While successful diversification offers security and great opportunities for increased profits, it also represents significant peril. You need to differentiate between two types of diversification, one of which works far better than the other. The best kind of diversification moves the company into an associated business. The most dangerous type of diversification lies in the direction of a totally unrelated venture.
For a business to succeed, someone must be well-versed in the intricate details of its day-to-day fundamentals. This takes years to accomplish. Jumping into a business you don’t have this level of understanding of is almost always a guaranteed way to waste an enormous amount of both time and money.
A good diversification should add just enough muscle to your operation that you can have a bad year in one area and not perish. That’s the purpose of diversification.
Diversification can mean adding a new product line to meet the additional needs of your current customer base. This is often the best and safest form of diversification. The easiest sale to make is to sell a product that solves a current customer’s problem. They already know you, like you, and trust you. Something is wrong with the new product/service if a loyal customer won’t buy it. You should use your existing customers as a sounding board to improve the product (or your presentation) before you spend big bucks rolling it out to the general public.
Innovative companies have a process for churning out new ideas. They don’t just wait for the light bulb to turn on. They work at developing new ideas and products. Not all of them are hits. Even if only a few are, you will be known as that innovative company that customers feel they must follow.
The five phases in the product development process are:
Idea production: Gathering and/or generating ideas for new products or services.
Screening: Choosing the more promising concepts and discarding or improving the rest.
Development: Converting the idea into reality—all packaged, priced, and positioned.
Market testing: Testing the product with your current customers is an excellent way to improve on an idea and save money.
Product Rollout: Every step should be planned out in advance to ensure that each one works. Make sure all of your employees know about the product. They will be the ones making initial contact with the customers. You only get one chance to make a good first impression.