Key strategies to diversify your small business

Diversify your product offering. [iStockphoto]

Diversifying your business is one of the best ways to prepare for survival in a volatile, uncertain, complex and ambiguous (Vuca) business environment.

Initially used by the American military in the 1980s to describe the cold war, the term has been adopted to define today’s constantly evolving business environment.

In a Vuca world, putting all your eggs in one basket can be dangerous. Diversifying can help you seize new opportunities, take your business to the next stage of growth, or simply survive in an unpredictable trading environment.

Diversification happens when a business moves into new areas while continuing to run its original business. It’s a strategy that can help you expand your market share.

Successful diversification, however, is no mean feat. Many businesses have tried to diversify and failed. While the risks associated with diversification shouldn’t be undermined, successful diversification can result in healthy business growth and the creation of lucrative new revenue streams.

If you’re thinking about diversifying your small business, here are some helpful tips:

Diversify your product offering

The easiest way to start diversifying your business is by expanding your product or service offering. Think of a product or service that compliments the one you’re already selling and go for it.

This will eliminate the need for your customers to go elsewhere to buy what they need. For instance, if your core business is selling curtains, you can easily include beddings in your product offering.

You can also diversify by creating different versions of the same product or service to cater for various segments of people.

For example, if you have a high-end product, consider offering a less expensive one for people who don’t want to spend as much. Be careful with this strategy – you don’t want the new offering to hurt your existing business.

Start selling online

The growth of e-commerce shows no signs of slowing down. A recent industry report projects that e-commerce will account for 20.4 per cent of the global retail sales by the end of 2022, up from only 10 per cent five years ago.

If you haven’t ventured earnestly into selling online, adding this capability will open your business up to new markets.

To successfully venture into e-commerce, however, you have to take it with the seriousness it deserves. Opening and operating an online store is just launching a new branch of your brick-and-mortar store. With that in mind, you have to invest in competitor research, select your eCommerce platform carefully, hire a professional website developer and have staff dedicated to your online store.

Finally, don’t neglect your online customer service. While most of your attention should be on creating and offering quality products, neglecting customer service will reduce your base drastically. Provide your customers with a platform to give you feedback, such as via your social media platforms, live chat, or email. Listen to your customers’ feedback and improve your eCommerce business accordingly.

If you lack the resources to build and manage your own e-commerce infrastructure, consider teaming up with a third-party site to amplify your reach. For instance, you can become a seller on big e-commerce websites such as Jumia, Kilimall Sky Garden, or Jiji.

Acquire a competitor

Competitors can be a threat to your business. One way to neutralise them is via acquisition, which also doubles up as a diversification strategy. Buying out an established competitor with similar or complementary products can help you diversify faster than would be possible to achieve organically.

However, don’t be in a hurry to buy out competitors. To successfully implement this strategy, you must first evaluate how the business you're buying will bring value to yours. What is your estimate of their average sales?

Do they have good customer retention? How much is the competitor willing to accept for their business? Do you have the resources to manage the acquisition?

There are many stories of disastrous acquisitions. One of the most common reasons for acquisition failure is a company overpaying for an acquisition. Careful research and consideration will help you avoid many of the pitfalls that can spell disaster with an acquisition.

Consider going overseas

Taking your business overseas is a smart way to venture into new markets. Most small business owners are focused on growing locally. However, expanding internationally means exploiting major growth opportunities.

Just like with acquisition, going overseas is a move that should be well-researched before implementation. Ensure there is interest in your product and that you fully understand what the competition looks like in that market.

You should also have relationships in place to provide you with the necessary support. Research on the legal requirements and regulations. Expanding your business to another market takes a substantial amount of paperwork.

It’s advisable to hire a lawyer who’s well-versed in international business, especially with the country you want to do business in. Doing so will help you avoid potential legal snags.