Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
business builder management
by Bob Cass
Ever think about tapping into your cash cow to fund a new market entry? You may want to think again.
Many companies believe it’s their best growth strategy. Yet this may not be the most prudent approach. Entry into new markets often increases the complexity of the business well beyond what was anticipated. It also can quickly decrease the company’s comfortable cash position due to unanticipated costs before any significant market entry has been made.
What typically happens is this: Owners lose sight of what they’re good at — why they got into business in the first place. And they sometimes fail to recognize the obvious — growth opportunities right under their noses — with existing products and current markets.
For example, a manufacturer of seating for heavy-use environments expanded into the front office, high-style seating market at the urging of its independent representatives. The company was the premier expert in chairs for demanding environments, but not in style.
The move to this new market required new parts, different vendors, more costly sales materials, and employees with high-style marketing expertise. All of this gave way to operational, supply-chain and cultural problems. Negative cash flow eventually led the owners to exit the high-style market and return to its core competency: tough-environment seating.
By broadening the product line to go after seating in other task-oriented niches, the company was able to adapt its product and customer knowledge to meet similar needs. Operationally, some parts were standardized and others outsourced, which led to increased buying power and lower manufacturing costs.
The results included market share growth and improved profitability. A simplified pricing system, lower prices, and higher units per sale were motivators for the independent representatives who originally pushed for new products.
It’s common for companies to look elsewhere for growth when their share in current markets is not increasing. Some owners or managers feel “stuck” amid all of their resources. Others believe they have reached market saturation and can’t take their products any further. For some, it’s plain itchiness when the entrepreneur inside becomes bored and looks for a new challenge.
Companies can, however, look for growth opportunities by focusing on their core strengths and finding ways to dominate the space they hold. Many times, this begins by improving current operations. For example:
• Consider changes within the supply chain. Simplify the purchasing activity. Strategic partnerships with fewer suppliers can lower costs through higher- volume purchases. Find ways to use more common parts between products or substitute new, less costly materials.
• Improve your manufacturing processes. Shorter lead times can sometimes significantly improve the selling environment. For example, one manufacturer created customer appreciation when its personnel learned how to reduce the manufacturing cycle time from five weeks to three days.
• Review your distribution channels. Those channels that serve other markets may allow current products to penetrate markets previously unaware of the benefits that could be obtained from the use of your product, or make your product more readily available to the end user.
• Know your customer. Identify new opportunities or weaknesses in your product or service through either standard market research techniques or meeting one-on-one with end users. The risks of losing touch with customers’ needs increase with companies that do not have a direct sales force, or have multiple layers between the company and the end user. You can’t always depend on information that comes through a third party, such as dealers and independent representatives who have their own interests in mind.
• Broaden the offering. From a marketing and message standpoint, re-examine how to broaden the product or service offering’s appeal to the same or new customer. Many times, narrowing your market focus provides greater appeal. You can dramatically increase consumer confidence in your company or product by saying, “We don’t make that type of product — this what we make and we’re the best at it.”
The most legitimate reason to look at new markets is having a company with a mature product in a mature market. If a company believes it cannot continue to lower its costs to maintain its margins on lower prices, it may be time to tap its core strengths and talents and look at nearby markets, those that do not wander too far from the core business.
Companies need to keep abreast of market shifts and consumer behavior so that sticking to core strengths doesn’t become a detriment. One such company had lost touch with customers because the sales channel didn’t keep up with changing consumer attitudes. This business had dominated burial product sales for decades through a strong dealer network.
It saw its sales stagnate and margins decline as consumers shifted from dealers to funeral directors for advice and product purchases. One-stop shopping has even influenced the burial market. In addition, the company had developed relatively few new products for the cremation market even though it has grown to 40 percent of burials in some urban areas.
It’s important to examine all aspects of your current company before branching out. But be sure to do your homework first. The most common problem encountered when entering new markets is a lack of understanding the end users’ requirements.
Again, market research is an important step that many companies overlook due to its cost. Understanding the customer cannot be stressed enough. What you don’t want is to take your eye off of current core business operations as you explore new opportunities.
Remember that the cost to gear up and enter a new market may dry up your cash cow.
