Diversification is a buzzword right now for small-business owners who are trying to figure out how to protect or grow their operations in the sluggish economy. Adding new products or services — or repositioning existing ones to reach out to new customers — can be a smart move, but it also can be disastrous if done incorrectly. A crucial point to remember when you’re thinking about expanding your offering is that your core business should remain the same.
Frank Goley of ABC Business Consulting offers this insight: “Customer customization is key in a tough economy,” and people tend to expect more in terms of quality and value. Goley follows his own advice. His company just announced a new hybrid service that combines business consulting and internet marketing to attract clients who need both.
Here are three strategies for diversifying successfully in a down market.
- Introduce products or services that target your existing customer base. When adding new products or services, the best way to ensure success is to consider how your clientele uses your products or services — and then extrapolate from there. For example, a residential pool cleaner might create a DIY chemical cleaning product to sell to his current customers. Adding a chemical product to a pool-cleaning service seems like a natural extension of his business: It not only could save customers time, but also will hold the pool cleaner more accountable for his quality of service.
- Expand your customer base. The pool cleaner could begin to market his services to commercial clients, such as hotels and apartment complexes, in addition to residential customers. When expanding your customer base, it’s important to make sure you have sufficient staff and administrative procedures in place — or the expansion could end up backfiring. For example, the pool cleaner could put so much effort into his new commercial clients that the established residential business begins to suffer. Meanwhile, if the commercial venture doesn’t work out, he’ll be left with nothing.
- Market new products to new customers. This is the riskiest form of diversification, because you have to head into uncharted territory. Let’s say the pool cleaner develops and manufactures a new, improved pool brush and then tries to market it to his pool-cleaning competitors. The payoff could be huge — but if they don’t bite, he’s wasted a lot of valuable cash flow.
Got your own success (or failure) story about diversification to share? Let’s hear about it in the comments!