Business owners understand the inherent risks of the market. At any time, disaster could strike and completely cripple a product’s demand or supply. If that product is a company’s sole breadwinner, the company will likely go under. Obviously, leaving a business vulnerable to such sudden changes is undesirable. Because of this, most companies practice at least some sort of diversification. This diffuses risk and ensures that even if a company has a leg kicked out from under it, it will stay standing.
However, not every business should diversify. Companies should be stable and profitable with their core product before attempting to diversify, lest they stretch themselves too thin. Sometimes diversification opportunities are easy to spot. For example, an auto parts store might start offering diagnostics and repairs. Orchards and farms often host community events during the off-season to maintain a steady income. If a business has periods of dramatic profit reduction, or can find a natural extension of an existing product, it has a promising area for diversification. Perhaps most importantly, a good business owner will also know when to drop failed diversification efforts, in order to make room for new ones.
There are two main methods to diversify a business, and both are equally important. The first is to diversify the products or services being offered. If stores had continued to only sell beepers during the cell phone revolution, they’d all be out of business! Now that everyone has moved from a basic cell phone to smartphones, apps are something that everyone is looking for. App developers such as AppsterHQ are on the cutting edge of this relatively new trend. Business owners must keep abreast of current trends and always keep an eye out for new opportunities. Any new market could potentially become a top earner. The second method is to diversify supply. Relying on a single factory or company to provide products is dangerous. Should the source suddenly shut down, a business reliant on it will be left out in the cold. Once a business stops producing, even the most loyal customers will move on to a better-prepared competitor.
In the long run, the most successful companies are highly-diversified. There is not a single corporation in the Fortune 500 that relies on one product or one supplier. Although expansion should be undertaken moderately and with prudence, it is nonetheless essential for the continued survival of a business. Any business can broaden its scope; the question is whether or not its owner has the vision to maximize its potential.