How diversification can be the driving force behind business growth

The recession has hit business owners hard too – a recent investigation conducted by Harvard Business School estimates that three out of four new start-ups fail. It has been suggested that both capital and mentoring are major factors during business survival, with the research proving that businesses are more likely to find it difficult to survive if not supported by a venture capitalist, and that 70 per cent of small business that receive mentoring go on to survive for five years or more.

Aside from having a stack of cash and a shoulder to lean on, diversification can be a driving force behind the survival and future growth of a new enterprise.

What is diversification?

In laymen’s terms, diversification is the process of increasing revenue and/or sales volume byamending an existing marketing strategy or creating a completely newcampaign. This can mean extending a business’s reach within involved sectors, or broadening its remit with a new product orservice.

These two main types of diversification are known as concentric diversification and horizontal diversification.

Concentric diversification

A company enters an industry that is technologically similar to the area in which they currently operate, but choose to diversify to new customer groups with an existing product. An example would be if an industrial cleaning product supplier may want to diversify into the household market – essentially the technology behind the product remains the same but the marketing strategy needs to be adapted to suit the new target audience.

Horizontal diversification 

A company creates or sells a product or service that isn’t necessarily related to what they currently produce, but may still be of interest to their existing customer base. An example of this would be a company that sells paper to extend to supply pens too.

There is one more method of diversification known as conglomerate diversification, also known as lateral diversification. This is a less common form of diversification as it means a company branching out into products or an industry that they have not had involvement with before, so presents more risks.

An example of a company who have taken the risk of conglomerate diversification is Virgin, who started selling music and went on to expand into an airline, media provider and most recently venturing into space travel.

Continue to find out how it’s done…

Image source

Share this story

Close
Menu
Send this to a friend