(Business 2.0) – For a company that specialized in global positioning, the irony was sweet: Where should Garmin go next? By 2001, a mere 12 years after the company was founded in Olathe, Kan., it had already conquered its obvious markets. In the sky, Garmin's share of navigation tools in private planes was a commanding 80 percent, up from 30 percent in 1999. And on the ground, more than half of all the global positioning handhelds sold to hikers and fishermen were Garmin's. ¶ So why was CEO Min Kao worried? Because Garmin needed to find new markets to keep growing. The solution, as Kao saw it, was to marry global positioning to consumer electronics. Says Kao, "We wanted to bring GPS to the masses."

Garmin was founded in 1989 to commercialize the global positioning system, a network of 24 government satellites that pinpoint, within 10 yards, a user's precise location anywhere in the world. Its first devotees were outdoorsy types--backpackers, anglers, amateur pilots. But to reach less likely buyers, such as traveling salespeople and vacationing families, the company needed to expand beyond gear shops and fishing-tournament sponsorships and start pursuing mass-market sales channels and consumer advertising.

So Garmin mapped out an ambitious consumer rollout--25 new products a year for three years. Now, instead of stagnating, Garmin's revenues have surged, from $233 million in 1999 to $465 million last year. Since Garmin went public in December 2000, the company's stock price has more than doubled; consumer sales have increased by at least 20 percent in each of the past six quarters.

How did a niche manufacturer headquartered on the prairie become one of the fastest-growing consumer electronics brands? In an era when electronics makers are obsessed with outsourcing to contract manufacturers and "innovation firms" for design, Kao keeps nearly everything in-house, from overseas production to sales and advertising. That ensures lower costs and enables the company to change course quickly with the whims of the market, its customers, and its partners. As a result, gross margins are about 55 percent--twice those of typical consumer electronics companies. Here's how Garmin homed in on the perfect coordinates.

1. Make it cheap

Garmin's consumer push required a huge manufacturing ramp-up. The company had always sidestepped contract manufacturers in favor of owning its own factories, so in 1999, Garmin purchased a six-story facility in Taiwan that tripled its manufacturing capacity. That allows the company to do business with a limited number of suppliers, then negotiate better deals for raw materials like silicon chips and components, which Kao buys in bulk. Garmin's parts and manufacturing eat up about 45 percent of its revenue, compared with 67 percent at Motorola.

2. Hire the best, brightest, and hungriest

The company has amassed an army of engineers--390 so far--almost all of them recent graduates of Midwestern universities who are satisfied with Midwestern salaries. Keeping engineering in-house gives Garmin a flexibility not enjoyed by most electronics makers. A few months after the Taiwan factory opened, for instance, the cell-phone industry began sucking up flash-memory supply, pushing Garmin's memory prices higher. Instead of paying a premium, Garmin's engineers simply redesigned several key products to accept a more widely available (and cheaper) chip.

3. Strike savvy partnership deals

Garmin wasn't a household name, so the company connected with well-known brands like Palm and BMW. For the iQue 3600, Garmin needed a proven platform, and licensing the Palm OS gave the PDA a higher profile. By partnering with BMW to equip motorcycles with GPS, Garmin not only reaps financial benefits from the deal--which makes the navigation systems an accessory on select models--but also paves the way for potential deals with automakers.

4. Sell it yourself

Instead of hiring independent sales reps who peddle products on behalf of many manufacturers, Garmin sends its own salespeople to forge relationships with chains like Best Buy, Circuit City, Target, and boating supplier West Marine. Reps might cost less, Kao says, but his sales force can stay in closer contact with retailers and offer more expertise about the products.

5. Spend less, charge more

A reputation for easy-to-use products, eye-catching design, and rapid-fire new releases lets Garmin charge a premium for its gadgets, analysts say. The latest version of its popular StreetPilot--complete with color touchscreen--sells for $1,400, nearly double the price of the previous model.

6. Let customers trade up

Garmin has six closely related eTrex devices--and that tempts customers to spend more on feature-rich models. Its best-seller is the cheapest model, the $106 eTrex, but its second most popular is the priciest: the $321 eTrex Vista. Garmin isn't the first consumer electronics player to use this strategy--Sony does the same with its Walkman, for example--but it's the first GPS maker to tackle the high end, the low end, and the in-between.

7. Turn product designers into market researchers

Garmin sends teams of engineers, designers, and manufacturing specialists to GPS-heavy locales, such as fishing tournaments and Army bases, to scout for new ideas. The product concepts that come back have already been vetted by the people who will be charged with creating them. --BOB PARKS