Unlocking the true potential of diversifying your business
Diversification is a great strategy when you either need to grow your business or reduce your risk. Here are some tips to manage it successfully.
two scenarios. In the first, your business is profitable, however, you know that growing it to the next level may be difficult because the market is saturated or you’d need to take on an uncomfortable amount of debt to finance your expansion.
In the second, you’re watching your income and profits steadily drop, perhaps because a large company has entered your market with prices you can’t match or because your industry is changing. One just needs to think about the plight of DVD rental shop owners or people who install software on PCs for a living.
If your business is in either of these two situations, it might make sense to think about diversifying.
Aside from these two reasons, here are other signs why you should consider it:
You’re worried about your reliance on one customer, one supplier or one time of the year (seasonal) for most of your revenues. You spot an opportunity to address an unmet need in your customers’ lives or to make their lives easier by bundling your core service or product with other offerings. You have skills, infrastructure and capacity you’d like to use rather than leaving them idle. Diversification is a great strategy both for reducing business risk and for growing your business’s profitability. Business builders who have diversified also know that it isn’t without its risks; you need to make sure you have a firm handle on your core business before you start to branch out.
Here are some ideas about how you can successfully broaden your business’s horizons:
Your strategy for diversification should start with your customers. Is there something they need you can supply at a lower cost or with more convenience than anyone else? For example, many insurance brokers successfully diversify into providing tax advice – offering a one-stop shop and improving customer loyalty.
Rather than branching out into a completely new area, look at where you are already excelling. For example, if you run a successful bistro, look at delivering sandwiches to nearby office parks or catering for parties. During winter months, wedding photographers could offer their services to corporate companies or even lecture in their spare time. Depending on the type of business you run, you may have invested in employees, computers, vehicles, and other assets. If you are not using these to their full capacity, you might be able to put them to work in new business. For example, if your tourism business has a minibus for peak season, why not lease it to schools and old-age homes during quieter times of the year? If your business has an open space, you could lease it out to photographers to use as a studio or a room for yoga classes.
Horizontal expansion is about adding new products to your range – for instance, a coffee shop adding a supper menu and a wine list to its offering. Vertical expansion is about looking at where you can replace other companies in your supply chain.
Rather than buying gadgets from a distributor, you could import them yourself and sell to end customers and other resellers. Or, if you sell mechanical parts to the trade, you could consider opening car
Diversification is a great strategy both for reducing business risk and for growing your business’s profitability.
A good way to expand is to add new channels to your mix. If you only have physical stores, look at setting up an e-commerce site. If you have a strong brand, look at appointing franchisees or resellers. Even if you are a gardener, you can open an e-commerce store and sell your services. This way you will pick up new customers and make more money. South Africa has some great skills and products to offer the international market; if you have skills and products that travel well, you could look at exporting.