“It’s never good to put all of your efforts and all of your time and all of your financial resources into just one project. Diversification is key for any individual and any business.” — Paul Heyman
Diversification in business is vital for companies wishing to stand the test of time and achieve long-term growth. Statistics indicate that emerging companies that embrace a diversification strategy bring in a 3.6% higher return compared to those that do not. By depending on more than one income stream, these businesses are resilient to negative disruptions in their sector and can achieve more rapid, sustainable growth. Below are the key ways your company can embrace diversification, so you never get stuck in models and processes that no longer work.
When Is Your Business Ready to Diversify?
Signs that your business is ready to diversify include heightened competition and market saturation. You may realize that relying on one main product or service is risking your stability. Alternatively, your business may be doing well and you may be looking for a way to diversify your investments to have access to a larger amount of capital for future ventures. You may have considered diversifying your portfolio in one of three ways: expanding into new products or services, forming synergies with other companies, and moving into an entirely new market. The latter is possible even if you don’t have experience in the new sector so long as you have committed investors and the intention to hire specialists in your proposed area of diversification.
Defining Your Strategy
Once you decide to diversify, it is time to create a strategy roadmap that translates your strategy into defined business objectives. The primary ingredients of a strategic roadmap are understanding the current state of your business, setting strategic goals, assessing your capabilities, creating your portfolio of projects, and finally, monitoring your progress. To analyze your current state, conduct a SWOT or PESTLE analysis to clearly define your business’ priorities and the change you need to make. A SWOT analysis aims to identify your company’s strengths, weaknesses, opportunities, and strengths. A PESTLE analysis, meanwhile, will help you take into account political, economic, social, technological, legal and environmental elements prior to making your decision. Next, set strategic diversification goals, taking factors as your company’s size, structure, and activities into account. To evaluate your capabilities (including staff, technologies, finances and similar), use value stream mapping, which will help you understand the flow of value from your business to your customers and determine your delivery capabilities. Next, you can set up your projects, prioritizing those with the highest value for your business. Lastly, track your KPIs and make changes to issues as soon as you identify them.
Creating New Synergies
If during the strategic roadmapping stage, you determine that your capabilities are not up to scratch, consider partnering up with other companies. Avoid taking an opportunistic approach. Instead, conduct research to identify companies with strengths and capabilities that complement your own. Look into factors such as customer segments, expertise, market reach, or technology, to ensure you can benefit from the new relationship.
Diversification is vital for companies wishing to boost their resilience. It involves offering new products or services, partnering with other companies, or even moving into new markets. In order for diversification to meet its mark, companies must define their strategy well and conduct thorough research into potential partners that can work alongside them for mutual benefits.
