More and more firms are choosing business diversification as a way of maintaining financial stability and growth. For many it is a key tactic of surviving during a recession, perhaps due to reduced consumer demand for existing products or services, or because there are too many competitors in the market. However, there are a number of other reasons why adding more products or services to your range might be good for your business.
Diversification is a good way of growing your business, particularly if your existing market is becoming saturated. Done well, it is a way of exploiting what you already have, whether it is your business assets such as stores, your brand name, or your customer base. If you have a seasonal business, you might want to think about how to use your staff (and your expertise) profitably at other times of the year when demand is low.
Offer complimentary services
In most cases, it will make sense to introduce new activities that relate in some way to what you already do. For instance, if you own a bakery, you could introduce a café, or set up an outside catering business. This approach has a number of advantages. Firstly, you already have a customer base and an established brand, so your marketing is much easier than it would be for a completely new enterprise. Secondly, you and your staff already have a considerable amount of expertise and skill sets that can be transferred directly to the new part of the diversified business.
Offer new related products
An alternative approach would be to expand the range of products sold. In the above example, the bakery could offer hot takeaway snacks, or sell a range of pre-packaged groceries. In either case, you would be able to carry on the diversified activity with your existing premises and customers. Again this takes advantage of existing skill sets in the company and can be done with little or no capital outlay.
Don’t stray too far
Remember that successful business diversification depends upon building upon what you already have. Moving into a completely new area of activity means a considerable investment of time and money, and does not offer the same advantages of expanding into complimentary offerings. Adding completely different services or products to your range can carry very high risks as you will have to build the new consumers trust in your brand and it may take a great deal of time before you see a return on your investment.
There are two other things to remember: make sure that your existing business is stable before you start to diversify, and do not forget to do the same amount of market research and business planning that you did when you first set up in business. If you do this, there is no reason why your diversification should not be a great success.