How Do I Diversify My Business?
CEOs, Directors and other business leaders must be savvy, passionate and hard working – but that’s only half the battle if you’re a founder.
Below, CEO Today hears from Alan Barratt and Juliet Barratt, Co-Founders of sports nutrition start-up Grenade, on some of the key elements that helped them grow and diversify their own business.
The commitment and vision required to launch your own brand or business is huge. To then sustain and grow a successful business requires adapting your vision over time to stay ahead and keep pace with the market – it’s no surprise that some estimates believe nine in ten start-ups fail. Business leaders must ensure they’re always considering strategies to develop new revenue streams and improve existing ones. Diversifying a business’s core product offering is one way to do this, another is reaching new customers.
Creating new products
Effective product diversification can support business growth by increasing sales opportunities to existing customers. For example, a business that manufactures and designs men’s shirts might naturally add cufflinks and ties to their range. Taking the business a step further, they could then add a wider range of products to their portfolio such as t-shirts or trousers that will appeal to the same customers. It all centres on truly knowing what your customers want, who they are and personalising business expansion around them.
When diversifying your product range, it’s always important to take a balanced approach. In this spirit, brands must never prioritise quantity of products over quality in a successful diversification project. Make sure you always put the needs of the consumer first and put the same amount of care and attention into each of your products. This is particularly important if you want to create a premium brand that lasts. The same values and defining qualities must be consistent across your business to ensure you stay true to your original brand vision.
Apple is a great example of this. Founded in 1976, over the years it has transformed from its original flagship product Apple I, a desktop computer, to having market dominating and pioneering offerings in several different categories from mobile phones, digital music, publishing, tablets, speakers, watches and more. The key to the success of each was understanding what customers wanted – from an experience perspective that went beyond a physical product.
Reaching new customers
Attracting new customers can put your business on the fast track to growth but it can require an overhaul of marketing strategies or diversifying into entirely new geographic markets. The stakes are high. Exploring new customer groups and foreign markets who may not engage with your brand could turn out to be a costly exercise. For example, US retailer Walmart tried and failed to open up stores in Germany in 1997. The chain opened 85 stores discount department stores, but didn’t take into account the complicated labour laws, and restricted business hours. Germans also didn’t warm to Walmart’s customer service including being greeted at the door and having their bags of groceries packed for them. Walmart eventually pulled out of Germany in 2006, at a cost of US$1 billion.
Business owners must focus first and foremost on establishing a stable, profitable business in its core customer territory before diversifying elsewhere. By rushing this process, brands that aren’t yet established risk spreading resources too thinly and potentially losing their entire business.
Business owners must focus first and foremost on establishing a stable, profitable business in its core customer territory before diversifying elsewhere.
When expanding into new markets it is essential that you extensively research the buyers and operating environment before investing too much. Use focus groups and surveys to generate customer insights and use these to adapt your approach accordingly. Then hyper target your launch into this new market, giving a small sample of the target buyers a smaller range group of your products or services. Once you have analysed whether they are willing to buy your product, you can feel more comfortable in distributing larger quantities and selling to a wider group of people.
Ultimately the key is to simplify the process of diversifying as much as possible – and not to rush. Once you have a successful business model, make sure there is a need for it elsewhere and then replicate that model. Use well-informed business partners and market research to help you adapt it to the target market, then launch your product in a regulated way.
‘Diversify or die’. It’s a phrase which it’s easy to get bogged down with when it comes to business. It’s true that diversification can be a catalyst for fast growth, but it can also be risky. Just because a product or a brand works with one type of customer, doesn’t mean that it will automatically work among others. Business owners should avoid diversifying into new offerings or markets for the sake of it and should only consider it once their core business is stable and profitable.
