among the findings is that businesses that manage to make it to the "success" stage enter a whole new world of opportunities, but one accompanied by challenges and tough choices. At this point in their existence, companies often face the prospect of revenues and profits from their initial customer base that are insufficient to support further growth. "You tend to pick off the low-hanging fruit in the early stages," Manta Media CEO Pamela Springer points out. Businesses must expand their universe of customers, which means entering unchartered territory in terms of new markets, new channels, new products/services, new types of customers, or some combination of those elements.
Among the multiple approaches to market expansion available to businesses are multifaceted diversification, which involves expanding into new product/service categories and new markets simultaneously; development of new products/services; greater penetration of existing markets; and market development. The last approach is the most common choice for small businesses because it offers the most options at potentially the lowest cost, although the multifaceted approach offers the greatest potential reward because it creates the most opportunities for customer interactions.
Specific strategies and tactics businesses can use to get their products and services in front of new customers include opening additional locations, franchising their business model, forming strategic partnerships with other companies, mergers and acquisitions, and targeting public sector consumers, especially the Federal government, which spends about $425 billion on products and services annually. Statistically, only about 3% of businesses manage to achieve fast growth after their initial startup period, according to the U.S. Small Business Administration. Taking the right approach to expanding market reach can significantly boost a new business's chances of making it into that elite group.
For biotechnology startup Diagnostic HYBRIDS, Inc., based in Athens, Ohio, merging with a like-minded partner proved to be the right strategy for continued market expansion. The company was in existence for a decade before it launched its first marketable product, and founder and president David Scholl credits its ability to survive that period in part to the nurture and support it received from the Ohio University community. (View a video interview with Scholl.) In 2000, it partnered with the university on a $1 million grant from the Ohio Third Frontier's Action Fund to lure a prominent scientist to its team. It hit its stride midway through the decade, being named to Inc. magazine's 500 Fastest-Growing Companies list in 2004 and 2005.
By 2009, Diagnostic HYBRIDS had emerged as a market leader in manufacturing and commercializing specialized assays used in medical laboratories for a variety of diseases. With sales up 34% to $51 million in 2009, the company's leadership team decided that merging with an appropriate partner represented the best strategy to continue meeting its target of at least 20% annual growth going forward. It found the right partner in Quidel Corporation, a market leader in rapid point-of-care diagnostic tests. Following a $130 million cash acquisition by Quidel in January, 2010, Diagnostic HYBRIDS now operates as a separate subsidiary of Quidel, with Scholl continuing as president.
For SenSource, Inc., a Youngstown, Ohio-based designer, manufacturer, and distributor of high-tech sensors and controls, expansion into new markets was driven by the realization that its original target market had been too narrowly defined. "Industrial automation was our first target market, but we quickly added others as they surfaced through our Internet keyword marketing campaigns," explains Joe Varacalli, who started the company with his partner, Kevin Stefko, in 2002 with $3,000 in cash and a couple of credit cards. Inquiries from potential new customers spurred SenSource to begin designing and manufacturing high-tech counters that track people through body heat, providing an accurate way to measure traffic in retail and similar settings.
The result has been a substantial market expansion, with the company now targeting business-to-business, retail, libraries, museums, shopping centers, malls, and entertainment facilities. It is currently working on a new line of environmental sensors and software that will enable it to expand into even more markets, including health and food storage. SenSource's sales have been growing at a consistent rate of 20%-30% a year since 2002, and it moved into a new 10,000-square-foot facility in Youngstown in 2007 to accommodate its growth. Fueled by its continued market expansion, the company posted a 25% sales increase in 2009 and a projects an increase of 30% for 2010.
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Issue 1: Finding Funding
Issue 2: Building Your Knowledge Base
Issue 3: Real Best Practices for Supply Chain Optimization
Issue 4: Enterprise Benchmarks: Expanding Your Market Reach
Issue 5: Enterprise Appalachia Tax Brief
Issue 6: Real Results for Real Entrepreneurs
In This Issue:
Building Your Knowledge Base
Real Best Practices for Supply Chain Optimization
Expanding Your Market Reach