Business Diversification : Factors to Consider

Sumesh Krishna, Partner

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The impact of coronavirus on businesses has made us realize the importance of diversification. When a particular product or service suffers due to the pandemic, you still have others to rely on, and thus the risk factor reduces.

There are certain factors that you must look into before proceeding with the diversification strategy;

Financial sense

Many people believe in taking more significant risks to achieve higher returns and hence step into diversification. But, the result may not always be positive.

If you decide to go ahead with your current model, it is safe and cost-free; whereas diversification involves additional finance. For a smoother ride, a thorough analysis of the financial aspects of the diversification strategy is a must.

Core competencies of the firm

Business leaders should have a definite idea on the core competencies of their organization. This will help in continuing with the business without any interruption irrespective of any crisis. In some instances, it can also lead to the creation of more value to the business houses.

If you a not able to bring together your stakeholders under one roof due to the pandemic, possibilities of using technology to continue the service can be given a thought.

Evaluating the assets

If there are business assets that could be used for multiple purposes and if there is a market for the new service offering, then go for it. Let’s take the case of a vehicle rental company. They have a fleet of vehicles with them, from which some can be used for home delivery services. This will result in additional income and making cashflows without any extra investment.

The right expertise and resources

Once you make up your mind to expand the business, the next thing would be to question yourself whether you have the right expertise and resources to carry out the process successfully. If expanding requires you to bring in additional skills or expertise, the process should be planned cost-effectively.

Diversification doesn’t always require you to make drastic changes to your business plans. Sometimes, a small step will be sufficient to diversify the business. For example, if you run a training company, you can include new courses, and in the case of catering business, new categories or cuisine can be added. This way, the risk factor can be reduced as it does not involve any significant changes.

Diversification might sound little risky and painful, but if done correctly, the results will be wort h the effort.

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