Introducing Business Diversification
Diversification is when a business develops a new product or service or expands their current business into a new market.
So how can we find opportunities to diversify our businesses in time of adversity? Can we learn from others who have successfully diversified their own businesses? Is this the time to think about how you can diversify your business to help you get through the next few weeks and months and/or keep your business resilient for the future? Who knows what the world of business will hold for you in this brave new world being created by this deadly virus.
The farming industry is a great example of diversification and there are many examples of how farmers and their families have addressed the challenges being faced by looking at ways to diversify their businesses. Remember the terrible scenes of the casualties of mad cow disease and the devastating effect it had on many farming communities? We are hearing now how catering businesses are changing to different ways of working to enable them to continue to operate albeit with fewer staff and in a completely different way. Other examples of this include Dyson responding to a nationwide call out for the production of ventilators and Piston Gin, a Worcester gin distillery that has joined a number of other alcohol makers in making its own hand sanitiser.
However, you may not be able to respond to current needs as they arise but it’s worth thinking about the future and what our world will look like when get through the current crisis.
One thing is for sure, the whole of the nation is creating trends that will stick with us long after this is all over. Working from home or remotely will become much more readily accepted as an effective way of working. Virtual socialising activities will become the norm and teaching and learning seems to have taken on a life of its own through schools responding to the challenge of keeping children (and parents) engaged and motivated to learn in their own home surroundings. If there is an opportunity to move into offering your business products and/or services online then this may be a perfect way to diversify your business.
So what will you need to consider when deciding on how to diversify?
In some ways it’s just like starting a whole new business but in this case you will be building on the skills and experience gained from running a business already. It may also be that you are able to redirect the use of resources used by your current business to create a new product and/or service.
Three things to ask yourself:
- Am I/are we good at it?
- Is it commercially viable?
- Am I passionate about it?
If you’re not passionate about it and it hits a bump in the road you’re more likely to lose interest and direct your energies elsewhere? Most successful small business ventures are built on the passion and drive of the small business owner/s.
Many diversification plans are based on the core skills and physical resources within the business. Plans should be based on a thorough knowledge and assessment of the market, the economic situation and the existing skills and resources within the business. There are a number of ways you can plan using either a business planning tool like the one you will have used when you first started your business or the Business Model Canvas. Please use the links below to access free templates for you to use.
You will need to undertake a thorough risk analysis ensuring that any diversification does not put your existing business at risk. Thinking about the risks involved in your plans to diversify will help you to manage those risks as and when they occur.
It’s great to be creative and innovative but be honest with yourself and the people around you. Share your plans with others and listen to what they have to say! As entrepreneurs we are often blinded by the opportunity so think things through and test your ideas out with as many people as you can as this will prevent you from taking your eye off your main prize is your current business.
Using the following steps will help you to create a plan for diversification:Step 1 – Consider the core skills and experience you have gained through starting and running your business
Step 2 – Gather diversification ideas, the wackier the better, from your circle of family, friends and staff
Step 3 – Undertake a simple risk analysis identifying the opportunities and thinking about what could go wrong. I realise this is not something we always do as entrepreneurs however its important to make sure that you have thought through the risks before investing time and money in your new venture
Step 4 – Identify the resources that will be needed to get things going and to keep them going. This will include physical, financial and human resources. Think about when you started your business and the time and effort needed to get your business off the ground and to keep it running. It will be useful at this point to think about the needs of your customers and how they will continue to buy from you
Step 5 – Consider any safety or legal implications in the new part of your business
Step 6 – Use the same business planning approach as you did when you started you original business
Step 7 – Access as much support as you can from trusted advisers and mentors