Whether brewing a perfect espresso or selling tires to your local customers, nothing is of more interest to the small business owner than profitably growing the business. Although growth comes in many different forms, once a business is in a stable state, companies primarily expand through 1) new product extensions (line and category) or 2) new market development (channels and geographic). Both approaches are highly effective in increasing revenues but often require greater capital which may negatively influence the bottom-line. Again, carefully assessing the current and projected cash flows prior to executing a strategic opportunity is imperative in a successful small business venture.
Perhaps the greatest product extension success story is none other than that of Apple’s iPhone. At the turn of the millennium, the mobile phone market began to expand rapidly and the European and US markets were close to saturation by the mid-2000s. When Nokia, Ericsson, Motorola, Samsung, and BlackBerry were battling it out to take a piece of the market, Steve Jobs quietly began his quest to introduce the iPhone after successfully expanding into the music industry with the iPods. In January 9, 2007, Jobs made his emphatic introduction of the iPhone at the annual Macworld trade show, a phone featuring the market’s largest screen size and a full touchscreen system that eliminated the conventional dialing keypad. Combining the functions of a PDA, iPod, and cellphone, the iPhone was an innovation of the commodity.
Apple’s stock performance from 2007 to 2015 is evidence of the product extension success: from $11.40 per share in the first week of 2007, the stock price was well over $600 in 2014 (it is currently traded above $100 per share, after a 7 to 1 stock split). Similarly, acknowledging that most small business owners are already playing in a saturated industry, an innovative approach to enter an existing product category can reap prolific outcomes. Of course, it’s much easily said than done, but keeping a keen eye on new product line/category opportunities that leverage your existing assets (skills, know-how, equipment, etc.) is a prerequisite to growth.
By: Charles Barr
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