While a commendable growth strategy used by many businesses is to diversify their product mix, be careful as to the extent (and speed at which) you diversify. Product diversification typically means adding one or more new product to your existing offer…which typically requires a financial investment (e.g. for research & development, if the product is a new innovation).

Before you diversify your product mix, review your Cash Flow Budget to make sure that you can realistically afford to proceed with this action. i.e. that your projected bank balance will enable you to make the purchase without having to borrow funds, or forecast cash flow will accommodate loan repayments (including interest) if you need/ choose to instead borrow the necessary funds to make the purchase.

Also, before you diversify your product/ service offering, think carefully about:

  • What extra human resources would I need to have in place in support of the new products/ services under consideration ?
  • How would the introduction of the new product(s)/ service(s) impact on how current customers perceive – and engage with – my business ? Do I run the risk of alienating some customers due to their perception that I have changed the main focus of my business ?
  • To what extent would new customers be attracted to engage with my business ?

 

There is no harm in diversifying your product/ service offering – for the additions to then become a part of your “Core Business”, providing that you firstly thoroughly rationalize the implications (using prompts/ questions such as those above) of diversifying before you proceed to do so.

Sometimes businesses that have attempted to diversify their product/ service offer have found that the total number of customers who engaged with their business (or total sales $ achieved) reduced soon after making the change; an outcome which caused them to return to only offer what their core value proposition was prior to trialing their diversification strategy.

A key advantage of “sticking to your knitting” (i.e. your core business) is that you increasingly become a specialist at providing the product/ service that you have chosen to remain focused on, and therefore become well known/ regarded as such by customers – which in itself can influence business growth.