Reprinted from the April/May Business column in Metalforming magazine.
By: Michael Bleau
In a stressed economy, how do you quickly steer your company into new industries and new sources of revenue? This is a question facing many executives within our industry and countless others. Long-standing companies with stellar track records are faced with the daunting task of maintaining a break-even point while executing painful layoffs and chasing a shrinking marketplace. Assuming that market entry via acquisition is not an option, where do you start and how do you execute on this question?
Before we begin outlining the effort behind the answer, let’s address a few items related to the sales force. Appropriately loading your sales resources is important to guard against erosion of your current customer share while you approach new markets. The goal is to grow your top line while reducing your percentage of revenue dependency on any one market or prominent set of customers. To be successful, you need to avoid a few pitfalls of traditional crisis management. First, critically review your sales staff and eliminate non-performers. This said; it is a good time to reinforce your sales ranks and consider approaching top sales producers from competitors and other industries of interest to you as a means of replacing your less productive sales people—replace ‘order takers’ with ‘order makers’. In doing so, maintain your overall sales capacity. While the conventional wisdom support for across the board layoffs may satisfy the need to play fair with other department managers, such action will feed a self-defeating cycle of revenue loss and further workforce reductions. Another problem to avoid is arbitrary spending limits. Carefully review spending and reduce nonessentials without hampering the effectiveness of your sales force. Many companies quickly curtail sales and marketing spending and limit or eliminate sales travel expenses to reduce costs; this is another quick way to ensure reductions in revenues. Keeping a closer eye on costs and stepping down some forms of more elaborate entertainment is prudent, but a harsh retraction is a mistake. Take advantage of your competitors who do and use the extra face time with customers to reinforce relationships and forge stronger ties to potential customers who tend to prefer your competition. Balance is key. You need to spend a large portion of time chasing new opportunities without abandoning existing customers. A third temptation that many may be the hardest of all to resist is in burying your sales staff in lengthy opportunity review meetings and paperwork. In stressed economies, executives sometimes tend to have a stronger than usual urge to track every aspect of the sales process, create a gimmicky sales contest or to impose the latest process-driven sales approach that sits atop the New York Best Sellers list. And while exploring new approaches and staying in the loop is a good practice, do so in moderation. Taking it too far can simply create other roadblocks to sales success and create unhealthy tension within the sales ranks. Work to remove roadblocks and empower your sales professionals to do what they do best! To use an old-school term, your sales staff needs to be on the road ‘pressing the flesh’. The question that you need to answer with your sales team is, ‘with whom?’
Now let’s quickly cover a few more essential elements of success, including the ‘right attitude’ going in and ‘top-down’ support. From the standpoint of attitude, think in terms of taking advantage of the opportunities presented when your competition makes all the usual, incorrect moves presented in the last paragraph. Think in terms of investment in your company by redirecting a percentage of sales resources to diversify your customer portfolio. With your focus on growth and a strong, funded marketing and sales team, you are ready to stay close to current customers to fend off opportunistic competitors while redirecting substantial efforts on the task of market diversity. Before jumping in, ensure that everyone in the company understands how important their contribution in effort will be to the success of the venture. Ensure other departments that their back-office customer support is just as important as that of front-line sales and that as revenues increase so will their budgets.
Ground rules laid; now let’s break this down and get our arms around some actions necessary to make the shift into new industries. The following activities identify some of the tasks that will start moving you into new industrial spaces. While individual companies will execute the following exercise in a similar manner the results for each will be different and should be closely aligned with the company’s capabilities, skill sets and ability to adapt to, among other things, market and industry expectations and standards.
You may be familiar with the following approach for considering specific business questions as a part of your annual planning exercises. Please take the time before the second installment of this column to perform a Strengths, Weaknesses, Opportunities and Threats analysis (SWOT) to consider a set of questions regarding your capabilities to enter into new industrial markets.
