Why diversify? You may need to, or you may want to. But whatever your reason for diversifying your business, it’s crucial that you think carefully about the risks involved.
Business Diversification Opportunities
Business Diversification Opportunities are Everywhere:
- Business Diversification Opportunities are everywhere. While it might look like a lot of competition in your industry, you can find opportunities to diversify your business by identifying other untapped markets and services that are not being served. An excellent example of this is the medical marijuana industry – while there were only 12 states that had legalized medical marijuana at one point, now there are 29 states! Your competition may be limited by geographic location or lack of capitalization. Still, as long as you have a great product or service that solves a problem for people, you should be able to expand into new areas before anyone else does.
- Business Asset Protection: When it comes time for the sale or liquidation of assets such as real estate property holdings, we recommend speaking with an attorney specializing in asset protection planning (this will help ensure they don’t get caught up in legal issues). An experienced attorney can advise clients on possible strategies, including LLC formation (limited liability corporations), which may allow them to protect their assets from lawsuits resulting from business operations conducted under its umbrella organization name rather than through personal characters themselves.
“Is your business too reliant on one customer? Or is the customer base too narrow, dependent on just a few products or services?” says Tony Burton, a chartered financial planner at BES Dubai.
“The answer is not to diversify your business. It’s to diversify your customer base,” says [Tony Burton].
“Is your business too reliant on one customer? Or is the customer base too narrow, dependent on just a few products or services?” asks Burton.
He argues that a more diverse customer base will give you more options when things go wrong: “If you’ve got contracts with lots of different customers, it’s less likely that they’ll all stop buying from you at once.”
“If so, you should consider diversifying. This means more than just spreading your sales across multiple sectors.”
If so, you should consider diversifying. This means more than just spreading your sales across multiple sectors. It also includes offering new services to existing customers and buying another company with a complementary product or service.
For example, if you are an accounting firm with an established clientele in the oil and gas industry, you could move into entirely different markets, such as banking or real estate, by selling tax preparation software online. Or perhaps you own a car dealership that sells BMWs—how about adding Mercedes-Benz to the mix? You might even start selling tires online instead of shipping them from Germany!
“You must be sure you’ve got the necessary staff and skills to manage new customers or product launches.”
“You need to be sure you’ve got the necessary staff and skills to manage any new customers or product launches,” says Craig Macaulay, CEO of Macaulay Consulting Ltd. “If the business is growing, you need people that can help with those responsibilities.”
For example, if your company is shifting toward offering services instead of products—a common diversification strategy—you’ll need a team with experience managing customer relationships and providing top-notch service. If you’re launching a line of software applications instead of hardware products, your IT department must stay on top of security concerns. And if your firm begins selling directly to consumers through an e-commerce site rather than through wholesalers or retailers, then there needs to be someone in charge who understands how customers think when shopping online.
“It’s important to remember that diversification isn’t always necessary or smart.”
When considering diversifying, it’s important to remember that diversification isn’t always necessary or wise. The fact is that there are many risks associated with diversification (the business may not be able to expand into new areas) and costs, too (you might need to hire additional staff). Diversifying can also be time-consuming.
Lastly, don’t forget that a business is built on its core competency—what makes it unique from the crowd and gives it an edge over competitors. If your company has already established itself as a leader in its industry, why would you want to move away from that area?
“It can also be costly or deadly if you don’t need it.”
It can also be costly or deadly if you don’t need it.
Let’s look at the most common ways diversification can bring harm:
- You might lose focus on your core business. If you’re a start-up, and adding a new venture to your portfolio means hiring more staff, expanding into new offices, and renting equipment for that venture, how much time will you have left over to focus on growing the original idea? And if this isn’t a start-up but an established company with several profitable lines of business already in place, what happens when people who work in those other divisions get distracted by their shiny new toy? Will they still be able to give their best effort toward building up their original products?
- Customers may feel neglected. The same principle applies here as well—if customers enjoy one part of your business more than others (or think they do), what happens when they start feeling neglected because attention has been diverted elsewhere? Again: If a person working in one division of an organization begins focusing on another opportunity entirely instead of working toward improving their area’s efficiency first (which would benefit everyone), then there could be problems down the road.
“Diversification can mean moving into new markets or offering new services to existing customers.”
Diversification is the act of expanding your business into new areas. It can mean moving into new markets or offering new services to existing customers. Diversification is not a simple process, and it can have severe repercussions if done poorly.
If you do it right, however, diversification can make sense for your business and become a crucial part of its growth strategy. The first step in deciding whether or not to diversify is understanding what makes for good diversifications and what doesn’t.
“It could include buying another company with a complementary product – for example, an IT company with an accountancy business.”
- It could include buying another company with a complementary product – for example, an IT company with an accountancy business.
- It could involve buying a competitor and integrating its operations into your company’s own.
- Or it could be something completely different, like purchasing a marketing agency to help promote your existing products or services.
“There are several reasons why diversifying might make sense…”
If your business is in a niche market and you have limited growth potential, it might be time to diversify. If your company relies heavily on one customer or supplier, it could be worth exploring other opportunities. If your business faces increased competition, moving into a new field may help you stay competitive and profitable.
Business Asset Protection
In today’s business environment, asset protection is a vital component of your overall strategy. A well-designed asset protection plan can help you achieve the following:
- Minimize risk through diversification
- Ensure that your assets are protected in case of personal liability or bankruptcy
- Limit the impact on current and future earnings potential caused by lawsuits, judgments, tax liens, and other legal claims.
You may already have a business you want to expand by adding new products, services, or locations. As part of this growth plan, it’s essential to consider how changes will affect your company’s overall ability to protect its assets from creditors and other third parties who may seek compensation for claims against them.
Bottom Line
“If you’re looking for ways to diversify, ask yourself what your business does best. Then think about where there might be opportunities for it to grow.”
Who am I?
I am Dotun Adeoye, a Business Growth Strategist & Author of the 5 Pillars of Business Growth.
I’ve built up my experience via serial entrepreneurship, consulting leadership roles in business growth, business development and product innovation in large companies worldwide in the last 29 years.
Today, I consult with large businesses on how to sustainably grow their businesses, sustain infinite growth, ensure business continuity and achieve a legacy.
