Expansion: up, down, left, right, forward or back – which way is best?

So you’ve built a successful business doing what you do – you do it well and you business is going well, but you want to do better so what’s the best move? As with a spin of the dice there are six options:

[easy-tweet tweet=”Roll the dice with @BillMew and look at where expansion should be happening” user=”comparethecloud”]

1. A step to the left: expand into new markets

Going global or at least entering new neighbouring markets is an obvious option, but routes to market can be a challenge (depending on your type of business). ISPs or MSPs can offer services across borders but sales, marketing and support needs to be market focused. One answer is to work with a distributor (such as Arrow) that can help you enter and exploit new markets. The main focus here is to serve more potential clients and grow revenues while if possible achieving economies of scale.

2. A step to the right: consolidate into local market niches

A less obvious step is to focus on fewer markets and try to specialise more in order to drive up margins. It might once have been possible for a jack-of-all-trades to make a good living, but it is becoming increasingly important to focus in order to develop an enhanced value proposition to a particular market segment.

It might once have been possible for a jack-of-all-trades to make a good living, but it is becoming increasingly important to focus in order to develop

If you specialise in solutions for legal practices, understand their value chain from end to end, have skills in all the specialist software packages that they use and have developed your own IP (templates, modules, methodologies or packages) for this market then you can earn a far higher margin as a specialist than a generalist would, and you’d be far more likely to retain and win business. Initially you focus on margin growth, but once you earn a good reputation in the niche market you may experience revenue growth also.

3. A step forward: expanding your product portfolio

There may be new products or services that you can develop or resell that complement what you already do. You don’t even have to do anything extra yourself – investing time in developing partner networks can enable a set of smaller firms (each specialist in what they do) to work together as a team of best of breed players that can challenge the bigger players for larger deals. For example a communications specialist like GTT, which doesn’t offer cloud services and so doesn’t compete with its partners, might be able to add an extra dimension to any proposition. Add a few more such players and you soon get a dream team.

[easy-tweet tweet=”Investing time in developing partner networks can enable a set of smaller firms to be best of breed players” user=”billmew”]

4. A step back: consolidating your product portfolio

Just as there is an opportunity to enhance margins by specialising in a particular market niche, there is also opportunity to become a product specialist. There are risks in doing so – Amazon has crushed numerous specialist retailers (starting with bookshops) by entering their markets and undercutting them. The only protection here is to develop differentiation in any product niche through IP. The problem is that in the cloud era it is easier than ever to copy what others do.

5. A step up: climbing the product stack

Many firms sell to a market, and believe that they understand what that market sells into, and that they could move up the stack by entering them. Oracle understood databases and thought that entering the market for applications that sit on top of databases would be straightforward. Years of effort and billions spent acquiring Siebel and PeopleSoft have only generated limited success here. The problem is that you may understand your own clients, but to enter their market you’d need to understand their clients as well which is not as easy as it sounds.

6. A step down: descending the product stack

Often it is easier to descend the product stack. Apple have a market winning smart phone, but struggled to climb the product stack to offer a mapping app. Instead Apple has had more success descending the stack to develop its own components, such as processors. Being its own client it had no problem understanding its own needs

Expansion doesn’t necessarily need to mean revenue expansion

Expansion doesn’t necessarily need to mean revenue expansion. Some of these strategies are more focused on margin expansion. Indeed for many of the VARs, MSPs and other channel players that we meet the second option, consolidating into local market niches, is the best tactic for long-term survival.

We’re not suggesting you base your strategy on a roll of the dice. You need to be focused on whatever strategy is right for your business, but sitting still and doing nothing is not a viable option. This is especially true if, as many small firms find, you have evolved over time into a jack-of-all-trades with a scattering of clients across a number of market segments – with little in common between all of your clients. The cost of continuing to serve a broad set of markets and broad set of requirements will become increasingly difficult and you will lose out to the specialists described in option two above. Combining this with the development of partner networks described in option three might also help.

For many small tech firms, rolling a 2 might well be the best result they could hope for.


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