To diversify not only grows a business, it can be very satisfying. Diversifying can spread the risk if the market is experiencing or expecting a downturn. But looking at growth opportunities in terms of sales revenue and/or operating profit is a very good idea. Essentially, three options are available:
- Find new products or services for existing customers
- Find new customers for existing products
- Find new products for new markets
Risks and rewards are present so weigh up costs and the benefits of growth. Sometimes it just makes sense to diversify, especially with seasonal markets. If the ice cream shop knows that winter is slow on sales, then becoming a hot soup and toasted sandwich shop might keep cash flowing. Or perhaps still offer ice cream but on hot pancakes
Even with limited resources for a big research and development push, it should not be too hard to identify possibilities. Spreading business risk across multiple offerings protects, to some extent, against social and economic threats outside of your control. If a product should fail, or production costs jump, other products can be pushed to existing customers and will probably bring in new custom. Diversification means having a safety net, and by offering new products often gets customers excited. It's very satisfying to offer new products and have them be successful. Similarly, it can be disheartening to have them flop, so research well, and talk to customers frequently.
New products for existing customers
- Make full use of the knowledge of the market, competitors, and existing customers.
- Discover how customers use products they are already buying, what else can be offered to increase or assist that usage.
- Be creative
- Run a competition or reward scheme for staff to encourage ideas.
- Research existing customers – they are sure to have some hints on other products or services needed.
- No need to develop the new offering yourself --source an existing supplier, set up a resale or other relationship with them. Finding local suppliers can be a great selling point. Plus the networking benefits are fantastic.
New customers for existing products
- Find new types of customer in the local area
- Test market to a number of potential profiles. Evaluate results using factors such as ease of access to the customers, ease of sale, volume of sales, and customer satisfaction.
- Try attracting a similar profile of customer on a different location
- Be prepared to research on the new area to understand any local peculiarities, limitations, or strong competitors that may affect plans
New products for new markets
- Often the most risky proposition as it probably has the most unknown factors
- Widens and strengthens the business base.
- Take care not to dilute the core product and existing expertise
