As a Scale-up business or SME do you feel that you have abundant options on how you can grow further? Even if a business has a foolproof strategy that translates to constant or high growth, business owners would still benefit from maintaining a forward-thinking mindset so they can capitalise on potential opportunities. After all, factors you can’t control such as changing customer preferences or major crises can directly impact your operations.  This is where diversification comes in. 

Diversification is a sustainable growth strategy you can consider

With sufficient knowledge and a smart plan of action, diversification can provide sustainable growth for a business. Entering a new market and selling new products or services can mean a new stream of revenue. This could be a way to either increase profitability or secure financial stability for the overall business. 

Looking at it from a broader perspective, diversifying can also minimise risks a business could be exposed to because it does not just rely on the performance of one market or industry. 

While it can be challenging to consider veering away from the market and product you are familiar with, it’s possible for scale-ups and SMEs to maintain your existing market while also venturing into diversification successfully. You don’t have to give up what you have, you would be just adding to it. 

To guide you in getting started, here are three simple steps:

1. Evaluate your growth strategy

If you are considering diversifying your business, it doesn’t automatically mean that it is immediately possible to do so. It’s important to first assess the overall state of your business and see if diversification is a plausible step for its growth. 

This is a great time to review your growth strategy again. Examine your current growth metrics, market, and resources. Utilise tools such as SWOT and MOST to better visualise your options. Doing these actions will also give you a clearer idea of how diversification can play into your business model. 

After which, you may decide if a diversification growth strategy proves to be a promising direction for your business. If it appears to be more suitable for the future, you can park it for the meantime and focus on the ideal strategies that can move you towards diversifying in the future.

This Scale-up Growth Diagnostic may help to supplement your evaluation.

2. Determine the diversification tactics with the best payoff

Once you have considered the business to be in a good position to diversify, look at the various ways you can go about it: innovation, acquiring existing products and services, or partnering with other businesses. Even if you went into this with a specific idea of how you want to expand the business, still consider its pros and cons, and the alternatives. 

Map your resources, capabilities, and connections to see what you are working with. Here are some factors to consider in the process and accompanying questions to ponder:

• Potential: Is there a market for the direction you will expand into? How much is its potential to grow and generate profit? Is this a reasonable investment for the long term? 
• Existing resources: Do you have available resources in your current business that could help you diversify with fewer costs and risks? 
• Knowledge and expertise: Do you have the right people to successfully enter a new market? Do you have the technical knowledge and processes needed for managing the new product or service?
• Costs: Will the projected profit from this business justify the costs? How will this affect your core business?
• Alternatives: Is this the best way for you to enter a new market and/or present new offerings?

3. Prepare a plan to grow

When you have settled on an overarching diversification strategy, you can then work on creating a comprehensive action plan. With diversification, it may seem like you’re starting all over again because you are getting to know new customers and products. 

Granted, you can obtain knowledge and resources much easier now, but it does not negate the fact that you will be having a new line of business to manage. Crafting focused objectives, growth strategies, and executions are crucial to ensuring that your diversification strategy will not fail.

Diversification is a big step even for large and established companies. High costs and risks are involved no matter what so it’s smart to thoroughly think it through before jumping in. 

Customer needs across so many businesses have changed so rapidly due to the pandemic that many businesses have been forced to diversify quickly or fail. If you haven’t already diversified through necessity then considering such opportunities as part of your business growth strategy is a smart first step. If you don’t have a strategy in place or need to review it then using tools such as the Business Strategy Toolkit can guide you through creating one.