Welcome to the second part of our two-part series, “The Basics of Finding New Sources of Business.” In Part 1 of this series, we explored various ways to grow your business, including increasing customer spend, diversifying, and increasing market share.

In this part, we seek to inspire more ideas for driving growth through disruptive innovation, alliances, and partnerships. Then we wrap up this series by taking a quick look at how to analyze your company’s strengths so you can leverage them to grow in the right direction.

The Basics of Finding New Sources of Business

As we explained in Part 1, growth is essential not only for a business to succeed but, more important, for its very survival. As the old saying goes, “If you’re not growing, you’re dying,” and that’s especially true for small businesses. If you’re not actively pursuing customers, a competitor will be chipping away at your consumer base until the entire foundation of your business crumbles. This series might inspire you, but only you can do the difficult and creative work to make growth happen.

Growth Through Disruptive Innovation

One great way to quickly grow a business is through disruptive innovation — introducing a new product or service to a market that makes traditionally successful products or services in that market obsolete.

Two familiar examples of disruptive innovation

Here are a couple examples of disruptive innovation that you’ll probably recognize:

  • The first digital cameras were low on functionality and didn’t match the quality of traditional film cameras. The leading camera manufacturers, including Kodak, continued to manufacture and market cameras that used film. This of course left a massive opening for smaller consumer electronics manufacturers to nearly supplant their larger and more entrenched counterparts. Since then, smartphones have made traditional digital cameras nearly obsolete.
  • In its early days, Amazon.com disrupted traditional bookstores, using the Internet and traditional delivery services to make it far more convenient and less expensive to purchase books. It has continued to disrupt the publishing industry with its Kindle reader and self-publishing services, making it possible for authors to publish and sell directly to readers.

Principles of disruptive innovation

Several factors make disruptive innovation possible. By understanding these factors, you have a better chance of identifying the soft underbelly of large companies and taking advantage of their susceptibilities:

  • Large organizations commit a significant portion of their resources to improving current products and services, making it difficult for them to change direction.
  • Large organizations tend to ignore smaller markets, focusing instead on larger markets with more profit potential, thus creating a space for a disruptor to move in.
  • Small markets are difficult to analyze, so large organizations often overlook them.
  • Well-established organizations have developed cultures over time that tend to resist change.
  • Traditional products and services may overshoot what customers need and desire over time in terms of features and price, providing an opportunity for a disruptor to enter the market with a product that has a smaller feature set at an affordable price point.

Form an Alliance or Partnership

Arrangements between two or more companies that enable each to combine resources to enter new markets, share financial risks, and deliver products and services to market faster, are well worth exploring. These types of alliances and partnerships are generally supported by formal business arrangements and when done correctly, are massive drivers of growth.

When scoping out alliance or partnership opportunities, look for businesses with the customer/client demographics won’t compete for the same sales. In other words, related businesses that aren’t direct competitors. For example, if you own a heating and cooling business, you may form a business alliance with a company that specializes in insulation.

Of equal importance is ensuring that the partnering business shares your values. In other words, is the prospective partner aligned with your views on product/service reliability, customer service and support, truth in advertising, and its role in the community.

Alliances suit small business

Alliances make sense for small businesses, especially if they’re trying to compete against a larger one that has more resources. With an alliance, two or more businesses can pool their resources to invest in product development and marketing, or simply drive down the cost of operations. For example, two businesses can share an office and office staff.

Joining forces with another organization can allow you to share expertise, equipment, production costs, and other expenses, and manage risk without necessarily merging or forming a legal partnership.

Marketing and product alliances

Two types of business alliances that are increasingly popular are:

  • Marketing alliance: A joint effort between two or more businesses to build awareness of the features and benefits of their respective products or services. A marketing alliance can be as simple as exchanging email lists or producing a website or a catalog offering the products of both companies that saves on website development and printing and postage costs. A marketing alliance expands your market without the usual expenses of acquiring a new customer base.
  • Product alliance: A mutual agreement to sell one another’s products/services. A product alliance enables you to expand your product line and customer base without any of the usual costs associated marketing and introducing new products — manufacturing, distribution, or the creation of a product inventory.

What to look for in a partner candidate

Forming an alliance sounds like a great idea, but what sorts of businesses would provide the right opportunities for your business? Consider the following potential candidates:

  • Key customers: If you’re selling a significant amount of your products or services to one customer, you have an opportunity to explore an alliance between your organizations. Aside from the possible growth in sales, cementing the relationship into a long-term business alliance will help prevent the risk of losing one of your biggest customers.
  • Brand leaders: A brand leader can boost your business profile through association and open opportunities for joint marketing and advertising efforts, selling each other’s products, and more.
  • Competing businesses: Although non-competing businesses usually work best in business alliances, sometimes teaming up with a competitor can be to your advantage. For example, you may work with a competitor to service contracts that would otherwise be too large for either of you to handle by yourself. Or you may refer new customers to your competitors in exchange for a commission if you’re overextended and don’t have the resources to serve them.

