As told by Keith Jackson, Professor of Enterprise and Entrepreneurship at the University of Sheffield
Often, when a business reaches a certain level of maturity leadership begins to think about expansion beyond their original products or their home market. But what does that growth look like, and how might you accomplish it?
One of the most important tenets to keep in mind is that your evolution should come from a secure and stable base. There is risk if you try and expand when your house isn’t in order or your processes aren’t robust and secure. The danger is that you could create a whole raft of new problems to solve.
Once your foundation is solid, consider how you can benefit from your expansion efforts. In what ways can you expand? What people and partners will you leverage? What makes the most sense for your organization’s goals, values and how might this take you towards your vision?
Ultimately, I would suggest that your outlook pushes you to think beyond a customer with an inadequately met need or a new product or service, and instead actually look for different lines or different avenues of profitable growth.
Avenues of Expansion
We’re most comfortable operating in a realm we already know, so if the business model is to take raw material, components and to produce an orthopedic device and then sell that to a group of clinicians in hospitals, of course, you can do more of that, but thinking more laterally about using capacity and core competencies to get a different revenue line can work to de-risk the revenue stream.
Do you have a strength you could leverage to draw additional revenue? One example would be subcontract manufacturing. Let’s say you have a specialized process or technology that you have invested time optimizing, or you have some core competencies within the organization that are not fully utilized. Or perhaps you have spare capacity, and there’s a business case to be made where you could expand that capacity to realize the opportunity and get a return on the investment.
For example, suppose you have a specialized process as part of your manufacturing capability. In that case, if you’re careful about how you promote your expertise and who you work with, you could leverage that capability either upstream or downstream in your supply chain. In fact, you can actually leverage your supply chain as a starting point. If you’ve got a team of people manufacturing or assembling a particular type of product, it’s pretty easy to then use some of that capacity to assemble a similar product for somebody else.
There are multiple ways in which you can view subcontract manufacturing. It’s not just turning raw materials into finished products for a third party. It might be a combination of things, and it may be reciprocal. It’s an excellent example of how you could suddenly get a new line of revenue without necessarily investing in additional overheads. If you have the capacity, and you frame the partnership carefully and you’re both clear on what each party is trying to achieve, you can create an additional revenue line that is entirely separate from your normal group of customers. A different customer group de-risks your revenue flow.
Also, you’ve got the existing capability and perhaps capital equipment, so you are starting to get some economies of scale benefits, which isn’t just about the revenue derived from selling that specialized process, but also it has net benefits on your in-house activity because you’ve got improvements in efficiency and utilization. Clearly, you need to monitor how these competing demands impact your production schedule.
Another avenue of expansion is an inbound route rather than the outbound route. If you have gaps in your portfolio and there’s a company that has a product that would fill that gap, it could be beneficial to partner with them. It may be under their brand, so it becomes a restricted product, or it can be a white label under your own brand. The best examples of portfolio gap filling products create additional sales of your existing products because you now have a more complete and competitive product range.
On the flip side, perhaps you have a mature product that you have that may be a good fit for someone else. As long as there isn’t a significant overlap between the pools of customers you’re trying to serve, you could allow other organizations to white label your product. This works particularly well with end-of-life products, where you’re working on a next-generation version and you have a stock and processes optimized for the current product. Extending that product’s life cycle by selling it to another organization as a white label product, you can use that additional revenue to turbo-charge or fuel your next-generation product development.
White labeling your product is also a great way to expand into new markets. By partnering with companies overseas or across borders, particularly those that have established a strong presence but have a gap in their portfolio that your product can help to fill, you can increase your revenue stream and develop revenue from a market that you lack the resources or time to enter, or it simply isn't a strategic imperative just now.
Similarly, licensing some of your intellectual property to another company can be an additional revenue stream. You can increase market reach quickly by licensing a product to a company who already has the market presence and sales channels established. This is passive income in terms of an annual fee and percentage of commission on sales and a revenue stream that didn’t exist previously.
Collaborating to Enable Diversification
One of the key aspects of an innovative culture is the appetite and ability to collaborate. For a business that’s looking to diversify and seeking to identify opportunities to expand the business, perhaps with new lines of revenue, a large part of that requires collaboration both internally and externally.
Similar to learning to innovate, organizations need to learn to collaborate. That philosophy might start internally with use of cross-functional teams learning how to work together across departments. Medtech and orthopedic companies in particular are really good examples of diverse and multi-skilled teams, so deliberately drawing out that skill set and developing it can be very beneficial.
Start with a project internally. Whether the project is small or large, perhaps directly link it to how you can grow and expand your business. Cross-functional teams that include multidisciplinary skills and experiences is a really strong element, particularly instead of working in silos.
Once a company becomes more mature in those approaches, they can then start to apply that method externally. Typically, that might be things like research and development, or new product development. With regards to orthopedics, involving clinicians brings that multidisciplinary aspect to your product development. Think also about how you can interact with your supply chain, your vendors, and maybe involving them in the collaboration.
Nobody has all the answers. By collaborating, particularly externally, the sum is greater than the parts. As long as you’re both aligned, you both have the same goal in mind, you’re leveraging a much greater diversity. Different thinking, different experiences, different perspectives on the same market or the same market opportunity is tremendously potent, not just to surface better ideas but to find ways to work through challenges and generate profitable revenue.
Also, you have extra resources because you’re sharing the burden of that development with others. As long as there’s something in it for both parties, it’s a win-win that amplifies your ability to achieve the goals.
Working Across Borders
There are a lot of smaller organizations that have probably successfully collaborated with key customers close to home. But it gets much more adventurous if you start to do that across borders. Cross-border collaborations are very multidisciplinary because it requires some cultural fluency to work in different ways rather than the way you’ve always worked.
A huge organizational learning and masses of opportunity can come from that, because you’re perhaps working in a different market than your partners, so the opportunity to expand your business as a direct result of that collaboration is very palpable.
New thinking, new ideas, shared resources, different or complementary expertise and skills and experiences are all tremendous benefits of collaborating outside the organization.
Co-development may be the hub of all of this coming together. It could be new technology, new process or a new product. You’d be sharing the research and development, resources, intellect, costs, some capital, etc., with a supplier, an export partner, academia, or any other organization. Many universities have intellectual property that they’re trying to commercialize.
The key to co-development is thinking about the route to market, but also the route to revenue. From the outset, how are you going to share this fairly and equitably and avoid falling out further down the line? Be open minded before entering into a strategic partnership, particularly if they’re across borders with a cultural dimension. The most successful partnerships draw upon those diverse skills, experiences and perspectives, and over time they can become multi-faceted with a range of collaborative activities that ultimately create value for both parties.
Professor Keith Jackson has 30 years of experience in Medtech, leading change as a CEO, Director and Advisor. He has worked with, visited and learned from some of the most innovative organizations, from San Francisco to Shanghai, including Salesforce, Jaguar Cars and Alibaba. He studied disruptive strategy with Harvard Business School and helps organizations create a much more innovative culture, enhancing competitive advantage.