Growth Through Product Diversification

Growth Through Product Diversification

It is the start of a New Year, and companies everywhere are preparing and reviewing strategic, growth and financial plans for 2017.

Growth and diversification of the business are often key focus areas of successful management teams. When planning goals for the year, one of the ways to achieve both of these goals is through expanding complimentary product and service offerings in existing or new sales channels. Current and prospective portfolio companies strategically think like this. Here are a few tips…

Don’t be Afraid of Branching Out

Product diversification is scary for some business owners. It represents the unknown. It seems counterintuitive to stability. You’re great at what you do; why tempt fate and risk potentially failing at a new endeavor?

However, well planned product diversification creates a pathway for the future of your business. Think of it not only as growth, but also as a backup plan. It gives you a parachute in case market or consumer interests shift and your core product falls behind or becomes irrelevant. Diversification gives your business flexibility and longevity. Challenging this kind of strategic thought across your organization also keeps engaged, thinking and motivated to find solutions, and helps keep your company engaged with the marketplace movements.

The adaptability, diversification and sustainability of your company play a huge role in whether or not professional investors fund your business. Diversification might be scary, but it’s vital to growing your business.

Yes, growth and diversification have risk. However, here are three ways to lower the risks that come with diversification.

(1) Build on What’s Working

Sometimes people mistake diversification for a new direction. It’s not. You don’t shed your core product. Your core product stays as your market sweet spot and that sustainability is attractive to investors.

View diversification as expanding or branching out. Your core product stays as the epicenter of your services. You simply add on additional offerings that are either enhancements or offshoots of your core product.

Everything stems from productivity. Sometimes when companies expand, the vision gets lost in the expansion. Investors aren’t interested in companies with a muddled vision. By staying focused on the company’s core mission, a Company reduces some of the risk associated with diversification. So, focus your diversification efforts around your core products and mission.

(2) Research, Research, Research

You may already know how you want to diversify your company. Maybe you aren’t going to offer new products just yet. Maybe your approach is to diversify how you sell your products by adding online sales to your scope.

Diversifying your sales channels for existing products and services helps add new customers and can decrease concentration.

If this is the case, you can end up spinning your wheels and incurring additional sales personnel, overhead and inventory costs if you don’t ender the right channels. Therefore, whether you know or don’t know how you’re going to diversify, you need extensive research on your end markets, and how your customers or potential customers prefer to interact with the market and buy.

Going with the example of online sales, you’ll need to think about these things:

Do your customers shop online?
What do they want out of an online experience?
How much will an online retail experience increase sales?
What online sales platform is best and can you market through an existing e-commerce platform?
If you decide a website is best, then what should the site look like and how will you drive traffic there?
Who’s your online competition?
What are they doing?
How can you do it better, and what are your customer acquisition costs?
Can you handle the increased sales that come with an online store?

This list is by no means exhaustive. And, the same thought process and research would apply to a manufacturer of a product when looking at adding a complimentary product or expanding channels, and so on. Just remember that diversification of any kind is definitely not plug and play. You need to define your objectives and then further clarify them to suit your company mission and your customer’s needs.

(3.) Strategically Execute

Diversification is your opportunity to show investors that you know how to grow your company. You can read trends, spot opportunities and translate them into a sustainable business model.

So once you’ve identified your objectives for diversification, you need to develop a strategy to execute it. You may not like creating a business plan, but just as one is necessary when you launch a business, it’s necessary when you diversify a business. That’s why many middle market companies’ annual strategic and financial plans are robust.

You might be tempted to overlook this step, but potential investors will ask to see it. Keeping your strategies in your head doesn’t help would-be investors.

Write everything down. Review it. Refine it.

This is the part of the diversification process where you look into the future. You strategize the roll out of your new efforts, but you also forecast for future problems – like a market shift. On the positive side, you can also plan for future diversification if this one is a success.

Don’t forget to take all of that research you did and plug it into a solid marketing plan.


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  1. […] Does my capital structure and financial partners provide for options to grow via Product Diversification? […]

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