How Do You Successfully Enter A New Market?
Successful companies usually have a way of doing things. We certainly did when I was at Maxim Integrated Products. Jack Gifford, our CEO, called it “The Maxim way.”
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And our way was successful. The company grew to $1 billion/year in revenue with close to 40% net margins. It was literally a cash machine.
But, and this is a big but, as we grew, our thinking became more entrenched too.
It’s natural and normal for a big, successful company to take less risk as it grows. You can take advantage of this.
For example, we had a product evaluation process at Maxim that we called RODT (Return on Design Time). The idea was that design engineers were the most precious resource in the company, so you should optimize your new product choices for the best RODT.
On paper this was a great idea. It was such a great idea that I used this same basic process, with some tweaks, when I started my company. However, the system could be gamed.
The simple equation for RODT was the Profit Over The Life Of The Product divided by the Design Time. So, you could game the system by increasing the number of years a product would have revenue for. This increases the numerator. Then, to further tweak the equation, you just reduce the man months of design time.
In fact, the RODT selection process led naturally to risk aversion. Projects that had short design times would naturally score better than riskier projects that might have a great return with longer design times.
So instead of taking some calculated risks with product choices, the exact opposite happened. People took less and less risk.
Why was this? I believe the reason people took less risk was, when you’re already an uber-successful company, there was no need to take any risk. You could just stay in your lane, keep your job, and watch the money roll in.
That’s the opportunity for you: Your larger competitor is likely to stay in their lane.
Look at any big, successful company, and you will have senior executives making well over $1 million/year. These executives have nice homes, nice cars, and they take nice vacations.
They are comfortable, and they don’t want to take any unnecessary risks that could cost them that $1 million/year or more.
Now you come along with a disruptive idea that’s out of the big company’s lane. The likelihood is the big company will not react to your competitive threat because the executive responsible for it doesn’t want to take an unnecessary risk.
It’s like an unwritten deal between you and your larger competitor. They’ll let you grow as long you don’t infringe on their market. In other words, “Don’t screw with my $1 million salary, fancy home, and nice vacation.”
That’s your best bet. You can go after that adjacent market that the big company doesn’t care about and grow.
Just don’t try a frontal assault to take their lunch because it will be game on. Then big company will react.
I’m working with a ~$10 million/year revenue startup. They have been operating, competitor free, and doubling revenue for the last two years.
Then, a competitor entered the market with a similar product aimed at their customers. The company I am working with sprang into action.
They developed a war room mentality. And they took preemptive action to block the new competitor from stealing their customers.
The result is the new competitor has failed to gain any market share. If the new competitor had gone after a slightly different market, I doubt the reaction from the company I’m working with would have been as fierce.