Diversification is when a business develops a new product or service or expands their current business into a new market. Businesses can reduce the risk of losing key markets by ensuring they have alternative options. Diversification into new markets can bring resilience, leverage resources, drive economies of scale, maintain competitive advantage, grow brand loyalty, and can offset future changes.
In uncertain periods, businesses and managers need to inspire future trailblazers on how leadership and innovation can make incredible things happen. Business diversification is at the forefront of this. As Jack Welch, the late CEO of General Electric, once said: “Leaders emerge during trying times.”
In economic downturns, consumer demand for “nice-to-have” products goes down as buyers focus on their more basic needs. Health, wellness and safety — products that fit into the lower parts of Maslow’s Hierarchy of Needs — become the top priority.
The whole of the UK 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. 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.
There are different ways to diversify your business, for example:
- Demographic diversification: Attracting new types of customers involves carefully understanding the profile and buying behaviours of different social groups but it can enable you to target your offering into new markets such as different age, gender, online and social profiles.
- Product diversification: There are many examples of where this strategy has been used – gin distilleries across the UK have switched to producing hand sanitiser instead of the alcoholic spirit during the Covid-19 pandemic; Barbour, famous for its wax jackets are making scrubs for frontline staff, and Dyson is manufacturing ventilators in response to demand from the NHS.
- Sector diversification: As well as avoiding over dependence on one key customer, it is also useful to think about sectors of customers
So, 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? How can you find opportunities to diversify your business?
How to diversify
Most successful small business ventures are built on the passion and drive of the business owner/s. So, if you’re not passionate about any new idea, then don’t go down that route as you’re more likely to lose interest and it is much better to direct your energies elsewhere.
In many ways, diversification is a bit like starting a new business, however you will be putting into practice and developing the skills and experience you have already gained from running a business. 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.
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. Many diversification plans are based on the core skills and physical resources within the business – we recommend you use the business planner in GrowSmart to help you develop your strategic plan.
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.
Follow the following steps:
- Consider the core skills and experience you have gained through starting and running your business
- Gather diversification ideas – for example, from your staff, family and friends
- Think about the needs of your customers and how they will continue to buy from you
- Undertake a simple risk analysis identifying the opportunities and thinking about what could go wrong. This is important to make sure that you have thought through the risks before investing time and money in your new venture
- Identify the physical, financial and human resources that will be needed to start things up and to keep them going. It will be useful at this point to
- Consider any safety or legal implications in the new part of your business
- Use the business planner in GrowSmart to help you to develop your business plan
- Access support from our various services to help you
Diversification can build resilience, enable economies of scale and also increase the value of any business, but only if planned for success!