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Diversification of Business - Problems in diversification.


People often prefer to increase branches of their existing business than to create a new business in a new industry. Why?. Because that s what traditional growth means. We grow vertically. But often time the brands we look up to and big brands don’t always do in the same way. They have multiple business holdings either in the same industry or in different industries. Why do they choose to branch than grow a new business in the new industry? They want to tackle and attract new customers in new geographical locations. They think growth always means in the vertical (Like growing and creating new branches). Business people always focus on geographical growth (which is nice) but it is not always good. We need to diversify new businesses and create an impact on the new markets. Why? Because an entrepreneur doesn't always settle for one. Here I list some reasons why people choose not to diversify their businesses.

1. Fear of the new market


Who likes to dip their finger in the piranha pond? We always like to play the safe game. It is our human nature to do so. Fear of going into an unknown industry (even though our current industry is unknown until we started our business). Well, this fear is understandable but the same goes for vertical growth as well. What is the promise our new branch will succeed? Does our existing reputation enough to sustain the new branch. Well if not, the risks are the same. Moreover, the fear is not about running the business it is mostly about doing the groundwork for the new diversified business, which is pretty huge. The understanding of the new industry, market research, viability, sustainability, competition of the new market, attracting customers, etc.

2. It is easy to start a new branch than a new business


We are playing the battlefield for so long that we know every move in the industry. We have a reputation in the current market and why not increase that reputation over by opening a branch in the new location. This type of naïve thinking is that our customers who do a great job in choosing us here will do the same in our new location (Where they may have an existing player there). Branching is part of business development but some may break during the growth or will be cut down by the competitors. So there is no safe play out there in the business.

3. Existing competition in the new market.


It’s like stepping into a Japanese train during rush hours. Pushing ourselves in to get a place in there. But it shouldn’t be like this. Who will play a losing game? Going head-to-head competition with them is an unnecessary task and may not benefit us in the long run. We focus on outperforming the competition we don’t set ourselves straight. If he is giving pizza then I am giving a burger to stand out(But your customer may asking for the sandwich). We are driven so much to stand out that we often lose ourselves and our customers along the way. Focus more on yourself and your customers, and over time will sweep away the competition. Don’t focus on them but keep an eye on them.

4. Attracting customers


New industry means new types of people. You need to attract a new type of customer you are not familiar with. You don’t know anything about them and they don’t know about you. How to approach them is a big question everybody who is diversifying the business has. Approaching them through mass media will be quite costly. The question “will they buy from us will circle your mind”. If you flip the question and ask yourself “Why do they need to buy from us” and “What are the needs that the current market not fulfilling” you will have a clear idea of what you need to do.

5. Business management


Managing a business is quite hard, managing multiple businesses is harder and Managing multiple types of business is the hardest task for a business owner. If it is the same type of business we can easily manage it even if we have multiple branches of the same business. When it comes to diversification it becomes complicated. They need to look into different types of customers that have different types of needs and have different systems to be placed and need different types of funds and capital allocation which can be quite daunting. It is the nightmare people try to avoid and choose to develop the branches’ then-new brands. This can be avoided if we manage our time and money correctly and spend the necessary time developing a diversified business.

Conclusion.

Building a business is not an easy task, but running a business is not an easy task either. We need to shift our mindset that growth is developing new branches. It also develops new businesses in entirely new industries. It is ok to start a new business in a new industry. It is boring to stay and serve one industry. If we fall at least we fall in a new place.



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