Knowing when to take your business into a new market

Jeff Campbell

Vice President

Fidelity Bank

jeffc@fidelitybankmn.com

fidelitybankmn.com

Topic: Banking / Finance

Choosing to make a substantial investment that allows your business to expand its offerings is always a risk. How do you weigh that risk versus the possible opportunities? One company engaged in an eight-month process to justify purchasing new equipment that would allow them to expand their offerings. 

Background: Die Technology was founded in 1988 to design and build precision stamping dies, tools and fixtures. During the recession, some of the large orders they had been receiving dwindled to smaller orders. Die Technology took this in stride, reduced costs and became open to additional opportunities for orders.

Challenge: Coming out of the recession, Die Technology found themselves approached by long-term clients who were used to coming to them for small, high precision parts – and wanted even smaller parts. Die Technology didn’t have the equipment to expand into the nanotechnology space, but customers were pushing them in that direction. They needed to determine if the opportunities outweighed the risks.

Solution: Die Technology Owner Dale Skoog researched the equipment his company would need to expand into nanotechnology and then began the long process of justifying that purchase. He involved his business banker and accountant and asked them to help him assemble a document that spelled out the capabilities of the equipment, the landscape of the new niche, the strategic position they were in to utilize the equipment and the list of opportunities and risks. They looked at the competition in the marketplace to make sure they were choosing the right piece of equipment for the market they wanted to get into. Skoog called many of his customers about the nanotechnology work and the direction their companies were taking, to better understand how many customers would hire Die Technology if they added this capability.

While going through the justification process, they could see there was a lot of overlap between their current business and nanotechnology. This expansion would allow them to provide complete components, even when they included nanotechnology or micromachining. That became a big part of justifying the purchase and they went ahead with it.

Here are some questions to consider when justifying an expansion for your business:

• How is your business positioned in the marketplace and how will this new purchase or investment improve your position or create opportunities?
• Look at your existing customer base and the new customers you could be exposed to – are you in a position to take advantage of that? Are you willing to pursue those new customers?
• Does this distract you from your current business or compliment it?
• Will this increase revenue for your company?

Skoog’s final advice to other business owners considering an expansion: talk to your advisors, do your homework and no matter how compelling the opportunity seems, take your time.