Understanding Business Diversification – Business Strategies
Business diversification is a strategy that allows companies to expand into new markets or product lines to reduce risk and drive growth. Understanding business diversification involves exploring how businesses can leverage new opportunities and mitigate risks through strategic expansion.
What Is Diversification?
According to Wiki, Diversification is a corporate strategy to enter into a new market or industry which the business is not currently in, whilst also creating a new product for that new market.
It is basically a risk-reduction strategy that involves adding new products, services and/or location, customers and markets to your company’s existing portfolio.
Diversification occurs when a business develops a new product/service or forays into a new market. It is often done to manage risk by minimizing potential harm to the business. It is an integral part of the business.
What Is Business Growth? What Contributes To Business Growth?
Business growth, in its plain form, is an increase in what you already do. If you sell garments on a low scale, selling garments at a higher scale is business growth. Diversification is a form of business growth whereas business growth is not diversification.
Basics of Diversification:
The basic idea is to expand into an activity that doesn’t negatively react to the same economic slur as your current business activity. If your business enterprise is taking a hit in the market, having another offshoot business in another arena will help offset the losses and keep the company swimming above the water. A business may also use diversification as a growth strategy, but it is not necessarily so. You can use other strategies to make a business grow.
New Bearings:
In order to grow in your business, you don’t do the same thing over and over again. That is one of the main causes for stagnancy in businesses. You do something different, or present the same thing in a different manner. It’s important to understand this basic concept. There are smart ways to help you diversify your business, whatever field of business you are into. Prior to taking the leap, ask yourself the following important set of questions:
- How can you venture deeper into what you’re already doing?
- If you already offer a niche product, how can you surpass the benchmark you have set yourself?
- How can you go to that “next level”?
- What is your competition? Observe and analyze what they are offering that you are not. Find out what fits your needs and what you want to do.
- What are the related businesses in your industry?
Sky Is Not The Limit When It Comes To Diversifying:
You need to find out what your limits really are. There is a breakage point for every business; if you try to stretch beyond that, you get your business into trouble. So look carefully into your investments and take the leap. Ask yourself the following when planning to diversify:
- Can I afford to invest in a new product/service line?
- Are there enough resources available in terms of people and finances?
- Did I consider all the investments I made; can I use my current resource to maintain and manage my diversified business?
If the answer to the above questions is a “yes”, you are all set to go. But the most important question you need an answer to and find out is:
What’s My Limit?
If you have managed to find the answer to the questions above, you are ready to get your balls rolling. As no one can set a limit for you or for your business, it’s only you who can decide your game plan.
Don’t Start From Scratch:
Diversification means to grow in a new direction; take a new path—it doesn’t mean fragmentation or division of your business. Diversification should be a well-thought-out move to help your business grow and remain above the water in turbulent times.
To Conclude:
Diversifying can take your business to heights, and into newer territories. It also helps your business build a bigger and better reach in the market. Another advantage is that a well planned out diversification strategy helps increase your long-term profits. So do your research diligently and make sure your new endeavor is the best one for you and your business. Remember, good growth is strong growth. Diversification also has a past record of creating headache even for very big brands like Vigin Cola, Coca Cola’s apparel etc , diversification is like a double-ended knife Handle it with at most care.
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