Marketing Strategy: Choosing a Primary Direction

How do you grow your business? Or do you grow it? What direction should you take? Figure A shows the four areas of direction that a contractor should evaluate. Let's examine those areas and talk about the risks associated with each opportunity.

Each quadrant of the matrix represents a fundamental marketing direction. A planning team may want to use this matrix to assess overall direction prior to establishing more specific marketing objectives, strategies and tactics.

First Quadrant:
This direction points to the contractor continuing to pursue his current types of work with his current types of clients. This is a relatively safe strategic direction that implies one of three choices:

1. Growth: The company will penetrate further into its existing markets.
2. Downsizing: The company will not grow, but rather get smaller.
3. Stabilization: The company will stay exactly where it is.

For the purpose of this article, we'll assume that the contractor who chooses this direction is expecting to penetrate the market further, increasing market share. If your marketing strategy is to continue pursuing the type of work you presently have, with your current clients, you must determine how aggressive the firm needs to be in order to reach the volume objectives. Staying in this quadrant is a relatively safe harbor adding little new risk to the company. If a firm's volume, margin and foreseeable growth objectives can be met in this quadrant, extreme care should be taken with any decision to advance beyond it.

The second quadrant involves taking new services to the existing client base. Known as new business development, this strategy involves creating and packaging new offerings for your existing clients. Ultimately, this means diversification of some sort. For example: a site developer might be besieged by so many parking lot maintenance calls that he eventually decides to form a group to work strictly on repair and maintenance. The contractor sees a niche, positions resources to attack it, and is able to create a focused business in the process.

Historically, when a contracting firm must move beyond an existing market to grow, diversification has been the safest overall direction to take. Diversification is not without risk, but a company can ease into it simply by selling more of a service previously seen as an anomaly. The business can be built gradually.

The third quadrant represents taking the services you perform to new customers, or geographic expansion.Generally, this method is seen as strategically riskier for a contracting firm because the investment is typically higher and the control is typically lower. This is not always the case. Going into new territories is at least challenging and, at most, disastrous.

One of the best ways to pursue this strategy is to go early and go small. A contractor may set up a small operation for a year, anticipating a strong market push later. Performing a few small jobs may contribute to the overhead, but the first year will probably be a loss. The loss represents an investment in getting to know the market, the players and the vendors, and creating the perception of being part of the action. As a result, the contractor should have a clearer picture of the viability of the market and how to make a significant impact.

The last quadrant of the matrix is the new business direction, which is exactly what its name implies. Here, the firm seeks out totally new types of customers with which to supply new products and services. This is the most difficult and most risky direction for any business to take. This doesn't mean that a contractor shouldn't venture into a new business. But tremendous care should be taken in both evaluating and implementing this direction. At a minimum, the contractor should:

• Have a stable business with a steady track record of earnings and a solid management team.
• Require separate management expertise to evaluate and start the new venture.
• Quantify the downside.
• Develop a contingency exit strategy.

Above all else, do not disturb the continuing focus of the contracting business. That business has more than enough of its own challenges in the best of times.

This information is provided by Victor O. Schinnerer & Company, Inc. as the program administrator for the CNA Professional Liability Insurance Policy for Design Professionals. The CNA/Schinnerer Program is the Commended Program of The American Institute of Architects and the National Society of Professional Engineers.

In each issue of Constructive Comments we answer questions on important contractor issues. Do you have a question you would like answered? Please submit all questions to: Attention: Constructive Comments, at vos.info@schinnerer.com or fax to 301-951-5444.

This article is taken from Constructive Comments, Vol. 1, No. 4. The contributing editor is Hank M. Harris, Jr., CMC. Hank is a Director withFMI Corporation who works with contractors throughout the country on improving management practices. He is based in FMI's Raleigh, NC office and can be reached at (919) 787-8400.