Entrepreneurs keep asking how they can sell more, while others would like to know how to stimulate sales in low seasons. All these people speak the same language, sales. However, as business consultants, here is our advice: If the focus of your business is entirely on selling, then your business is epileptic and is bound to fail in adversity.
This is because; difficult seasons and especially situations that you are entirely not in control of (environmental conditions), test what your business is made of. This means that if your business is founded on strong principles, you can survive years of adversity as other businesses bow to failure. These principles include diversification, efficiency, innovation, and customer service and loyalty. This article focuses on diversification.
The concept of diversification is not new to many. In fact, many entrepreneurs have diversified with varied degrees of success or failure. Whether the success was accidental or failure inevitable, the fact remains that diversification is very vital to the survival of businesses in hard economic times. For instance, after the Second World War, many small businesses that supplied the US military with specialized services collapsed because of decreased demand. Only those that had successfully diversified survived and still exist.
Also, during the economic crisis
Ways of diversifying
Introducing a new product or service line
Apart from voice and messaging, Safaricom Limited also offers data bundles, and mobile money transfers. Unilever makes washing powders, toothpaste, bathing soap, among others. In a small business setting, you can find an MPESA agent who also sells mobile phones, does battery charging and is a bank agent or a chemist who also sells beauty products. These are diversified product/service lines.
Producing the same products, but different brands
Chandaria Industries have Rosy, Toilex and Velvex tissue papers, Unilever produces Omo and Sunlight and Bidco Africa produces Cowboy, Kimbo etc. These different brands capture different markets based on consumer taste and level of income.
Being in different localities
What is called business expansion into different regions, if done strategically, is actually diversification.
What to consider before diversifying
As an entrepreneur who is serious about growth and survival, you need to know that the attempts to diversify may fail if you still use technologies that are outdated, inefficient processes, or capabilities which cannot be extended beyond your current market. What this means is that the increased business value that come with diversification can only be realized if:
- The market you choose to enter has lower entry barriers
- Your business idea in the new market has economies of scope
- You have an easy way of gaining market power in the new market.
Additionally, you should have the capability to:
- Maintain your competitive strategy in the new market
- Make the optimum utilization of your core competencies. These are strategies unique to your business, cannot be easily copied by your competitors and which make you stand out among your competitors.
- The management of your business should be prepared and have the ability to radically transform your business’ capabilities to enable you compete in the new market
- The market you choose should be one in which your core competencies will play a significant role in developing value for your customers. This means that you should diversify into a market in which your uniqueness will transform into a competitive advantage.
If you have these in place, then you are now ready to diversify.
Your core competencies mean a lot to your business.
They make your customers choose you and not your competitors. When diversifying, use them to enter the new market as they will enable you to reduce both cost and risk.
Diversify into a market that is still young.
A young market means that your competition is low, and the demand for your products or services is high and therefore, your probability of success is higher.
Go into niche markets.
Customers in such markets, many times, are willing to pay higher for the products or services that are customized to fit their needs.
Increase your capabilities.
Make sure that your business improves daily. By that we mean, work towards the enhancement of the skill level of your employees, improve the leadership abilities of your management, enhance the efficiency of the machines you use etc. In short, make your current business is better before diversifying.
Mistakes to avoid when diversifying
Diversifying out of business failure
Some entrepreneurs go into new markets because it did not work out in the current market.
Diversification is not running away from your business problems. If you are unable to operate successfully in the current market, you will transfer the same problem in the next market.
Identify the current issues, be decisive and if diversifying, have the knowledge of what challenges you will expect and outline how you will handle them. Our business diagnostics package can help you identify those and thrust you into the market with greater confidence.
Diversifying into a totally new business
Going into something totally new means that your core competencies may not give you an advantage in the new environment. This is very risky for small businesses because of limited finance and capabilities. However, you can still succeed if you are sure of what the new market will offer, the challenges you are likely to encounter, expected revenues and revenue fluctuations. This is part of the research that you need to have in place before implementing your diversification strategy.
Overspending in a diversified market
Sometimes in the initial stages of diversification, businesses begin to use inefficient and very costly techniques of advertising. This usually implies that the entrepreneur did not conduct enough research of the new market to determine who the clients are, their behaviour and the optimal channel and message for creating awareness. Efficiency and sensitivity will be very key to your business growth and stability in the new market.