Business Diversification for Industrial SMEs: A Four-Stage Process

This is where the structured process for developing new business areas and entering new markets begins. Its core components are:

• strategic positioning
• a fundamental market analysis
• an assessment of the company’s capabilities and definition of its strategic competitive position
• market entry strategies
• an action plan with progress tracking

Das Marketing Büro has developed a practice-oriented workshop model for this process. It provides technology-driven B2B companies with methodical and structured support, from analysing their capabilities and developing a market entry strategy through to defining a concrete action plan.

The workshop focuses on diversification into adjacent market segments. Companies transfer existing technologies, capabilities and problem-solving expertise to new applications, customer groups or industries.

Medium-sized companies are facing a wide range of structural challenges. To remain successful over the long term and safeguard their competitive position, many need to reposition themselves.

There are three key drivers:

1. The need for expansion and growth

Many companies possess technological expertise with considerably more potential than they are currently exploiting. To secure their future, they need to develop new revenue streams continuously before competitors occupy attractive market niches.

2. Compensating for declining markets

Companies with a high level of dependence on the automotive sector are currently searching intensively for alternatives. Declining revenues in established core segments need to be offset by new and sustainable sources of income.

3. Differentiation from competitors

Companies that want to remain successful over the long term need to differentiate themselves clearly from their competitors. New applications, target markets and innovative solutions create additional opportunities for differentiation.

This approach is based on proven strategic methods:

• Resource-Based View: a resource-oriented strategic approach
• Core Competencies: identification of the company’s core capabilities
• Adjacency Strategies: expansion into adjacent business areas
• Jobs-to-be-Done: What specific task does the customer want to accomplish, what result do they want to achieve, and what obstacles are currently preventing them from doing so?
• McKinsey Matrix: assessment of market attractiveness and competitive strength

The central question is always:

What unique capabilities does our company possess, and in which markets can these capabilities create genuine value?

Das Marketing Büro uses a practice-oriented workshop process that guides industrial companies through four central stages.

Stage 1: Capability analysis — inside-out

What are we genuinely good at?

During the first stage, the company analyses its actual core capabilities.

The focus is not limited to products. It also covers:

• capabilities
• technologies
• processes
• expertise
• industry knowledge
• the ability to solve customer problems

Many companies define themselves too strongly through their existing markets:

“We are an automotive supplier.”

A more strategically useful definition would be:

“We possess specialist capabilities in precision manufacturing, sensor technology or high-temperature applications.”

These capabilities can often be transferred to other industries.

The capability analysis includes:

• business model analysis
• capability mapping
• portfolio analysis
• analysis of the company’s value creation logic

Result:
A jointly developed and internally aligned capability map.

Stage 2: Market exploration — outside-in

Where are our capabilities needed?

The actual market analysis begins only after the company’s capabilities have been assessed.

The analysis examines:

• which industries face problems similar to those in the company’s core market
• where the company’s technological capabilities may also be relevant
• which markets are experiencing structural growth
• which applications offer new opportunities

Different perspectives are combined during this stage.

Technology push

Where else could existing technologies be used?

Market pull

What unresolved problems exist in other industries?

Demand-led capability search

In which markets is there a particularly strong need for the company’s existing capabilities?

Relevant transformation drivers and growth sectors are also assessed.

Transformation drivers

• decarbonisation and energy efficiency
• digitalisation and artificial intelligence
• automation
• resilience and security of supply
• demographic change
• geopolitical developments

Potential target industries

• energy and environmental technology
• defence and security
• medical technology
• pharmaceutical and laboratory technology
• aerospace
• infrastructure

Result:
A longlist of potential new business areas.

Stage 3: Assessment, prioritisation and market validation

Which markets are genuinely attractive?

Not every lucrative market offers a realistic opportunity for a specific company.

During the third stage, potential target markets are therefore systematically assessed using strategic models such as the McKinsey Matrix.

The following criteria are among those examined and evaluated:

Market attractiveness

• market size
• market growth
• profitability
• intensity of competition
• regulatory requirements
• barriers to entry

Competitive strength

• capability fit
• technological proximity
• existing customer relationships
• sales reach
• investment requirements

Market validation

To determine actual demand, the prospects of success, barriers to entry, willingness to pay and other potential obstacles, target markets need to be examined in detail.

This may include:

• interviews with industry experts and potential customers
• assessment of specific project scenarios
• validation of willingness to pay and procurement processes
• initial sales or market-response tests
• pilot projects or reference applications

The objective:
Not to select as many markets as possible, but to identify the right ones with a realistic chance of successful entry.

Result:
A prioritised shortlist of realistic and suitable target markets.

Stage 4: Market entry strategy and implementation

How do we enter the new market successfully?

Many strategies fail not because of the analysis, but because of inadequate implementation.

The process therefore does not end with a list of ideas. It leads to a concrete implementation roadmap.

Different market entry options are available. Depending on the target market, these may include organic development, sales partnerships, technology partnerships, equity investments or acquisitions.

Relevant market entry options for medium-sized technology companies include:

• direct sales through the company’s own organisation
• commercial agents or distributors
• sales partners
• technology or development partnerships
• OEM or white-label models
• joint ventures
• equity investments or acquisitions

The following elements also need to be defined:

• action plans
• responsibilities
• priorities
• communication approaches
• initial sales activities
• schedules
• success criteria

Result:
An actionable 100-day roadmap for the first steps, supported by progress reviews that create transparency and allow targeted adjustments.

Which companies is the workshop designed for?

The workshop is aimed primarily at industrial SMEs, including:

• mechanical engineering companies
• automotive suppliers
• electronics companies and EMS providers
• metalworking and metal processing companies
• measurement technology companies
• tool and equipment manufacturers
• technical B2B service providers

The approach is particularly suitable for companies with:

• a high level of dependence on one industry
• stagnating core markets
• strong innovation potential
• technological capabilities that could be transferred to additional applications or markets

Why industrial SMEs need to act now

The coming years will be decisive, as numerous factors are accelerating market change:

• new technologies
• new competitors
• new regulatory requirements
• changing customer expectations
• geopolitical developments
• digitalisation
• AI-enabled processes
• changing global supply chains

Companies that develop new business areas at an early stage can:

• reduce risks
• build new sources of revenue
• secure competitive advantages
• become less dependent on individual markets over the long term

Companies that wait too long often lose valuable time and market opportunities.