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Profitably Expand into the Best New Products and Services

Jan 13, 2008
I was once driving along with an executive who loved to bring out new products. He was very proud of their brand names, their contents, and their authenticity. I asked him how he thought about profitability. He said that he didn't. He just measured how much more volume he sold.

He was shocked to learn that the profitability of his new products in the last year had varied from 1 percent to as high as 39 percent. He asked me which ones earned 39 percent. When I told him, he laughed.

I asked what was funny. He said that those were easier to do than the less profitable ones, but he had been afraid to do too much in that area. From then on, he refocused in the high profit new product area and grew earnings faster than the business had ever done before.

It was a nice ending to the story. let's look at an example to see how to think about what to add.

A young married couple, Mr. William and Ms. Dorothy Hustead, bought a small store in a tiny town near the South Dakota Badlands. From 1931 to 1936, they struggled through the Depression serving the town's 326 impoverished residents.

One day in 1936, Ms. Hustead, bothered by the sound of cars on the nearby highway heading for Mount Rushmore, persuaded her husband to expand their business to serve these travelers. Mr. Hustead put up signs on the highway to draw visitors to their store, making a unique appeal. The signs said, "Free Ice Water . . . Wall Drug." In those days before automobile air conditioning was common, that offer was a powerful appeal.

Beginning from this humble expansion of its customer base, Wall Drug now serves more than 20,000 visitors a day during the summer in its Wall, South Dakota, store and many more on its Web site.

Let's return to Wall Drug in the 1930s to explore expanding a for-profit business's scope and concept. People heading for the Black Hills also needed services.

Wall Drug could have checked car radiators to see if they needed more water and could have helped tired travelers make motel reservations, plan side trips to little-known attractions, obtain referrals to South Dakota physicians and dentists, and acquire local towing insurance for their cars.

While the free ice water was welcome to hot, tired travelers, Wall Drug failed to appreciate that such travelers were primarily trying to enjoy a nice vacation and would have welcomed many reasonably priced, vacation-enhancing services. Wall Drug could have offered some of those services for free to the travelers by relying on commissions from motels, attractions, and insurance companies.

While checking the radiators, Wall Drug would have found plenty of cars that needed gasoline, oil, filters, windshield wiper blades, spark plugs, and other minor items that could have been provided after the radiator water was checked. The Husteads would have benefited by realizing that they were also in the business of improving vacation travel, rather than only selling pharmacy items.

Nonprofit organizations are often similarly too narrow in their thinking. I have visited many food distribution centers for needy families, but don't recall ever seeing such a center that provided a way for the unemployed to find work.

While hundreds of families are lined up for the groceries, a separate set of volunteers could be helping match people to available jobs in the area. Volunteers could help those with limited reading and writing skills to explore lists and fill out applications. Cellular phones could be shared to make job interview appointments.

These centers should see their role as helping the needy to be able to provide for their own needs. As the Chinese proverb says, you do more good if you teach someone to fish rather than just providing a fish for today's meal.

As an example of how more can be accomplished by thinking about other ways to help, Habitat for Humanity found that it could multiply its global efforts by encouraging national organizations to send one-tenth of the money they raise to other countries.

While a new home in the United States might cost $50,000 to build, an African home might cost only $500. By sharing 10 percent of the money they raise, a U.S. affiliate can increase the number of families served by their funds as many as 10-fold.

In addition, the Habitat families and volunteers learn to build homes, take care of the homes, and help others build their homes. In many cases, the families and volunteers can then find work in home building and related trades. As the no-interest mortgages are repaid, poor families are also providing funds for other poor families to use.

What's missing to have the right scope and concept? Organizations are focused on providing more of what they do today rather than considering what those who receive the products and services really want and need. Naturally, organizations need to focus. Taking on the wrong additional products and services can create havoc with the economics of a business or nonprofit organization and leave everyone worse off.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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