Each week as part of their America's Most Promising Companies program Forbes magazine sends out a topic for bloggers in their network to comment on. This week's topic comes from Brett Nelson, Entrepreneurs Editor at Forbes:
Small companies must get creative to survive the recession - even going so far as to branch into new lines of business (assuming they have the cash to do it). But mission creep comes with serious risk. What are some tangible do's and don'ts about expanding your product line?
A major focus of our research this year has been on how small businesses innovate, so we have seen a lot of examples of companies expanding their product lines and getting into new businesses. The successful firms tend to:
1. Use low cost experimentation and improvisation to try new products out. Small businesses are resource constrained and that can be an advantage. Successful small business innovators run low cost experiments and quickly decide whether or not they are successful. Failures are tolerated but stopped when it is clear they are not working. Costs and risks are contained and multiple experiments provides more opportunities for success.
2. Use incremental innovation to improve and extend their products. Many small businesses are natural, continuous innovators who constantly tweak, adapt and adjust their product lines. Small, incremental improvements can have big payoffs. They also are less costly and risky than larger innovation efforts.
3. Design new products that help their customers better accomplish their jobs. Small business have strong customer connections and knowledge. Successful innovators use that knowledge to extend their product lines to provide greater customer value and help their customers accomplish their tasks.
An example is a pool service company we interviewed. They added a new leasing option for an advanced piece of pool monitoring equipment. Their customers, who were cash constrained, jumped at the opportunity to lease the equipment rather than buy it. The pool service company understood their job was not just to clean pools, but to provide services that helped their customers provide a clean and safe swimming experience within their financial constraints. The program was a huge success for the company.
4. Use business model innovation to enter adjacent markets. We saw many examples of small businesses that successfully entered new, adjacent markets through business model innovation. Often they simply extended their business model to another product area of interest to their existing customers that uses a different business model.
An example is a rent-to-buy retail store chain that moved into used auto sales. The combination of their existing customer relationships, credit skills and rent-to-buy sales model allowed them to provide their customers much lower monthly costs relative to buying a used car. Their car business quickly became their most profitable product line.
5. Use technology to provide new products and services or to add value. We saw many examples of technology being used to design and build new products or extend existing products. A professional quilter we interviewed purchased a computer controlled quilting machine that allowed her to ramp her production by over 500%. And, of course, the Internet, social media and other online technologies have provided many small businesses with new opportunities to extend existing products or create new ones.
One of the most exciting parts of our work this year has been the opportunity to see how innovative America's small businesses are. We were continually impressed by the ability of small businesses to embrace new ideas and have the courage to pursue them in this tough economic climate.