SWOT is one part of a strategic planning process that is used to identify and quantify a company’s ‘strengths’ and ‘weaknesses’ and environmental ‘threats’ and ‘opportunities’ in a given situation. It’s a simple process to highlight where strengths and opportunities intersect. To start, bring a few people together from your organization that broadly represent your business and conduct a few SWOT’s, the first being your present industry position. Then others SWOTs looking at new market or industry opportunities. SWOT analysis can be used in several ways, but for this exercise you will need to define a desired end state or objective, without which the exercise will lose focus and not be as useful. Be honest and open with your observations, as this will be a useful tool as you move forward. Since you certainly have skill sets that fit well within other industries; this step will prepare you to identify which abilities best meet the needs and desired skills that are most valued by prospective customers in unrelated industries. Your fastest way into a new industry is to align your strengths and skills with opportunities that may present themselves as gaps in the supply chain. Simply coming into a new industry as a commodity alternative to established suppliers is achievable when the demand greatly outpaces capacity, such as is the present case in the Aerospace and Wind Energy industries. But you may find more success, more quickly by standing apart from the crowd, which might also present opportunities for improved margins. So my advice, look for a niche.
Before initiating the SWOT, research and compare production outputs and capacities of industrial sectors to identify where need exists. For example, aerospace and defense, and alternative energy such as wind and solar are in desperate need of manufacturers as their ability to produce lags well behind the demand for their products. Identity which components, assemblies, and service needs your company can meet. Define your stated objectives, one per SWOT, and begin. Before you start, have a 5-minute lineup meeting one week before so that participants can prepare. Identify specific tasks for each to explore and have them bring any data on paper. When meeting, your best results will come by convening in a closed conference room, with all cell phones and laptops turned off. This exercise can be simply achieved using a whiteboard and a few colored markers.
Come prepared and next month we’ll tackle some steps to move into new industrial spaces.
Last month we started answering the question, “In a stressed economy, how do you quickly steer your company into new industries and new sources of revenue?” We left off with an assignment to complete a series of SWOTs to address specific objectives, given your existing market or industry focus and a new industry or industries that you initially identify as being viable for your business. Having made some initial determinations as to your match with a potential new space, we can start to look more closely at your target and take steps to move forward.
First and foremost, dust off your contact list. Networking is always your most productive means of credible introduction for any new prospect. Many trade groups prepare and offer excellent sources of industry-specific information that can be very inexpensive. Consider purchasing industry-specific reports to speed up your understanding of various aspects of a given industry. Some can be very valuable and save you a good deal of time. First, go with a reputable source, check customer references and always preview the material’s table of contents and some portion of the content to be sure that the report addresses the questions that you want to answer. If available, ask the report supplier to allow you to review a section from another report that represents an industry within which you have expertise. If you deem the material in this report as being accurate and complete, then chances are good that you will be satisfied with your purchase on an industry that is new to you.
Initially contact and evaluate some trade groups to further probe and once settled on a new target industry, scout tradeshows and join appropriate trade organizations. As you sharpen your focus, leverage social and business networks to understand as much as you can about the new industries that you are pursuing. Trade organizations can be an incredible source of information and access to people who can help you to quickly move foreword. Trade groups, reputable sales representatives and respected industry insiders can open doors more quickly for you through introductions than by cold calling on prospects. But do set aside time to cold call. Cold calling will push you out of your comfort zone, and also give you the opportunity to hone your ‘elevator pitch’ for concisely and clearly explaining what your company does and the value it brings—you need to be able to sum this up within a minute! Keep it simple—you’re not going for the close here. The goal is to capture enough interest to get 20 minutes for a formal presentation. So begin with an end objective, attune your choice of words to your audience to be sure that within 60 seconds they ‘get it.’
Be creative in offering non-traditional business models to attract decision makers. Look for ways to standout from the existing supply base. Look at this as an opportunity too not only enter into new industry, but as a blank slate to present your company in a new light. Be flexible, don’t confine your thinking to your present business model; be open to alternative approaches…be willing to say ‘yes’ and eager to learn. And be careful to temper optimism with some realistic bounds to ensure that you can come through on your commitments.
When given an opportunity, work to develop trust, build your relationships. And work hard to demonstrate your value. Remember, you’re the new kid in town, so you will have to pay your dues and earn your place. You may even consider proactively tooling-up for a part that is representative of what your prospects want to purchase and going through all of the motions to manufacture, validate, test and document the results as an example to present to prospects. This can be especially valuable if you need to enact a new quality standard; such as a TE Supplement to ISO for automotive tooling suppliers or the AS9100 standardized quality management system for the aerospace industry.
