When driving organic growth within your business, there are a few directions you can take. You can attract more customers who will buy the products you’re already selling. You can offer bigger, more expensive products to your existing customers. Or you can try to offer new products to your existing audience—or a whole new audience.
While there may be more risk expanding into the unknown of adjacent markets, there are also great rewards to be found if you can pull it off. And in today’s turbulent times, it pays to explore every potential avenue for growth.
James Allen and Chris Zook of Bain & Company spent a lot of time researching companies that attempted such an expansion. Some succeeded consistently, others were hit-or-miss, and still others failed entirely. After examining companies’ expansion attempts, Allen and Zook established some guiding principles for moving into adjacent markets, as outlined in this Harvard Business Review article.
By following in the footsteps of the most successful companies, you too can move boldly into new markets that will allow you to capture more customers and greater revenues. The ability to enter adjacent markets is a key variable in our Growth Mindset Assessment, which predicts your ability to accelerate your company’s sales growth rapidly. Here, we’ll walk you through what we have seen work, along with the elements of successful expansion into nearby markets outlined in the HBR article.
Pick an Actual Adjacent
Let’s start with the obvious: Not all businesses can expand into all markets. If you’re a children’s book publisher, it might make sense to move into adult literature. However, a move into the snow tire business would be ridiculous.
Of course, that’s an extreme example of what does and doesn’t constitute an adjacent. Usually, there’s more grey area. For that same children’s book publisher, would it make sense for them to expand into children’s magazines? The answer is less obvious.
Allen and Zook took a look at 181 different companies and discovered that there were six types of adjacency moves that were regularly most successful.
1. Move on Up (or Down) the Value Chain
All businesses operate along some type of value chain. From suppliers to distributors to marketing and sales, your business is somewhere along the chain from the source to the consumer. Moving up or down the value chain is about identifying ways to take over more of the processes along the line.
At the start of the pandemic, farmers across the US were forced to dump incredible volumes of produce because their restaurant customers disappeared overnight, and they had no way to get the product to individual consumers. Now might be a time for those farmers to consider expansion into packaging. If they had control over that portion of the supply chain, they could pivot from making commercial-sized containers for their products to ramping up production on grocery store-appropriate packaging.
Of course, moves like this are difficult to pull off. When you’re moving up or down the value chain, you need to consider a whole new host of logistical issues and often have to invest in new infrastructure, technology, labor, or all of the above—not to mention the risk you take in upsetting your key suppliers or customers once you start competing with them.
2. Offer New Products and Services
Businesses make moves into new products and services often. Once you understand your ideal customers (or as we like to call them, your whales) and know what makes them tick, you can develop new offerings that speak to their needs. At one of our Campfire Chat webinars, Heather Becker, Director of Marketing for Vistage Worldwide, shared a case study of this understanding in action.
Case-Mate company makes phone accessories like cases, chargers, and car mounts. When the pandemic started and consumers everywhere scrambled for products to clean their belongings, Case-Mate’s team realized their whales would want something to help them keep their phone screens clean, too. Case-Mate quickly developed a disinfectant wipe designed to clean your phone and leave your screen streak-free.
3. Expand to New Distribution Channels
Are there more ways for you to reach customers? Businesses who have defined themselves narrowly in the past have the opportunity to change their positioning and expand into new distribution channels.
Many businesses deemed nonessential were forced to close as shelter-in-place orders went into effect across the US. Beauty brands felt the pain of these closures since their products are often sold by nonessential retailers.
That’s why beauty brands are now taking a new approach to wholesale: Morning Brew reports beauty brands are establishing relationships with grocery stores. By getting their products picked up by essential stores, these brands guarantee continued access to consumers at brick-and-mortar locations, even if there are more lockdowns to come in a second viral wave.
4. Push Geographical Boundaries
You’ve got the basics of running your business in one region or country down pat. How about expanding into another geographical area?
Businesses often focus on geographic expansion because it eliminates some of the unknowns that come with other adjacencies. While there are, of course, regulatory (and perhaps cultural) hurdles to consider, it’s often easy to take the process you’ve already established in one location, find similar consumers elsewhere, and repeat your approach in this new area.
5. Greet New Customer Segments
Your products or services are working great for your existing customers, but are there others who might benefit from what you’re doing?
