Diversification can supercharge your growth prospects.
Companies diversify for a host of reasons, the main one being to extend a brand into other markets. But diversifying your product or service carries a fair amount of risks. The key therefore is to ensure that your core business is running as efficiently, productively and as profitably as possible. You can't hope to make a success of diversification if your core business is on shaky ground. If you’re still struggling to win orders and build sales, then perhaps diversification is not right for you at this time. Ask yourself whether your business brand is at the stage where it is well developed and marketed.
The catalyst for diversification is often the realization that the core business is slowing or set to falter, often as a result of market saturation. You'll therefore need to ensure the market and business conditions are right for you to diversify.
Some businesses diversify by natural progression. If you sell sandwiches for example, adding hot and cold beverages to the product portfolio is an obvious next step. You can also extend the portfolio with an even wider range of products that appeal to your same customers.
The key to success is being able to spot opportunities. Identifying new opportunities can help you stay ahead of the competition. Ideally, you should focus initially on the related needs of your established market or on market segments with similar needs and characteristics. Consider your existing customer base, for example: you could look to sell them more of the same or expand your range of goods and services. Look initially to diversify into markets with similar characteristics. Establish the strengths and weaknesses of your business and set down certain criteria that you want diversification to deliver, such as sales volume, share of market or return on investment.
You will also need to take every precaution to ensure that you minimize the risks. Diversification can burn up money and increase the cost of doing business. There is also the danger that the new target market will not respond in the way you imagined. It is necessary therefore to carry out thorough research into your sector and target market and ask yourself how diversification will impact on your brand and image before diversifying. Think hard before you commit your time, resources and finances.