Starting a business is hard, however if it is well planned and managed professionally it can be very rewarding. When running a business, you should consider diversifying it. With larger corporations, diversification normally means buying or merging with another business that provides the service or products they want to or trade in the industry they are looking to get into. In this blog I will be writing about diversifying your business as a small to medium size business owner and what to consider.
Diversifying a business is being able to provide more than one service, product or doing business in multiple industries. It is creating multiple sources of income and can work as a buffer when one product, service or industry is disrupted. Diversification minimises the impact of loss, broadens the customer base thus it has the potential to increase returns. It also has the potential to minimise seasonal fluctuations in revenues.
For example, the saloon/barber I used to go to was busy most of the times because they provided services to both men and women. The saloon had people queuing most of the time. The owner sold African drinks and snacks which catered to his/her clientele and were very popular. So, the owner was receiving revenues from both hairdressing and food (drinks & snacks).
Another great example is Nando’s, a well know Portuguese restaurant. Nando’s have a signature spicy sauce they use on their chicken. However, this sauce is available at all major supermarkets. So, if customers are not going to Nando’s for a sit-down meal or delivery, they still generate revenues through the sale of their signature sauce.
When looking to diversify, the first thing to do is carry out a SWOT analysis of the business. This helps you to understand the business more and the areas which you can develop more. SWOT stands for Strengths, Weakness, Opportuneness and Threats. Strengths and Weaknesses are normally internal and within your control, while Opportunities and Threats are external to your business. You can ask your customers, employees or people around you to provide you with feedback about the business.
Strengths can include what makes your business unique, your unique selling points (USP), what you do well, the product you sell and the area you are based in.
Weakness include things that you may not yet be doing well but are looking to improve, resource restrictions, market conditions, lack of expert knowledge, gap in processes.
Opportunities are possibilities that you can utilise. When looking at your options, it is important to do this without considering any limitations at the first stage. This will enable you to have a wide variety of choices.
Threats can include competitors, market volatility, supplier prices and changes in customers habits.
You then begin to look at the products or services you provide and see if you can incorporate additional offerings. For example, if you provide a service are you also able to create a product that you can sell along with the service or increase the product line if you sell products. It’s important to continuously seek feedback and monitor the performance of the products and service ranges.
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