Many company owners fall into the trap of thinking that growth simply means attracting more business, but the truth is very few can achieve this without expanding on what they offer.
Next up in this series, we look at diversification and how it can offer new dimensions to your business, allowing your company to initiate the growth that leads to greater levels of attention and ultimately business.
What is diversification?
Diversification is easy to define, but can be difficult or risky to perform. Very simply, it means creating a product or service in order to enter a new market for your business. It’s a vital part of expanding a business, but one that can be a flop if not conducted with due care and research.
What does diversification entail?
If you’re not familiar with the Ansoff Matrix, and the works of Igor Ansoff who developed the concept, this is really worth reading up on to get an understanding of business diversification.
Ansoff and other business experts note that diversification can be split into the following three forms:
1. Concentric
Concentric diversification is when a company uses its knowledge and experience of the technology involved in its products to target a different audience or sector. An example of this might be for a company that creates computer programmes geared towards businesses to expand into ones designed more for leisure.
2. Horizontal
Horizontal diversification still consists of a logical move from one product to the next, but it may mean learning new technologies in order to make the move.
For example, if a company that made toothpaste was to start making toothbrushes, this would be horizontal diversification. The technologies and processes involved in the manufacture would be very different, but the two products come hand in hand and creating both could help gain a stronger foothold in the dental care sector.
3. Conglomerate
Conglomerate diversification is potentially the most lucrative of three options, but also the riskiest. It involves looking to reach out to a new customer group altogether. You could look at major companies like Google, Sony and Virgin for examples of this, as they are involved in a number of sectors. Obviously, there is usually little knowhow and experience for the company to fall back on here, so meticulous research and planning is necessary.
Always bear in mind that we talk of “business growth”, not “cash flow growth” or “customer growth”, so the crux of enjoying all the benefits of growth is to expand your business itself. If this seems daunting, innovative outsourced accountancy and management solutions can help you make the right choice.