Product Development: How to Set Your Product Strategy
One major fork in the road for technology companies comes with the choice to either expand the product offerings or stick to refining one core technology. The two choices have imiplications for the exit strategy of the company -- a relatively short-term acquisition by a larger corporation or a longer-term push to expand the business (for a larger acquisition, IPO, or continued exapnsion). But how does a company evaluate these options? Do you know which track your own business is on?
Software Testing Solutions (STS) is a small software company that has produced one primary product: The QualityAdvantage solutions for Sunquest. This software product helps hospitals verify their Sunquest lab and blood bank applications are functioning correctly and has helped STS grow into a company with $1.1 million in revenues in 2007, an increase of 110 percent from 2006. Yet the company's path in the coming years is a concern for advisor David Finkel, who is consulting with STS as part of their transformation through the BIG Business Contest. With a product line that only works in conjunction with Sunquest applications, the market for STS’s software has been limited and potentially tenuous, according to Finkel.
"There are a limited number of hospitals that use that particular software so their marketplace is somewhat limited," Finkel said. “They need to decide what is the next place to grow and expand. Since all medical records are being digitized, there are a lot of opportunities for a larger marketplace. They need to find a niche they can dominate since they don’t want to be smaller player in a big market, but the player in the market.”
Finkel points out that it's essential for all business owners to identify potential threats to a company and use threats to develop a company strategy. Among the primary threats to a company are competing products and product obsolescence. In order to overcome these threats, companies must continually offer new products and develop new markets. STS owner Jennifer Lyle couldn’t agree more, since she has ambitious plans to offer new products and establishing a company goal of growing the company to 25 employees and $10 million in revenue by 2010.
“We only have a tiny piece of the market, Lyle said. “All these hospitals have different applications we can test.”
Lyle sees vast potential for developing products targeted at testing additional specific hospital department applications including pharmacy, anatomic pathology, and billing, in addition to adding more vendor support for blood banks and labs, among other things. Yet the primary obstacles to this proposed product expansion has been finding and hiring the right people, especially a new software developer. STS has had one software developer for the past seven years, primarily because Lyle hasn’t been able to find the right person for the job. Over the years she has hired and fired six software developers that didn’t meet the rigorous demands STS requires.
Yet recently Lyle found her man, a software developer who had the skills needed to work for a small software company like STS, as well as complimentary skills and the right synergy with her long-time software developer. One of the new developer’s first projects was the creation of an automated testing solution for billing, which one of her client requested and needed as soon as he could produce it, Lyle said.
“When they explained what they wanted to do, we felt that it might lend itself to automation easily, so we quickly decided to explore if we could do it and if we think it could become a viable product on its own,” Lyle said.
Lyle consulted with other clients and had her analysts perform the necessary evaluation to find if the product would be a good fit for the company. After deciding to produce it, Lyle had her new developer begin his first product. Lyle is expecting the new billing testing product to be released in Q1 of 2009 and bring in between $100 to $200 thousand in additional revenue.
Next year Lyle hopes to hire an additional developer to help her expand her QualityAdvantage product to other hospital computer platform systems, including Epic and Eclipsys Sunrise, with the goal to gain 80 percent of each market. Yet for STS, a fine balance exists between software developers and the analysts that decided the best product for the market.
While business owners may look at the bigger picture of growing a company, it is important to strategically position a company by addressing threats, developing products and hiring the right people. STS is on its way to materializing its big goals by hiring the right people to analyze the market and develop new products that can further establishing itself in the market.
“For business owners it is important to identify what are the greatest dangers business faces and how can you use these dangers to grow your business,” Finkel said.
