Targeting Adjacent Business Opportunities as a Growth Strategy

Adjacency, as a business growth strategy, is an enticing concept. On the surface it suggests a business direction that can be considered familiar territory in one or more ways, and overlaps with the company’s present business suggest synergies which can be exploited.

In this respect, targeting growth through adjacency can signal early buy-in throughout the organization and makes management support easier to obtain.

An “adjacency strategy” is frequently linked with one or more of the company’s current strengths within certain business areas where they have achieved a significant level of success. The intent for pursuing this type of strategy is to replicate this success in an alternative “market” space. The best circumstance for initiating an “adjacency strategy” is when the business strengths upon which the strategy is based are aligned with the company’s core competencies.

“Adjacency,” as a business strategy, means different things to different companies. In part this relates to the differences (company-to-company) in the products or services for which the company is known. A company’s choice to pursue an “adjacency strategy” is often influenced by its confidence in the resulting values that it can bring forward to a neighboring “market” space.

What key elements of a business can be considered as a foundation for pursuing an adjacency strategy? Table 1 provides a list of the key elements that individually or in some combination are used as a basis for considering an “adjacency” business strategy.

The desired business scenario is when more than one of the company’s current strengths or core competencies fit with the needs of the targeted adjacent business opportunity. In the best circumstance, certain of these strengths address unmet needs or provide a differentiated value proposition for the company when compared to incumbent competitors.

Geographic Expansion

Geographic expansion is a frequent consideration as an “adjacency” growth strategy. The premise is that by exporting an existing business model into a currently un-tapped geographic region or territory that past success can be repeated. Unfortunately, a wide range of unanticipated obstacles often surface during implementation that complicate this task.

Cultural differences, customer expectations for support, supply-chain issues, etc., can make it much more challenging to mount a competitive effort. In general, expectations within the region or the country have been set by the incumbent suppliers.

In this regard, companies that research the geographic situation and benchmark the competitive landscape in the targeted adjacency ahead of initiating their business strategy are able to better plan for and avoid many of these unexpected complications.

Channels-to-Market

An effective channel-to-market business strategy is critical to the success of most companies. When planning to enter an adjacent market, it is necessary to determine If the targeted adjacency can be effectively served by the company’s current channels-to-market. If not, then a viable strategy needs to be identified and included in the business plan that will support the company’s business objectives before moving forward.

If distribution is required to support the sales effort, determining whether the company’s current distributor network is able to provide effective coverage in the adjacency. Not having an established business relationship with a quality distributor in a new market space (or geography) is not an easy fix. If your company is only a line card option and not one of the distributors principal sources of supply, it can derail the business strategy from the start.

Technology and the Competitive Landscape

When entering an adjacent market space, the overall strength and depth of the relevant product lines can elevate the company’s image in relation to the existing competitors. Understanding the strengths and weaknesses of incumbent suppliers is important in developing an effective business strategy in the adjacency.

If the company has disruptive technology or possesses an established, recognized brand, this can elevate the company’s entry efforts and provide a leg-up versus existing competitors.

Concentrating on select market segments or niche’s, can help focus company resources at the outset, partially compensating for a limited number of resources being available to support entry into the adjacency.

Market Requirements and Business Conditions

Business conditions and industry requirements often differ and may vary a lot when entering an adjacent market space. Market requirements can vary due to regulatory actions, industry specifications, etc.

The size and capabilities of key competitors currently serving the targeted adjacency can be formidable. This can require a careful assessment of how to address the competitive challenges that exist in the space before implementing an “adjacency strategy.”  
 
Government policies and the political climate within different geographies can also significantly influence the type of products or services required to satisfy an adjacent marketplace.

In general, these are strategic business issues that need to be sorted out prior to initiating and entry strategy. Surprises are never welcome after the fact.

Manufacturing

Benchmarking the existing manufacturing infrastructure through a SWOT analysis (within the targeted adjacency) is important. This will help determine your company’s competitive position and the hurdles that need to be overcome at the point of entry. At the same time, the SWOT analysis will reveal opportunities for market penetration based on weaknesses identified.

For markets that operate in a JIT environment or are dependent on a complex supply chain, the task of changing suppliers represents a significant risk. If incumbent suppliers manufacture their products in reasonable proximity to their customers in the target geography, entering this market employing an import strategy can put the company at a significant disadvantage.

If the company’s products are highly differentiated and unique, an import strategy may support initial market entry efforts in a new space. In the longer-term however, this approach provides competitors with valid arguments that often limit future opportunities for growth.

Key Customer Relations, Sales, and Technical Support

The value of having a physical presence with existing and potential customers is clear. When targeting entry into an adjacent market space where your company or products are not well known, it is necessary to have a strategy to address this issue.

Direct contact and accessibility to sales and technical support personnel by customers is an important component for establishing company credibility in an adjacency. If customers are already getting personal contact from their present supplier(s) this issue needs to have a high priority in developing the company’s strategic plan.

Distribution often provides a good option for new entrants as opposed to strong reliance on direct sales. When choosing a distributor, determining the level and quality of direct customer contact provided by the distributor, compared to that provided by established competitors, is important.

In the case of technical support, a well-organized and an easy to access program with individuals that customer can talk too (not a recording) is a potential differentiator.

Summary

The decision to pursue an “adjacency business strategy” has appeal as it implies taking advantage of a current success and applying it to another business opportunity. The ease at which this new strategy can be successfully implemented, however, can vary a lot.

An “adjacency strategy” can contain many “pot-holes” or even some “dead ends” that did not exist in the baseline business model. Contemplating entering an adjacent business area requires planning and an appropriate level of market research to ensure a successful outcome. Avoid making assumptions. Take the time to validate a business plan for the adjacent space you are planning to enter.