Take Merrow Manufacturing, for example. The Massachusetts-based company was in the business of designing and sewing technical apparel. When they saw the need for PPE, including hospital gowns, they began sewing thousands of gowns for healthcare workers in Rhode Island. Merrow ultimately picked up a contract from the state for a half-million gowns.
6. Move into the White Space
What unmet needs are present in your industry, and what could you do to meet them? This is by far the trickiest type of expansion to achieve, but it can generate incredible results.
The one silver lining to leading a company through such a volatile time is that new white space opportunities are opening up every day. Consumer needs, government regulations, and information about the virus are changing daily. Keep your eyes peeled for wide-open spaces that can crop up overnight.
Turn to Customer Data to Create Your Plan
In looking through that list of types of adjacent moves, perhaps you’ve found one that’s caught your eye. Thinking about your current business model, it seems doable. And you’d like to explore the possibility further.
The first step is to examine your customer data. By unifying your customer data, you can come to a deeper understanding of your existing customers and your market.
Now more than ever, consistent and accurate monitoring of customer data is critical. Because the world is shifting so quickly, you need to keep your finger on the pulse of consumer needs.
Creating a dashboard that you consult regularly allows you to monitor current realities easily. Once you understand where you stand, it’s easier to formulate a plan to expand into nearby markets.
Be Methodical
When it comes to developing your expansion plan, it pays to be methodical. Expanding beyond your core business will add levels of complexity to your model. If you’re chasing unimportant opportunities and putting out unexpected fires here, there, and everywhere, you’ll quickly lose control of your plan.
Instead, take the time to develop a step-by-step approach to your expansion. Bring all of the relevant leaders and teams into discussions. Make sure that everyone knows the big picture and their role within it.
It helps to put together a process document that outlines the set steps. That way, no one feels tempted to move ahead to things that should come later—the right way to proceed has been laid out already.
Expanding into new markets involves a lot of moving parts; you may need to do things like build new relationships with vendors, get regulatory approval, establish a clear supply chain, become familiar with new technology you’ll need to power your expansion, pique consumer interest, and begin the sales process with a whole new audience.
Of course, it doesn’t make sense to begin talking to prospects if you don’t yet have approval to operate in your new market. There is a correct sequence to any expansion. Jumping the gun on any one step can create chaos and doom the project.
Don’t Mess with Success
So you’ve used customer data to create a plan for your expansion, and after lots of hard work, you’ve pulled it off! You might feel tempted to expand into another adjacent, since your first attempt was so successful. And there’s nothing wrong with that; just don’t feel compelled to reinvent the wheel.
If you’ve found a formula that works for you, don’t mess with success. In their article, Allen and Zook present the example of Nike, a brand that seamlessly expanded from one adjacent to the next by uncovering a successful formula and sticking to it.
By way of contrast, they offer up Reebok, another sporting apparel retailer, that took a helter-skelter approach—without much success. They expanded first into luxury footwear and then (perplexingly) into boating. All of their efforts floundered, and Nike pulled ahead across all sporting categories.
Adhering to your successful formula will help in a number of ways. First, it makes the evaluation process easier. As you consider a new expansion, ask if it’s one that you can easily plug into your existing model. If not, reconsider the opportunity.
Second, it reduces complexity and increases your speed. You’ve already done it once, so you know where the potential pitfalls lie. The second or third time around, you can dodge them more nimbly and get to the finish line faster.
This leads us to the final benefit: Following a formula allows you to improve your processes constantly. You know we love data, so we hope you’re tracking the results of every expansion effort you’re undertaking. The beauty of testing and experimenting is that you can refine your process more and more each time.
Expanding into adjacent markets represents an opportunity for businesses to grow their reach and strengthen their revenue. In times of uncertainty, it’s particularly important to consider novel ways of reaching customers—whether they’re people you already know or a whole new market.
Start by doing your research and creating a clear map to reach the finish line. By proceeding cleanly from one step to the next, you can ensure a smooth and successful expansion into new worlds for your business.
About the Sterling Woods Group, LLC
The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.
We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.
About the Author
Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.
Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.
He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.
Rob lives outside Boston, MA with his wife, Kate; daughter, Leni; and black lab, Royce.
