1.2.2 Prospecting For New Business
What’s your mental image of a prospector? A grizzled man in a bush hat, clutching a hammer and roaming around the outback, chipping away at rock outcrops for months on end?
That’s the cold call, Yellow Pages equivalent of prospecting for new business.
These days prospecting is done from satellites, planes and computer terminals with the result that exploration companies dramatically reduce the odds of finding the ore that they are looking for.
You can adopt the equivalent of these latest techniques when prospecting for new business. Divide the prospecting into three stages.
- Stage 1 - Identify all the options for new business
- Stage 2 - Select the best of them
- Stage 3 - Start the drilling program
Stage 1 - Identifying the options
This is the business prospecting equivalent of deciding what metals you want to find and then analysing all known geological data to identify all the areas where these metals may exist. The Growth Opportunities Grid provides a model to work from.
The growth opportunities grid
Market Penetration - Selling more of the same products to the same customers
- Advantages - least risk opportunity, least cost, can yield quick results.
- Disadvantages - limits to potential growth, no increase in product or customer base.
- Strategies - in multiple supplier situations, increase customer share through superior service, make usage of product easier, provide incentives to attract extra sales, become a business “partner” not “just another supplier”.
Product Development - Selling new products to existing customers
- Advantages - customer base is the same so prospecting & marketing costs are minimised, growth opportunities are potentially greater than with Market Penetration.
- Disadvantages - cost of product development in time & resources, high risk – particularly if new products are unrelated in terms of existing technical or knowledge expertise.
- Strategies - reduce risk by sub-contracting manufacture or by using existing marketing, sales and distribution services, focus on “bolt-on” additions to the product/service range.
Market Development - Selling existing products to new market segments or into new geographical areas
- Advantages - generally lower risk and cost than product development (particularly unrelated product development), usually first option after Market Penetration – new geographical areas often easier to develop than new market segments.
- Disadvantages - support services may not be able to cope with new markets, particularly new geographical ones – new markets may have different needs compared to established markets – existing products may require modification.
- Strategies - expanding into new market segments by extending the product’s use beyond that for which the product was originally designed eg Napisan and Johnson’s Baby Powder. Expanding into new geographical sectors by identifying a potential competitive advantage over existing suppliers – avoid being viewed as “just another supplier”.
Diversification - Selling new products into new markets
- Advantages - has potential to result in a step change for sales (and, hopefully, profitability).
- Disadvantages - highest risk of the organic options for business growth – particularly if the diversification is unrelated to existing business. Also high cost in terms of resources. Development time required can put severe strain on cashflow.
- Strategies - thoroughly explore every aspect of the product and the market and whether you have the resources to develop the product and market it. Develop prototype, mock-up or concept and seek feedback from target market before proceeding further. Identify small number of potential users willing to trial the product.
Vertigal Integration - May be forwards - orchardist goes into juice production, or backwards - wine maker grows own grapes
- Advantages - add value to existing business, secure supplies or customer base, less reliant on others who do not have the same commitment.
- Disadvantages - high investment, long lead times, cash flow, conflict with existing suppliers or marketing intermediaries, may restrict your flexibility.
- Strategies - thorough homework, be sure the option will give the benefits you desire, consider other alternatives for achieving the same objectives.
Networks, Strategic Alliances, Mergers, Acquisitions - Inorganic growth
- Advantages - can provide much quicker results than the DIY approach and can be less costly.
- Disadvantages - networks and strategic alliances frequently do not “work” as hoped because of differing aspirations, expectations and commitment. Mergers and acquisitions work best when both parties have the same rationale and can see the same benefits. Realising the benefits often takes a lot longer than envisaged.
- Strategies - thorough homework and business planning beforehand. In networks and strategic alliances, parties must agree on objectives, roles, expectations and commitments.
Stage 2 - Evaluating the options
Using the Growth Opportunities Grid, you will generate many more options than you will have the resources to explore on the ground. Therfore you will need to evaluate them to identify those that you wish to explore.
Evaluate the prospects using the following acronym TCR3:
- Time - different options will have different lead times.
- Cost (cashflow) - better to have a small highly focuses program that you can afford than a large program that is hamstrung by lack of resources.
- Resources - prospecting for new business must be sustained – not done in lulls in the firefighting!
- Risks - the growth of a company can be likened to that of a human being. In childhood, the risks are assocaited with survival but in adolescence risks are frequently associated with over confidence and lack of experience.
- Rewards - rewards should be commensurate with the risks that are run. But the rewards should be measured in cash flow and profit – not in terms of revenue.
The message is to select your business prospecting program carefully – don’t put all your eggs into one basket but don’t make it so diverse that you lack the resources to do it properly. Above all, does the program play to your strengths?
Stage 3 - The drilling program
Stages 1 and 2 are both designed to make your business prospecting program more focused. But having decided where the best prospects are located, you need to go out into the field and drill.
From here on in, it’s a numbers game. The more holes you drill or business opportunities you explore, the greater the chances of success.
What the preparatory work does is to raise the success rate so instead of contacting 50 prospects and turning 5 into customers, you may only have to contact 25 – or better still – contact 50 but turn 10 into customers.
The huge Olympic Dam mine in South Australia’s outback is located in an expanse of red sandhills. There is no rock anywhere. The original owners, Western Mining, decided to drill there as a result of a geologist’s PhD thesis on sedimentary hosted copper deposits of the type found in Zambia and Poland. WMC drilled 15 holes at the spot where the copper was predicted to be some hundreds of metres below the surface. Nothing. They decided to drill another hole, only this time, deeper still. The drill intercepted the massive ore body that is now Olympic Dam.
Good prospecting!