A company that depends on a single product or service for a large part of its revenue doesn’t have much of a longevity plan. If something goes awry with that one source, there aren’t many options. 

To avoid putting all their eggs in one basket, companies diversify. Diversification is an excellent long-range growth strategy for most organizations. It typically takes the form of developing multiple products or service lines, or distributing products and services to multiple markets.

Companies diversify to expand their businesses and increase revenue. But they may also diversify to reduce risk—to help fill seasonal voids or sustain profits in times of market downturn. Think of the cattle rancher who runs a vacation dude ranch on the side. Or the builder who offers commercial construction and remodeling services in addition to custom homebuilding.

Extending your business activities can generate multiple streams of income, but it can also divide your focus and create chaos. Before diversifying and adding a new dynamic to your business, consider these essential do’s and don’ts.

• Do look for ways to turn old products into new ones. This can be as simple as applying an improvement mindset to an existing product. Can the product be made smaller or larger? Designed in various colors or shapes? Can you find new uses for it? Can you co-brand existing products or sell them under private-label arrangements? How about redesigning packaging?
  
  
• Do sell complementary products or services. Any diversification effort should be aligned with your core mission and philosophy. Stray too far and the risks increase – as do the costs. By having related revenue streams, you likely won’t have to spend excessive resources to get that new product launched or to reach that new market.
  
  
• Do delegate responsibility for the new venture. Running more than one business at a time requires additional resources. You’ll want to provide direction on the new endeavor, but you’ll need someone to manage the day-to-day operations and details so you can maintain your focus on the existing core business. 
  
  
• Do market your expertise. Consider hiring out consulting services or conducting educational seminars for a fee.
  
  
• Don’t try too much at once. Diversification can require significant outlays of time and resources. Diversify too quickly and you can dilute your core products or services. Your fiscal standing must be carefully reviewed and all opportunities analyzed. Then take it a step at a time.
  
  
• Don’t overlook market conditions. You may have the perfect product for a new market, but are you sure the market wants it? Don’t pursue a new opportunity purely on the basis of fit. There must still be a need, so be sure to conduct thorough research. The market you’re after may in fact be satisfied with current offerings, saturated with cheap alternatives, or sliding into a downturn.   
  
  
• Don’t overlook your existing customers. Engage them in an ongoing dialogue to find out what solutions they’re looking for, and determine how you can provide them.
  
  
• Don’t go in without a strategy. You’ll need to be clear about objectives, costs, and resources needed. Sales, marketing, and operations must be skilled, aligned, and prepared to handle the new demands.

Wipfli can help your organization evaluate new markets and opportunities. For more information, contact your nearest Wipfli office location.