Establish a joint venture

A joint venture is a form of alliance that unites two separate businesses in a specific business enterprise; for example, you have a product but no distribution infrastructure, so you team up with another business that has a distribution facility that can get your product to market for a share of the profits.

With a joint venture, you’re not creating a formal partnership, so both parties can enter into and leave the relationship at any time. It’s a good way to test the waters. In the previous example, you find out whether your product is viable before committing capital to building your own distribution facility.

Merge with or acquire another business

Mergers and acquisitions (M&A) have been a staple in the world of business for some time:

  • Merger: A merger occurs when both businesses dissolve and place their assets and liabilities into a newly created third entity. This entails the creation of a new corporate body.
  • Acquisition: An acquisition is also called a takeover or buyout. It’s simply the purchase of one business by another.

Mergers and acquisitions can be part of an approach to growth, even for a smaller business, although it’s usually the case that a smaller business is acquired by a larger one, and the smaller one ceases to exist under its current brand and operational structure. If yours is the business that’s disappearing, that’s not necessarily bad — you may sell the business for a handsome profit or negotiate another outcome that serves your interests.

Approach alliances from a customer’s perspective

Approach the formation of alliances from the perspective of your own customer base. Develop a profile of your customers that shows what they buy, how much they spend, what else they buy, and any other relevant data. Then create an alliance that meets their needs as well as yours.

A good example would be an alliance between a landscape gardener and a nursery. Both sell to customers with similar interests, but they do not compete directly. The landscape gardener can help the nursery increase its overall sales volume in exchange for a discount. In addition, the nursery may agree to provide valuable referrals to the landscape gardener.

Dare To Be Different!

If you’re just starting a new business venture, think about growth from the get-go. Look for ways to distinguish your business and the products and services you plan to offer from what’s already available.

Being unique does not necessarily mean that no one else provides the same product or service. What it can mean is that no one else is providing the product or service in the same way that you intend to provide it. For example, you can create differences simply by:

  • Finding better ways of serving selective segments of a market
  • Adding a new twist to something old
  • Marketing more creatively
  • Offering superior customer service
  • Providing content of an educational nature

Go with Your Strengths

At the beginning of our two-part series, we talked about growth metrics. It’s up to you to choose the growth metrics that will reflect success in your business and work toward improving your business in those areas. Think in terms of your business’s strengths — what your business does differently and better than competing businesses — and build on those strengths.

Avoid anything that’s not focused on what you’re doing now. A brick-and-mortar bookstore trying to expand into sales of kitchen appliances would be facing an uphill battle. You need to be certain you have both the resources and the ability to make it work, and of course you need to be sure it’s going to increase your profitability. Otherwise, it’s not worth pursuing.

Go Forth and Grow

At this point, you should have at least a few ideas for how to grow your business. Choose one and get to it. Look for ways to increase customer spend, to diversify, to expand market share, or to disrupt an industry. Make a list of businesses that might offer profitable opportunities for an alliance. Spend some time researching the possibility of pursuing sales to government entities. Set growth targets for your business and decide which metrics you’re going to use to measure success. Develop an approach for growth around the strengths of your business, and you’ll have a much better chance of achieving success.

All businesses need to create opportunities for growth, or they risk becoming unsustainable and irrelevant. Any company that doesn’t find new sources of business will eventually go out of business as its existing customers depart. Commit to success through continuous growth.

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About the Author: Laura Stees, CPA, is a founding partner of SWC — Southern California’s independently owned tax planning and financial strategy advisory firm for small-business owners, real estate investors, and high-net-worth individuals. The driving force behind SWC’s brand and operations, Laura advises the firm’s clients on several fronts, including tax planning, business growth, estates and trusts, investment vehicles, legacy planning, and other net-worth-generating strategies.

Disclaimer: The information in this second blog post about finding new sources of business is provided for general informational purposes only and may not reflect current financial thinking or practices. No information contained in this post should be construed as financial advice from the staff at SWC (Stees, Walker & Company, LLP), nor is this the information contained in this post intended to be a substitute for financial counsel on any subject matter or intended to take the place of hiring a Certified Public Accountant in your jurisdiction. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate financial planning advice on the particular facts and circumstances at issue from a licensed financial professional in the recipient’s state, country or other appropriate licensing jurisdiction.