From the June 2001 issue of Entrepreneur

Imagine you're the owner of a 7-year-old business that markets security camera systems to small retail stores. During a meeting with your advisors and senior staff, you decide it's time to expand. But how? You could market more expensive items to existing customers, or widen your service area by hiring more employees and adding another location. But it's possible your customers wouldn't be able to afford the pricey upgrades, and adding a new office would just be too costly. However, there's one solution that can significantly propel your company forward without any exhorbitant expenses: adapting your product line to a niche market.

Going after a different niche is a tried-and-true method of expanding a business. Although it's not risk-free, it can be safely accomplished if you follow these four important steps:

1. Retool your product or service. Evaluate ways to modify your product or service to meet the needs of a new target audience. Start without any preconceived notions about whom you'll market to; just focus on the product and service variations your company might offer. For example, when consulting with Marada Industries Inc., an auto parts manufacturer in Westminister, Maryland, that was exploring expansion opportunities, I held idea-generating sessions with plant employees. We realized the company could use its equipment and expertise to make everything from bed frames to hospital gurneys.

2. Research potential markets. Once you have ideas for several product or service variations, you must evaluate the market potential for them, looking at everything from the size of each market to the buying preferences and expectations of the target audience. Identify all your potential new competitors and review their marketing materials, including their ads, brochures and Web content. Where appropriate, mystery-shop the competition or make on-site observations to learn how competitors' products are being used.

As the owner of our hypothetical security company, you'd have already met with your staff to decide how your product line could be adapted to serve new markets. Suppose you decided your products might work effectively in downtown apartment buildings. Your next task would be to learn everything you could about that potential new market, including the number of local buildings able to install your system, the kinds of security products they use and their costs. Most important, you'd want to uncover the chief features and benefits of your potential competitors' products so you could effectively position your products against theirs.

3. Develop your strategy. Craft a marketing plan, including the message points and media you plan to use to support your entry into the new arena. For example, I worked as a consultant and spokesperson for Sprint a few years ago when it took on a new niche market: the owners of homebased businesses. After doing research on and evaluation of the prospect group, Sprint created a product offer to meet the specific needs of homebased business owners. A multipronged approach, including direct mail, print advertising and a public relations media tour, was used to announce the new offer. In TV and radio appearances for Sprint, I focused on emphasizing a "Work smarter, not harder" theme based on research that revealed homebased business owners value products and services that make their busy lives easier.

4. Test the waters. Before you plunge head-first into a full-blown effort to reach your new market, fine-tune your message and your product or service based on test results. You can examine your marketing approach in focus groups or test-market to a small segment of your new target audience-by sending 5,000 pieces of direct mail to a select list, for example.

Despite the flurry of activity surrounding a new market launch, encourage your staff to stay on top of existing accounts. That way, you'll build one successful profit center on another as you expand.