The Pros and Cons of Diversifying Your Small Business

Running a small business is never boring. One minute you’re smashing it with sales, and the next you’re wondering where all your customers went. To keep things fresh (and safe), some small business owners decide to diversify. But what does that even mean? And is it always a good idea? Let’s break it down in plain English.

What Is Diversification?

Diversification is when a business adds new products, services, or markets to what it already does. So instead of putting all your eggs in one basket, you spread them out a bit. That way, if one thing doesn’t go to plan, something else might keep you going.

Think of it like this: if you own a bakery and only sell bread, you’re relying on people buying bread every day. But if you also start selling cakes, sandwiches, or even coffee, you’ve got more ways to make money. That’s diversification.

Types of Diversification

There are a few different ways to diversify, and they don’t all involve starting something brand new from scratch.

1. Product Diversification

This is when you add new things to sell. It could be related to what you already do, or something completely different.

2. Market Diversification

This is when you try to reach a new type of customer, or even a new area. Maybe your product does well locally, but you want to start selling online or export to another country.

3. Service Diversification

If you normally just sell things, you could add a service to go with it. Like if you run a bike shop, you might offer repairs or cycling lessons too.

The Benefits of Diversification

So, why bother with all this? Diversifying can be a game-changer for small businesses. Here’s why:

1. It Can Boost Your Income

If you’ve got more than one way to earn money, you’re not stuck waiting for one product to take off. Having different streams of income can really help when things slow down in one area. For example, a florist might sell flowers, but also run fower aranging workshops or sell plant pots and cards. It all adds up.

2. Helps You Survive the Tough Times

Let’s be honest – things don’t always go to plan. One bad month or a change in trends can really hit your main product. But if you’ve got other things on offer, you’ve got a backup. During the COVID-19 lockdowns, loads of restaurants started offering takeaway, meal kits, or online cooking classes. That’s diversification saving the day.

3. Reaches More Customers

Adding new stuff can help attract different people. Maybe your usual customers aren’t interested in a new service, but someone else might be. Suddenly, you’ve opened up a whole new crowd who didn’t even know your business existed before.

4. Keeps Things Interesting

Let’s face it, doing the same thing every day can get a bit boring. Trying something new can be exciting and motivating, especially if you’re a creative type. It also gives your team (if you’ve got one) a chance to learn new skills and stay engaged.

5. Makes You Stand Out

In a crowded market, being different is key. If your business offers something unique that others don’t, you’ve got a better chance of getting noticed. A hair salon that also sells handmade hair accessories or offers beauty treatments might win more customers than one that just cuts hair.

The Drawbacks of Diversification

Alright, so it’s not all sunshine and rainbows. Diversifying can also bring some problems if you’re not careful.

1. It Can Be Expensive

Starting something new often means spending money – on stock, marketing, training, or even equipment. If you’re already tight on cash, this can be a big risk. You might end up stretching yourself too thin, or worse, running out of money completely.

2. You Could Lose Focus

When you try to do too much, you might end up doing none of it very well. Your original product or service might suffer because your time and energy are now split. It’s hard enough running one part of a business – juggling loads of different things can be a recipe for burnout.

3. Not Everything Will Work

Let’s be real – not every new idea will be a hit. Some things just don’t take off, no matter how much effort you put in. If you’re not careful, you could waste a lot of time and money on something that doesn’t actually help your business grow.

4. It Might Confuse Your Customers

If you suddenly go from selling handmade candles to launching a dog-walking service, your customers might be a bit baffled. Too much change too quickly can make people unsure about what your business actually is. It’s important to make sure everything still fits together in a way that makes sense.

5. You Might Need New Skills

Diversifying often means learning new stuff – like how to manage stock, advertise online, or deal with new types of customers. That’s great if you’ve got the time and energy, but it can be stressful too. You might even need to hire extra help, which is another cost.

How to Diversify the Right Way

If you’re thinking about giving diversification a go, here are a few tips to help make sure it works out for you:

1. Start Small

Test the waters before diving in. Try a mini version of your new idea first. If it goes well, then you can build on it. For example, run a pop-up stall before opening a second shop, or launch a product on social media before setting up a full website.

2. Stick to What You Know (At First)

Try adding something that’s related to what you already do. That way, you can use your current skills and knowledge. It’s also more likely your current customers will be interested too. If you run a coffee shop, maybe start selling cakes or branded mugs – not mobile phones.

3. Do Your Research

Don’t just go with your gut. Check out what your customers want, what your competitors are doing, and if there’s really a gap in the market. If no one’s doing it, it might be because it doesn’t work – or it might be your big chance. Find out which before you invest.

4. Keep Your Branding Clear

If you add new stuff, make sure your branding still makes sense. Your business name, logo, and social media should all reflect what you offer. You don’t want to confuse people or look messy. A clear message helps build trust.

5. Watch Your Money

Set a budget and stick to it. It’s easy to get carried away when starting something new, but you need to be realistic. Keep track of what you spend and what you make. If something’s not working, it’s okay to stop and try something else.

So, Should You Diversify?

In the end, it depends. Diversification can be a brilliant way to grow your small business, reach new people, and stay safe when things go wrong. But it can also be risky, distracting, and expensive if you don’t plan it properly.

If you’re feeling stuck, bored, or just want to future-proof your business, it might be worth a try. Just make sure you do it with your eyes open, and don’t forget what made your business great in the first place.

Final Thoughts

Diversifying your small business can open up loads of new opportunities – but it’s not something to rush into. Think it through, plan carefully, and always keep your customers in mind. After all, they’re the ones who’ll decide whether your new idea is a hit or a miss.

Whether you stick to what you know or try something completely new, remember – running a small business is a journey, and it’s okay to experiment along the way. Just don’t forget to enjoy it!