It’s a siren song that many corporate innovators succumb to – competing with the venture-backed VC startups for the newest and edgiest applications. On the surface, it feels safe: we have our core business, and will be adding some fresh “capability” in this new area and “testing” a new business model. It will also give us some resources in case we need to move toward an acquisition.
The truth is that if the new product or service is aimed at an emerging market, the above describes a spot where tenured organizations are at a distinct disadvantage. If developing the market is a track race, the venture-backed teams of maniacally-focused, heavily leveraged firms will always win.
The reason? They have the advantage of no installed base, no overhead associated with serving their existing customers and the ability to port all of their energy into one big event: getting product market fit on a single product. It’s like landing a plane on a moving target, and most established firms have a handicap in getting it right.
There are Areas Where Established Firms Have an Edge
Much has been written about adjacencies when it comes to growth strategy. The core of this approach is to look at the product and services around your current core product carefully and to choose one of those to be your new growth target. While this can yield fruit, there is a path that can be fruitful within the core.
The rapid progress of technology and pressure on your clients is constantly changing the calculus of your product market fit. What worked well when your current core platform was launched has been eroding and bifurcating with the passage of time.
Most firms are fearful of the time and energy it takes to work in the core, and honestly some fear here is good – a misstep can hit the bottom line quickly. What I am suggesting is a “belt and suspenders” to keep the existing product in place (perhaps with shifted positioning), as you use the data you already have to find segments that might be a great spot for growth.
What does this strategy look like? Simply spoken it has three characteristics:
- It’s a mature product or set of services
- It needs to be selling well and have been in the market for some time
- By virtue of having a historic arc of serving this customer base, you have insight and access, along with a well-vetted distribution function
We used to call them cash cows. What we need to see them as are data lakes.
By shifting your mindset, we can find deep value in places where we thought all that was left to mine was the last of the ore.
What allows us to increase our captured value? Three things:
- Technology has progressed – a lot, and very likely, so has the application. Chances are that if their product has been in the market that long, what you see as one product is serving several unique application profiles. With the enormous cost effectiveness of machine learning, artificial intelligence and Internet of Things, we can take data that we already have and get a crystal clear picture of what the market is truly buying (the answer is pretty much assured to be not what you are selling). For example, one distribution client I worked with is an expert in developing and delivering networks for warehouses. By parsing their client base by facility size, geographic diversity, and warehouse physics, we were able to “bundle” their core services for each of three client profiles. This improved service levels and P&L for both my client and the firms they served.
- You have more complete data to go through than anyone else. By parsing what you know in fresh ways, you can derive insights that a start up simply cannot touch. This varies from manufacturer to manufacturer, but think about applying the latest data science to your order book for your mature product lines: what feature combinations are ordered in which clusters? Are there diagnostic services needed prior to installation? What ancillary equipment is ordered with that product? What “field mods” are being done to what you are supplying?
- When you launch, you launch at scale. By having the dominant sales force in the market, you will be able to grow quickly. You also will need to be measured in your roll out, because you are disrupting a significant cash generator for your firm. In the above example, we formed a “key client group” that was known to have great talent and was hungry to put advanced thinking in place. By giving them “beta” privileges, it was a chance to mutually hone the offering and our internal systems.
How do I know this works? Because I have both run this play and helped others run this play several times with strong results. My first exposure to the power of this strategy was with an electronics manufacturer that had a very mature product in the industrial telecom space. This product had been designed for core applications, but had been customized over and over again in response to new challenges. Each of these variations was done individually and at great expense.
We had the data on every variation. We went over it with a fine tooth comb and found the new products in the data. By building in the ability to flex into exactly what the customer needed, the next product platform was even more profitable than the first. The downside? We needed to re-work the factory and the sales team.
The concept is simple, but the work is not. Taking your high running product to the next level involves careful analysis, investment and market testing. The unanticipated learning is that you need to have a project that not only puts a new product in the market, but comprehensively upgrades the people, processes and technology base of the product, manufacturing and distribution teams.
If you’d like to talk this through to see if it’s a fit for you, feel free to use this link to set up a call. Or reach out via my direct line at (847) 651-1014.
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