Growing is a Volume Game

(Source Institute) #1

#Growing Is a Volume Game

Congratulations, you’ve got a great product! Now you just need to get it out to as many people as you can. Naresh Mehta, CEO of Powertechnics has learned in several decades of business in East Africa that this requires much more than simply putting a plan in place for starting production, marketing, etc. In a competitive marketplace, you can’t act as if you’re operating in a vacuum.

Competitors are going to copy your product, there will be pressures to reduce your prices, and scaling up production brings its own set of challenges. Meeting all of these head on requires starting with a good plan for more than just the first few months. What Naresh learned is that growing is a volume game.

##Getting to Market Fast

“You give extra goods so your distributor makes more margins, and he’ll buy bigger volumes. You sustain the product in the market, you sustain the capacity, volume, and market share. That can be a short term 6 months period or 3 months period depending on the type of product.”
-Naresh Mehta, CEO of Powertechnics

You need to constantly be aware of what your competitors are doing so you’re ready to enter a market prepared to succeed. When your market is competitive and intellectual property laws not as well enforced as you may like, it’s even more important to enter the market ready to sell at high volumes.

The prospect of cheap knock-offs or even outright copies of your products shouldn’t necessarily deter you. Use your advantages as the first into the market to your advantage. Establish yourself quickly. Mehta often did this by giving extra goods to encourage his distributors to sell more and help him establish a larger market share faster.

If you enter the market at the right time and ensure that you’ll be able to establish your product as a market standard and recoup your initial costs in, for example, the first 10K units, before those copies hit the market, suddenly those copies go from an existential threat to a more minor annoyance.

The balance is to be able to hit the market first, recouping your investment cost before competitors arrive, and also maintaining sales and production volumes to outsell your competitors.

##Setting the Right Price

“When you got into the market, you had a higher price because you were first. When the copies come, they come cheaper, but you made your earnings in the initial time, which covers your cost.”
-Naresh Mehta, CEO of Powertechnics

Mehta’s success in establishing himself against copies was also built on choosing the right initial price. Start with an estimation of how long it will take for those copies to enter the marketplace. Then, ensure your prices are set such that you’ll be able to recoup your initial costs before copies begin to push overall prices down.

Still, you should be careful not to set your price so high that you invite in competitors bent on undercutting you. If that happens you could end up in a price war rather than a race to outproduce your competitor to build market share. The former is a war you can win, while the latter can prove much more difficult.

Again, if you set the right price to recoup your costs quickly, you can then afford to lower the prices to stay competitive and begin reinvesting in your next product. By thinking ahead and planning for this, Mehta always made sure his company could survive cheap copies and continue to grow and release new products.

##Using Automation as You Grow

“So consider the quantum increase in volume with the same number of people, revenue increases, it’s more viable. This is an advantage of automation.”
-Naresh Mehta, CEO of Powertechnics

A key part of growing with volume is the proper use of automation. Without it, building market share and selling enough products at the price needed to recoup your initial costs quickly both become much more difficult. Then, if you need to lower your prices in response to a more competitive market, you’ve already gotten your production up such that you can hopefully maintain your margins as your price goes down.

Additionally, Mehta warns against the expectation that automation will reduce overall employment. In his experience, the resulting increased demand from additional volumes requires an increase in production and sales staff.

It all comes down to planning ahead, thinking through each step of getting into a market and planning such that you can flourish in the best case and live to fight another day in the worst case. By applying these principles for the past four decades, Mehta and Powertechnics have gone from a $500 investment to more than $300 million in annual sales.

Can you relate to the stories we told here? How is your experience different? We’d love to hear from you. Your questions and comments are what will help us make better lessons in the future.

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