Road to diversification takes patience; trade groups, government outlets can help

Michael Boudreau has this advice for companies looking to branch out into new industries: Brace yourself for a long ride.
Boudreau, director of Bloomfield Hills turnaround firm O’Keefe and Associates, said that while diversification has become a recessionary buzzword, in practice “it’s a lot harder than everyone thinks. It’s a long-term project that takes patience and persistence.”
Few regions can beat Southeast Michigan’s manufacturing expertise, Boudreau said, and automotive suppliers’ understanding of exacting OEM standards and supply line efficiencies could transfer to a number of industries.
But businesses need to relearn the less-tangible skills of new-business prospecting and marketing before they can become qualified suppliers for a new market, let alone add new revenue to the bottom line. And that corporate evolution can take years.
These are lessons that Keith Helfrich, program manager of market diversification at the Michigan Manufacturing Technology Center, teaches many small and midsize manufacturers that often come to the center in crisis.
“While this is about diversification, it’s also about achieving sales growth now,” he said. “Many of these companies are hurting in a big way.”
The nonprofit center takes companies through the steps they would need to diversify with a weeklong crash course.
Step one, he said, is understanding what it is that they do best and how it might be applied to another industry.
“They talk about what they make and what they do for a particular industry, but I want to know the competencies that allow them to make the gear,” Helfrich said.
“It’s something they could do for a different industry.
The program uses hands-on computer exercises to walk company teams through the process of identifying prospective customers in new industries and developing new sales messages.
Website critiques and tweaks to boost a company’s search engine performance are part of the package, Helfrich said.
The whole point, he said, is to walk away with a selling road map that includes quantifiable goals and actions, such as increasing sales or online traffic.
Protomatic Inc., a Dexter-based machine shop, went through the center’s program at the end of 2007, said Doug Wetzel, vice president and general manager (See story, Page 18). The automotive-heavy company had been making progress attracting work from medical-equipment suppliers but needed help fine-tuning its sales and marketing for the new industry, he said.
About 90 percent of the company’s business came by referral.
“Most small businesses don’t market themselves on the industrial side,” Wetzel said.
After the program, Protomatic started to target potential customers more effectively, leveraging a more-polished sales force and marketing approach. The company found that its greatest opportunity resided in machining parts for orthopedic devices such as spine implants and joint replacements, a fast-growing segment of the medical-device industry, Wetzel said.
Medical devices now make up nearly 80 percent of Protomatic’s business, compared with about 40 percent four years ago. Automotive and transportation comprise less than 6 percent of its sales. Defense and renewable energy customers round out the mix.
“We’re going to do another round with (the MMTC) in 2010,” Wetzel said. “It keeps us fluent in the tools and techniques that are relevant.”
Since MMTC was founded in 2006, more than 130 companies have completed the program.
About one-third opt for additional services such as a website overhaul, six sigma training or quality certification preparation.
The program costs $18,750, but that can be lowered through state grants, Helfrich said. The MMTC is the state’s vendor for the Manufacturing Extension Partnership, a national program aimed at making manufacturers more competitive.
“A lot of what we do is develop the very basics of sales and marketing with tools used today in the marketplace, which is different than it was five, 10 or 25 years ago,” he said. “They’ll say, ‘I have to start selling again. I guess I need to take someone out to lunch.’ But that’s not how business is done today.
“We have to drag them kicking and screaming into the 21st century,” he said.
Beyond marketing, challenges still exist, Boudreau said.
Companies will likely need to learn the supply-chain vernacular of a new industry; and even after they win a new customer they will need to be patient through initial bidding processes and test runs.
“Once you have a new customer, they say you need to be a qualified supplier. That might take another six to eight months,” he said.
“That just gives you an opportunity to be on the quote list. When a new project comes up, you may not win the bid. And if you do win it, it’s another six months before you start to (see revenue from that).”
New customers also may want to test new suppliers with smaller parcels of business before firmly integrating them into the mix, Boudreau said, something that will likely take a year or two.
Automotive suppliers used to supplying high-volume contracts may be confronted with another challenge when they start to supply lower-volume industries such as aerospace and medical devices, Boudreau said.
“In aerospace, you don’t make 2 million planes a year,” he said.
The process is one that Motor City Stamping CEO Judy Kucway is fast learning. The 40-year-old Chesterfield Township-based automotive supplier is working to branch out into supplying defense contractors, something Kucway said her company was recruited to do because of its minority-owned status.
Motor City already has a vendor code to service large defense industry manufacturers, but it will likely take “two to three years to
get a quote,” Kucway said.
“Everyone is trying to diversify,” she said. “We just started. It’s a slow buildup. They’ve got a good base of suppliers right now. ... You
have to be competitive and quote the process. It’s a lot different than automotive. It’s a learning curve you have to get on right away.”
Motor City invested in a $2.1 million welding system that can be
used to service its automotive and defense customers, she said. And although the company is just starting in defense, Kucway already expects this year to be better than last.
In 2009, the company had revenue of about $36 million. This year, Kucway expects to hit $45 million, which would put it square
with its sales in 2008.
“We’re not going to let any grass grow under our feet,” Kucway said.