I've long discussed how businesses need to look beyond the known--basically what they're currently doing and what their direct competitors are up to-- and try to imagine, discover, and exploit those less obvious opportunities lateral to or adjacent to their markets. Why? Because: (a) that's where many new customers may be found; and (b) if you're not careful and observant, that's where your next threatening competitor is likely to come from. (See Five Reasons Your Market is Bigger Than You Think.)
Having done these kinds of cross-sector analyses on a regular basis since I was in law school-- this is what the "potential competition doctrine" of Section 7 in antitrust law is all about-- I find both parts of the process to be almost second nature. First, I spend hours every month just looking over and beyond the local marketplace activity for discovery purposes, and second, I've developed some simple rules of thumb that help me in deciding which of the adjacent projects and potential new products and services make the most sense for whatever the business in question may be. But I've learned recently that there are a lot of companies--large and small--and plenty of entrepreneurs who could use some help in this area. In particular they could use some fairly simple guidelines for what makes the most sense under their current circumstances.
Too many times I'm seeing companies lurch into uncertain or unknown territories on what looks like no more than a hope and a prayer or, worse yet, the whim of some internal executive wise man or board member. If they had taken even the slightest bit of time to determine what they brought to the quest and what the realistic likelihood of success would be, they would have never left the starting gate. This isn't a complex process. It's basically four steps.
(1) What are our core competencies? What are we good at?
(c) Size and Scale
(d) Domain Expertise and Intelligence
It goes without saying that you can't be good at everything and that the most important initial calculation has to be in determining where you have an unfair competitive advantage (if any) that you should pursue aggressively. In the areas where you have no edge, you either want to avoid them entirely or farm them out to third parties provided you can do so at a reasonable cost.
(2) Where are we headed?
(a) New Products or Services
(b) New Geographies or Markets
(c) New Channels or Delivery Systems
(d) New Customers/Consumers
(e) New Partners/New Competitors
(f) New Opportunities for Margin Expansion
(3) How close is the target to our core competencies?
(1) Directly In Our Wheelhouse
(2) A Stretch, but within Our Competence and Capacity
(3) New Applications or Approaches, but Employing Known Technologies
(4) New Offerings Dependent on Previously Unused Technologies
(5) New Across the Board-- New Product or Service with Technologies to be Created
Do I have to point out that, in this particular category, the further down the list you start, the less likely you are to succeed? And yet, it happens every day that deluded dreamers and wishful thinkers charge off into the future chasing pots of gold without the slightest clue as to how they will reach the end of the rainbow.
(4) What are the Relative Levels of Risk and Reward?
(1) Is There Substantial Upside and Additional Expansion Prospects?
(2) Is It Too Far Beyond Our Core Competencies to Pursue?
(3) Do We Have the Skills and Resources to Successfully Undertake and Deliver the Project?
(4) Is the Nature of Competition in the New Market Greater or Less Than That in Our Current Markets?
(5) Is the Market Mature or Expandable?
(6) Is the Market Currently Regulated or Likely to Be Regulated in the Near Future?
These are neither exclusive nor exhaustive criteria and need to be adapted to the nature and specific characteristics of your business. But it's committing to, and regularly undertaking, the necessary investigation, internal audits and analysis that will eventually separate the winners from the losers.
It's rarely the size alone of the bet that makes or breaks the bank. It's the people who don't understand the size and scope of the risks they are taking who wind up in the poorhouse.