A broader consideration includes taking stock of your company’s identity as it pertains to your new prospective sales targets. So as you continue to narrow the field, consider everything, even your company’s name or your product’s names with regard to your new prospect’s frame of reference. Is your company name so specific to what you do or with whom you do it for today it will confuse potential customers in unrelated industries? If so, consider setting up a division with a name and identity that fits. You can represent the new entity as a division or subsidiary of your company to maintain an association with your reputation and goodwill earned in other industries.
Once you have made your determinations on which markets to pursue, draft a plan. Nothing complex, a simply step-plan will suffice. List specific objectives tied to measurable that are assigned with deadlines for completion. And tie your marketing spending directly to assist in your efforts. Choose to spend on marketing activities that can demonstrate returns.
When approaching your new prospects, don’t over promise, but do over perform—ensure that you customer’s experiences are positive. Each success is a point of reference to build upon. If you do stumble, react quickly to address and resolve issues and be sure that the customer is completely satisfied with the outcome. If you’re following a quality operating system as a part of your QC, then project performance reviews should be a part of your normal course of business. If not, then don’t assume and don’t burden your customers with a lengthy survey. Along the way, simply visit or call and ask if you company is meeting their expectations and if there are areas for improvement.
As you gain experience, complete projects and receive new work, point to your achievements as references to other prospective customers. With your customer’s permission, promote your efforts and mutual successes by contacting a trade publication or a PR agent to have a story produced. Taking advantage to showcase your successes does not need to be a costly exercise. Something as simple as sending out brief monthly or quarterly eNewsletters with an opt-in mail service, such as ConstantContact.com can keep your customers aware of your efforts and prompt word-of-mouth endorsements through email forwards.
The combination of unforeseen industry dynamics, deepening interdependencies between global markets and the present worldwide recession should be a wake up call to US manufactures. If you are not diversifying then chances are your days may be numbered. Entering new industries and diversifying your customer base is a crucial mission that can reduce your exposure to the effects of industry down cycles. Have realistic expectations. Plan on spending one to two years working to establish your company in new industries and be prepared for disappointments and rejections. Learn from these experiences and refine your efforts and find the right people to help you along the way. Resilience and consistent dedication to the process will result in success. Remember, it is possible, you can do this and it’s never too late to start.
Sidebar Case Profile
Company: Imperial Metal Products Company
Imperial Metal Products Company (IMP) of Grand Rapids, MI is a precision component manufacturer, producing over eight million precision parts annually. IMP is one of Michigan's largest manufacturers and assemblers of CNC, lever and automatic turned products. As a normal part of their business planning process, IMP’s management team tasks itself with market diversity. They compared parts that make up aircraft landing gear to parts that IMP produced for their heavy truck customers. Ultimately they determined they had the core competencies in place to go after aerospace, which at that time showed significant signs of growth. Fifteen months ago they initiated their entry into the aerospace and defense markets.
At the time when Imperial made their decision to diversify into aerospace, 35% of their revenue, the largest share came from automotive customers. Initially they faced some challenges as they did not have direct contacts within the Aerospace industry, nor did they have the required AS9100 quality operating system in place to become a tier-1 supplier.
Several months into the effort, they were introduced to the Michigan Aerospace Manufacturers Association (MAMA), a newly formed trade organization, started in 2007, focused on bringing aerospace companies together with Michigan manufacturers. MAMA helped them understand the nature of the industry, its quality requirements and introduced them to prospective customers.
Their investment has paid off, since only 12 months after joining MAMA aerospace now represents 5% of IMP’s revenue, and their additional diversification efforts have balanced their customer portfolio. For example, automotive now represents 15% of their revenues, placing them in a considerably stronger position as this industry continues its contraction. While they continuing to grow their stake in the heavy truck market they are also trying to determine which types of components used within wind turbine nacelles best match their skills.
According to Erik J. Denslow, Imperial Metal Products Company’s vice president and general manager, their experience in entering the aerospace industry required significant dedication of resources in their engineering and quality departments. Digesting new specifications and determining how to meet the specific project bid specifications is time intensive. Presently, their cost of sales is low due to reliance on MAMA as compared to auto sales.
Served in various capacities within capital equipment engineering, robotics, project management, sales and marketing.
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