The process of Business Diversification for any enterprise is a major one, that requires strategic, long-term planning & an ability to “think out of the box”, (away from the existing core activities of the company), which is why many of our clients at gutowski & milner ask specifically for our help in this area.
In its simplest form, Business Diversification involves launching into a new market, a product or service that is new for the company & it’s associated suppliers / customers / stakeholders etc.
Business Diversification is a process that has the obvious benefits to the company, including potentially:
- Increase Sales revenues & profits.
- Ability to leverage relative “importance” or economies of scale with existing or new suppliers.
- Flatten out seasonality peaks & troughs.
- Reduce reliance on the existing business.
However, it is not without its risks, which include (but not limited to):
- Valuable resources (including both human & financial) will likely need to be redirected to the new activity, which, by its very nature, will take time to generate positive ROI for the company -potentially leaving the organisation vulnerable in the meantime, especially if the core business is now under resourced.
- The company & stakeholders will need to adapt to the new business, which may require a change of working practices / mindset. Is the business ready for this change?
- The business will need to search out & forge new partnerships with both vendors & customers alike, & if you are not first-to-market, you may have to offer features & benefits – over & above the competition – to build market share.
Business diversification can take many forms. We have ourselves grown & helped clients build new businesses by:
Organic growth or horizontal model:
In essence we help clients extend their existing product offering, to add new ranges, which whilst completely new to the client, have a relevance nevertheless to the core business.
It is vital, in our view the company maintains credibility & brand integrity during this process, especially if your clients for the new products or services are the existing ones from the core business.
This is one of the less risky approaches, but also is more obvious to the competitors & therefore can be anticipated & responded to quickly.
This is another often used approach by our clients at gutowski & milner, whereby the client acquires the Sales channel or supply of their existing core business. Effectively, they are moving along the value chain.
Whilst relatively lower risk in principle, this approach does lock-in the company into an industry / sector, which if maturing, could be a relatively short-term gain & advantage.
Disrupter or concentric model:
This is where a client takes an existing technology or in-house process that it has expertise or IP in & applies it to a completely different sector, hence creating a new business model for the company.
There can be in many cases a cross-over in terms of clients / vendors for this model, & therefore is carries relatively lower risk, however, this assumes that the in-house process or technology is suitable for use & provides some USP’s for the new business.
In this model, the company has identified an interesting new opportunity, however, in principle it involves entering a new market, with potentially new suppliers & customers.
The organisation will need to work hard to become established in this new sector, which will take time & resources.
Compared to the previous scenarios, this model is relatively higher risk because there may be little or no in-house experience of the new business (which will need to be brought in, & at the same time your company is an unknown to both clients / customers & vendors).
This could be seen as a high risk / high reward option, & should in our view really only be considered by organisations which have a relatively strong balance sheet – to withstand potentially substantial financial disruption.
Please feel free to contact us at https://www.gutowskiandmilner.com/contact-us/ in the first step with your Business Diversification plans.