There are two main reasons to diversify your operations. The first is out of choice, because you’ve spotted a promising opportunity. For example, Johnson & Johnson expanded from home health products into medical devices, sports performance research, and more.
The second reason to diversify is out of necessity. Many businesses are currently considering this option, as a global pandemic upsets economies and drives down workplace productivity and consumer confidence.
If you’re weighing up entering a new market or launching new products, you’ll need to answer some important questions before taking the plunge.
1. Do you have the capacity to diversify?
Consider what resources you’ll need to dedicate to the new venture. Which teams’ efforts will need to increase to support the development, launch, marketing, and delivery of the new product or service? Has the slowdown caused by Covid-19 created extra capacity to expand your team’s remit?
2. What can you do better than competitors in your current market?
Pinpoint ways to add value and differentiate what you do. It could be free delivery, more sustainable or ethical materials, a stronger guarantee, or more informative marketing (e.g., explainer videos).
3. Have existing customers suggested the diversification route?
Collate and review feedback from customer reviews, seek specific guidance through surveys, and ask your customer-facing staff what suggestions they hear most often. E.g. if customers are always asking if your food manufacturing company offers gluten-free products, it could be time to consider broadening your range.
4. Is a physical presence necessary?
If your success is mostly thanks to the presence of your store, office, or warehouse, expanding your physical footprint could be the best way to grow. However, if you're considering diversifying into a new market or product line, it may be best to think of a different strategy.
Perhaps you’ve traditionally focused on face-to-face sales in retail stores or other physical locations. Given that global eCommerce sales continue to grow year-on-year (with Amazon, in particular, growing at above-market rates), is there a way to move some of your sales online?
5. How could you adapt or modify your existing product or service?
What’s the easiest way you could adapt what you currently offer to unlock sales from a new demographic? For example, a software developer could add a host of new features to a “Professional” version of its app. Or you might be able to offer a completely different product by modifying your production process.
Recently, gin distilleries have switched to the production of much-sought-after hand sanitiser, engineering firms have retooled to produce ventilators, and meat businesses have offered direct-to-consumer deliveries for the first time.