05/ 30/ 2007
The Expert:
Matt Bridgewater
President, GEM Products
Orange Park, Fla.
Call me biased, but stainless-steel boat parts made by my business, Gem Products, could stand up to the fiercest competition. We've always invested heavily in technological and mechanical upgrades to make a higher-quality part. But even though I was constantly looking for every new process, method, idea, ingredient or invention to improve my product, I couldn't seem to get customers excited about it.
To them, it was all just stainless steel--until I changed my state of mind. Instead of focusing on technology investments in our product, I started thinking of the technology investments as investments in my customers.
Although investing in technology can be expensive, small businesses can reap big rewards--even when that cost increases the price of a product in a highly price-sensitive market. In our case, boat builders spend less than 1 percent of the overall cost for building a boat on the parts that we manufacture, such as hinges, latches, rod holders and drains. But in an environment where the lowest cost usually wins, we manage to be successful even when our price is the highest. That's because we invest in technologies that will pay off directly for our customers--and we let them know how it will help them.
Before this shift in thinking, we would construct pro formas that required us to track how a new technology would pay off for us. Sure, technology--like that new computer system we purchased a few years ago--helped our bottom line, but it didn't do much for our customers. Now, we make decisions based on how those investments can directly benefit them. It's a leap of faith, but it's paid off for us in spades. If we make our customers more successful, they become better customers, and we form a relationship with them that our competitors simply can't touch.
One of those decisions was to invest in engineering talent far beyond what is necessary to conduct our day-to-day business. We know that our customers are generally light on the engineering expertise required to use our products within their boat designs. Instead of designing a boat and then putting out a bid to buy stainless steel from virtually anyone, our best customers now contact us earlier in the design stage and rely on our expertise to help them.
We also recently purchased state-of-the-art equipment that lets us quickly build wax models of newly designed parts. It's a huge expense for a company our size, and there's no way to justify it as a cost savings because we still have to go through the traditional engineering, design and prototyping process before production. However, it has proven invaluable to our customers. It encourages them to be partners in our business by letting them conceptualize new parts they might like us to produce in the future. Since we announced the purchase of this machine, we've had several customers fax us sketches on napkins and scraps of paper that have ultimately become new parts--unique to our company.
Because technology changes so quickly and can be adopted by competitors, it's not always easy to justify a technological investment beyond the short-term. There is risk involved, just like any investment, but if faced with making a choice between a short-term payoff for the business and a long-term payoff that results in a stronger relationship with better, happier customers, my money is on the long-term.
Why It Pays to Spend on Technology
- You may know your product best, but your customers know the most about your product's limitations. Investing in new technology lets us make partners out of our customers, who send us their designs for new parts. It's an added step and a huge expense, but it gives customers the chance to chime in on a much larger scale than in a comment box.
- It helps set us apart from the competition. While competitors do most of their business near the end of the boat-building process, our commitment to technology helps us advise boat builders in the design stage--and have custom-built parts ready for them when they need them.
Questions to ask yourself before investing in technology:
- Will this new technology help my customers? By making customers more successful, you are forming a lasting relationship that competitors can't compete with.
- Will this new technology help my bottom line? Just like when you made your business plan, make a plan for your new technology purchase. If there's no apparent benefit to your bottom line, you may look to other business investments first.
- How useful will the investment be in the long run? Don't spend big money now on something that will be ubiquitous in three years. Make the investment worth the expense, and something that will set you apart from your competitors in the long run.
