Time to diversify? Here are five ways to go about it

Reasons to diversify as your business grows

When looking to grow your business, diversification can be the answer and there are many ways to go about it.

Putting all your efforts and resources into one area can be dangerous. The question of whether (and how) to diversify a business almost inevitably makes its way onto the planning agenda for every successful entrepreneur and business owner.

Success via diversification is no mean feat, with may companies having tried and failed. Sticking to your usual approach can seem a more attractive option, however, diversification done well can result in healthy business growth and the creation of profitable new revenue streams.

Here are some options for businesses looking to break fresh ground.

Sell online

Australians’ love affair with online shopping shows no sign of slowing. In the 12 months to June 2018, an estimated $26.5 billion was spent online, according to the NAB Online Retail Sales Index. If your company doesn’t already sell things online, adding this capability to your website can open up new markets, at home and abroad.

Ipsos research commissioned by NAB in 2017 showed local businesses derived, on average, 22% of their turnover from online sales. Businesses that don’t diversify into digital may be missing out on this significant slice of revenue.

Third-party marketplaces are another means by which local retailers can establish a shopfront to the world and make money online. The largest of these is Amazon Marketplace, a selling platform that charges retailers a monthly fee to list their wares. Homegrown online shopping mall MyDeal offers a similar service on a smaller scale.

If you don’t have the resources to build and manage your own infrastructure, teaming up with a third-party site can be a great way to amplify your reach.

Target a new niche

For some businesses, the best way to open up new possibilities is not to broaden focus, it’s to narrow it. This can be possible by developing a product or service that appeals to a specific group of customers with an unmet need.

You’ll find yourself in good company, should you take this approach. Some of the world’s most successful businesses don’t try to be all things to all people – they identify a narrow segment where they can make their mark. A certain German car manufacturer, for example, has eschewed the lure of the mass market in favour of keeping its focus firmly on luxury performance vehicles.

Understanding the industry you operate in and staying attuned to your customers can help you find opportunities to home in on, add value and develop your own profitable niche.

Go overseas

Collectively, Australian businesses and organisations export more than $30 billion of goods and services every month. If your business is well established here in Australia, a global expansion strategy can be a great way to diversify, grow and protect against market fluctuations on the home front, provided you plan exhaustively and mitigate as many of the risk of global expansion as possible.

Research is the key to determining which territories to target and the most effective overseas distribution channels.

Completing deals, setting prices and navigating the regulatory and cultural environments of other countries can be a complex business. It’s worth investing time upfront to ensure you get things right before you dive in and also making sure you have the capability, capital and cash flow you’ll need, should your wares be in significant demand.

Acquire a competitor

Buying an existing business whose products or services complement your own can allow you to grow and diversify more quickly than you’d be able to organically. To succeed via this strategy, it’s vital to understand how the company you’re acquiring will add value to your offering before you proceed. Tales of failed acquisitions are plentiful and lack of focus is a common theme.

Companies that diversify successfully via acquisition typically target enterprises whose core business is reasonably similar to their own and that have a good prospect of generating revenue within a reasonable period. Queensland’s Quinn family employed this approach in 2012 when they took over collapsed confectioner Darrell Lea. Then owners of the pet food producer VIP Pet Foods, the Quinns used their manufacturing and distribution expertise to overhaul operations and strike deals with supermarkets and specialty stores to stock the iconic sweets brand. The revitalised Darrell Lea business was sold for a reported $200 million in early 2018.

Concentrating on what you already do well and looking for opportunities to expand your customer base or expand market share around that can be a sensible strategy, if you’re seeking business growth by acquisition.

Innovate and adapt

Diversification doesn’t necessarily mean developing brand new customer offerings or business streams. In many instances, adapting and modifying your existing products and services can increase their appeal to previously untapped target markets.

That could mean launching a premium version of a product or service you already offer or, on the other hand, an entry-level one. For celebrated Brisbane chef and restaurateur Philip Johnson, it was a foray into the world of gourmet hamburgers via Howzat, a pop-up outlet within his upmarket eatery e’cco Bistro, back in 2014.

Finding ways to extract additional value from your existing range or facilities can be a low-cost and low-risk way to diversify your customer base.