Diversification is crucial in many areas of life, whether it’s investing in the stock market or scouring multiple news sources to uncover the real truth.
And guess what? In business, this is no different. Diversification is the key to a healthy and stable company, and there are two reasons for this:
First, diversification provides greater security for your business. Think about the amount of risk you take on whenever you put “all your eggs in one basket,” as they say. If your main flagship product fails and you have nothing to lean back on, your business may take a hit that is difficult to recover from.
The second reason why diversification is so important is because it increases your potential profitability. With more exposure to other areas, you can improve your chances of finding success.
This isn’t to say that all diversification is good, however. There’s a right way and a wrong way to diversify. Good diversification will move your business into another area that is still relevant within your market. Bad diversification, on the other hand, will pull your business toward an unrelated venture that confounds your message and confuses your target demographic.
In order for your business to succeed in any new area, someone within your organization should be well-versed in its day-to-day fundamentals. As you’d imagine, this often takes not weeks or months but years to accomplish. Jumping into an area you don’t fully understand is a surefire way to lose both time and money.
What Is the Real Purpose of Diversification?
Simply put, the purpose of diversification is to help you absorb a bad year in one area of your business without severely hurting your business overall.
Of course, diversification can exist on many levels within your organization. The best and safest way is to add a new product line that helps to meet more of the needs of your customer base. At our firm, for example, we started with tax returns. Since then, we have added tax planning, financial statement analysis, and profit coaching services to better meet our customers’ needs.
How do you come up with new product ideas that will help diversify your business, meet more of your customers’ needs, and make you more profitable?
Implementing the following five-phase process of product development at your business will help you churn out profitable ideas on a consistent basis!
The 5 Phases of New Product Development
Carefully give each of the following steps the time it requires to roll out the perfect new product or service for your business:
1. Idea Production
Most of the time, great ideas don’t fall in your lap. You must work for them. The innovative business owner looks at other industries for inspiration and stays current within their own industry. They aren’t afraid to call up companies in other markets to find out what’s working and what’s not.
2. Screening
If you’re excelling at idea production, chances are you will have a surplus of ideas to consider. Rather than implementing them all, narrow your options through a screening process. Analyze each idea objectively and determine which options best meet the needs of your customer base.
3. Product Development
Before you can roll out your new product, you have to develop a working version of that product to test. If possible, create a copy of the product that is as similar as possible to the final product you plan to roll out at scale. This will yield the most accurate testing results for your business.
4. Market Testing
To confirm that your new idea has the kind of potential you imagine it might have, you should test it within your market. Rather than rolling it out to the public, however—which might require a large advertising budget—start with your current customer base. Remember, these are the people who already know you, like you, and trust you. If a new idea meets their needs, you can be sure that it’s a worthwhile addition.
5. Product Rollout
Once your product has been tested and measured, it’s time to roll it out to the public. Just as you did in the market testing phase, introduce your product to your current customer base first. This will not only make them feel rewarded for being a loyal customer but also give you an early indication as to how successful you might expect your product release to be!