Is diversifying your business the right move for you?

Table of Contents

Should you diversify your business?

How do you develop a successful business diversification strategy? Many companies diversify for a host of reasons. In some cases, it’s a survival strategy, for example, if your company makes the bulk of its sales at a particular time of year, it makes sense to consider diversification.

If you increase your portfolio of products or services you can ensure a regular revenue stream from January through to December.

For example, the business that sells soup in the winter may well sell ice cream in the summer.

Other reasons for diversification may include things such as extending your range of goods or services. You can either sell more products to your existing customers or reach out to new markets.

However, the biggest reason for doing it could be to extend a brand reputation into other markets. Making your business and market coverage bigger than you ever imagined.

When to diversify your business:

Experience tells us it’s not advisable to consider diversification until your core business is stable and profitable. If you’re still struggling to win orders and build a sales time for the core product, there is a real danger that diversification will take your eye off the ball.

The catalyst is often the realisation that growth in the core business is either slowing or set to slow. This is often because the market for a particular product is becoming saturated.

Business diversification strategies

You can diversify your business by natural progression. Alternatively, you can use the strength of the brand to move into new markets. As Richard Branson’s Virgin has demonstrated, strong brands can be extended into very diverse business areas.

Another popular business diversification strategy is to look backward and forwards along the supply chain for opportunities to tighten your grip on the market. For instance, in the recent past, we’ve seen building societies buying estate agents and computer manufacturers buying resellers.

Why wouldn’t you diversify

Diversification can put you on the fast track to growth. If the strategy fails it can also use up any monetary capacity you may have. If you expand your product range and even if turnover increases, the increase in costs could result in a slump in profits.

By extending your brand into new markets, there is a danger that it will have no resonance with the newly targeted customers. Thus it’s vital to research new markets before diversifying.

You should also look carefully at your existing business. Are you the right person to implement this and if you have staff do you have the right people to cope with a diversifying business? Should you integrate the diversified business into one company or ring-fence the new operation as a business in its own right? And is your organisation strong enough to be an umbrella brand?

You will know when the time is right but diversification. It could be the change that builds and grows your business in 2020.