Should I stray from my niche? So, you’ve saturated the market with your best product, or someone has talked you into another product that will ‘sell like hotcakes’, or you’ve just gotten bored and think a new approach will breathe new life into your business. As I suggested in the previous post, it’s important to apply some strategic sense to the new venture, product, or market by taking on only one single learning experience at a time.

For instance, let’s say you own a company that specializes in paving parking lots. Your best salesman recommends that you expand into paving residential driveways. It seems like it might be an easy transition to make, but let’s examine the changes involved.

First, your typical customer for parking lots is a commercial entity. The typical customer for driveways will be a residential customer, most likely a private individual.

A positive attribute to this scenario might be that the commercial entity will likely ask for terms and pay you in 30 or more days, depending on your contract terms; whereas, you can request terms from the individual of half down and half upon completion of the work. You will likely be able to charge more for the residential work than the commercial work from a square-foot or cubic-yard basis.

However, that’s where the positive benefits of the new venture end. You’re taking on a new customer group. This group will expect a different level of service than the commercial client. The commercial client will point you to several large jobs; the residential customer will give you only one small job.

In any business, it’s better to go toward a ‘manufacturing’ type model rather than a job-shop model. The larger the job, the closer it will seem to the manufacturing model. The higher number of jobs from one customer, the easier the relationship management will be, and the easier the sales will be.

Residential customers are not in the business of needing pavement on a regular basis and, therefore, know little about it. They will need more hand-holding, they expect a higher level of esthetics, and you should expect more callbacks.

At the same time, the jobs will tend to be smaller; therefore, you will have more equipment moves, more windshield time, more interface between the paving crew and the customer, and possibly more logistical trouble with neighbors, cone-setting, etc. While the bids may be more lucrative, they will probably require more customer service time.

This move might strain your office staff while causing your crews to get less work completed in a day. If your prices are not sufficiently high enough to cover the field inefficiencies and extra office needs, your profit levels will suffer.

This example shifts the business to a new and more time-consuming customer base. At the same time, it shifts the business into production of a product with which employees and staff are less accustomed to working. This scenario represents a double learning experience, which can be dangerous for many companies.

However, consider an example that at first may seem a little outrageous. (Sometimes I use outrageous examples to spur thinking in a new direction.) You may have a suitable on-site shop in which to repair your paving equipment. Your shop manager is very capable and efficient. If you were to expand your product line to include the repair of other paving companies’ equipment, you might be able to increase your revenue by repairing their equipment and lowering the repair costs on your own equipment by negotiating lower prices on a higher volume of parts.

In comparison, your terms will remain the same, you have plenty of information upon which to base your prices, your customer base will ostensibly be just like you, and you may even know most of them. You don’t have to buy any inventory because the parts can be ordered same-day just as you do for your own equipment. Therefore, there is only one change to be mastered, that your mechanic may have to manage another mechanic or two.

When looking to expand, do your best to seek additional revenue streams that will require only a single learning experience. Here are other factors to consider.

Geographic considerations. You think you should expand into paving parking lots in a nearby town. Again, you have more windshield time, but the customer base will remain very nearly the same. If you were to work this option for a while, you should get the windshield time figured out, and once you do, you will be closer to incorporating the driveway product into your revenue stream.

But, if the nearby town is in the mountains, and your crews are accustomed to paving on nearly flat ground most of the time, that could be another learning factor to master.
Selling to customers from the Bible Belt is a significantly different matter than selling to customers in California, which is different from selling to customers in New York.

And any new brick-and-mortar customer will be easier to deal with than going into internet sales. If you decide to develop a web presence so you can sell over the net, please make sure that you have enough money to fund the project, including hiring into that weakness. If you try to do it yourself, your core business will likely suffer from lack of attention.

There are many choices when strategically deciding to expand. In marketing terms, your choices are these:

• Get a bigger piece of the pie, perhaps by lowering your prices or maintaining better quality than the competition.
• Make the pie bigger by creating a market where one did not exist, like when the China market first opened to Western producers.
• Sell a different pie by straying from your niche.
• Forward Integration, which involves buying your customer.
• Backward Integration ‒ buying your vendor.
• Vertical Integration ‒ buying your competitor.

Forward integration, backward integration, and selling a different product all require moving away from your niche. Unless you have exhausted all opportunities within your niche, examine very carefully how many new concepts your organization will have to learn and how much cash you will need to accomplish the transition.

For more strategic insights and business mentoring on many subjects, visit Profit Power Series.