Should you diversify the services your small business offers?
Growth is the goal for every small business. The question is how to accomplish it. For some service-oriented small businesses, diversifying services is a natural next step to new customers and new income streams. However, diversification can prove easier said than done, and a wrong-footed decision can send you on a harrowing misadventure that puts your business at risk. Before you make the move to diversify your small business, ask yourself some key questions.
Are your reasons strategic?
It’s time to look inward and ask yourself why you want to do this. The reasons should be substantial and strategic. If you simply think more services will equal more profit, then you should take more time to weigh and examine your decision. Sometimes, small businesses see peers successfully diversify and decide they want to follow in their footsteps and chase that fresh revenue source without considering the challenges that lie ahead. The work required should not be underestimated.
Is there a need?
If, however, your business has a clear need for new services, it makes sense to explore the opportunity. Are you looking to diversify to reduce risk and dependence on a single service? Are the services you offer seasonal, and you need new services to improve the consistency of your cash flow and keep your workers employed? Are you hitting a plateau with the services you offer? Do your customers ask you to deliver similar, related services to your current offerings but you have to pass because you don’t have those capabilities? Then diversification might be for you.
How is your core business?
One crucial consideration is how well your existing business is doing. Are you beginning to run into a ceiling with your core business or is there room to grow it? Small businesses that have not yet reached their potential with their core business should be wary of diverting their attention and resources to add on new services. If you have low market share in your core business, then your focus would be better trained on strengthening the services you already offer before looking elsewhere. A weak core may crumble if the distraction of new services pulls your focus from it.
Are these new services a natural fit?
The more naturally new services fit into your existing business the more straightforward diversification will be. Does a service build on your existing offerings and your strengths as a business? Do your competitors already offer it? If your new services are natural extensions of what you already do, it should mean you will have similar marketing audiences, employ similar sales techniques, and share office processes. Ideally, the services can be based in the same facilities, helping to keep start-up investments under control.
Are you willing to commit to these services?
Still, keeping costs under control doesn’t mean skimping. You will need to be ready to fully commit resources to your new services to ensure that they have a chance to take root and flourish. That means everything from equipment to marketing dollars. It also means you need adequate leadership and personnel in place, so be prepared to hire people who specialize in your new services and can help you meet your ambitions.
What have other businesses like yours experienced?
As with any other major business decision, you want to know what you’re getting into. Chances are you’re not the first business like yours to add the services you’re considering. Your careful approach to research should include phone calls to peers outside of your market who have taken a similar step to hear about their experiences. Make yourself an expert before taking the leap.
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