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.

Finweek English Edition - - ON THE MONEY DIVERSIFY - Start with your cus­tomers: Con­sider what you’re good at: Eval­u­ate where you have un­der­utilised ca­pac­ity: Think hor­i­zon­tally and ver­ti­cally: Look to new chan­nels: Go in­ter­na­tional: ed­i­to­rial@fin­week.co.za is ex­ec­u­tive vice-pres­i­dent, Africa & Mid­dle East a

mi­agine

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

re­pair shops.

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.

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