The success of large tech companies such as Google, Amazon, and Facebook in expanding their businesses to other products and markets has cast diversification as a notable strategy for business growth.
Generally, companies, especially those that are still young and growing, can be wary of pursuing diversification because of the high costs and risks involved. However, diversification is a broad concept that can be done in a myriad of ways, so even young tech companies can start incorporating it into their plans to expand.
Recalling the four growth strategies presented in Ansoff’s Box, diversification is creating new products for new markets. It can either be related or unrelated to your current business and can be done in various ways such as developing new product lines for new customers or looking into acquiring or partnering with other businesses.
For example, the fintech company Wise (formerly Transferwise) initially began with an app to make transferring money in different currencies cheap and convenient. A few years later, they partnered with banks to implement multi-currency account features and payment services that can serve customers internationally.
Diversification can sound like a lot of work to do but it would mean that you can generate unique revenue in a different market which can complement or supplement your core business.
Expanding your portfolio of businesses can also create stability for your company in the long term. If the market or the financial performance of one area encounters issues, you are guaranteed that you still have another line of business operating.
These advantages of diversification are enticing, but business owners and executives should not forget the great disadvantage they would encounter if it does not do well.
Nevertheless, this shouldn’t hinder a business to diversify for their growth; instead, they should deliberately plan and make calculated decisions beforehand. Here are some useful tips to help tech companies, especially scale-ups and SMEs, get started in diversification.
1. Expand your research
To diversify, go beyond studying your tech and market. This can let you visualise potential opportunities. Look into trends you don’t know and see what’s happening in other industries. After all, going digital is a prominent move now and tech companies can leverage on that.
Continue to utilise the knowledge and resources available to you in order to make smart decisions. The key to diversifying is finding a cost-effective and profitable way to offer new products or enter a new market.
2. Deep dive into your current business model
While completely deviating from your core business is an option to diversify, a strategic move for scale-ups and growing SMEs is to do related diversification. With sufficient market research, the tech or expertise your company currently has could potentially be used to create an entirely different product for other customers.
UK-based online food delivery company Deliveroo enhanced their delivery business model to diversify and also deliver household items. When the coronavirus pandemic hit in 2020, they used their delivery service and partnered with a supermarket chain and similar merchants to curb the demand of household items for those isolating at home.
3. Fill in the gaps in your team by seeking professional help
The aforementioned tips are certainly doable, but early growing tech companies may sometimes lack the technical know-how or expertise to successfully push through with a business growth plan through diversification.
Getting someone with years of veteran experience on your team can be a wise move. This is especially important if you want to enter an industry that is unfamiliar to you. The complexities of diversification can also be simplified by someone who has a wealth of knowledge in it already.
Although, hiring a full-time senior leader can take away a chunk of your capital instantly. For scale-ups and SMEs, an affordable and alternative option is getting a part-time director instead.
Boardroom Advisors has a national team of knowledgeable experts across different fields who can offer inexpensive part-time director services to help solve your expertise issues and help your business grow. Whether you need someone to help you assess your current strategies or think of possible directions for your company moving forward, you can employ their services to propel your tech company’s business growth.
If you still have hesitations about going on the diversification route for your company, it’s understandable. Depending on the situation, this kind of strategy may not always be suitable for the business. This is why getting an objective opinion, such as that from a seasoned business expert can be helpful.
Another tool that can help you see if diversification is a good step for scaling up your business is by conducting an evaluation of your current business growth. This quick and easy Scale-Up Growth Diagnostic tool can give you a personalised assessment and improvement recommendations for your business.
John Courtney is Founder and Chief Executive of BoardroomAdvisors.co which provides part-time Executive Directors (Commercial/Operations/Managing Directors), Non-Executive Directors and paid Mentors to SMEs without either a recruitment fee or a long term contract.
John is a serial entrepreneur, having founded 7 different businesses over a 40 year period, including a digital marketing agency, corporate finance and management consultancy. He has trained and worked as a strategy consultant, raised funding through Angels, VCs and crowd funding, and exited businesses via MBO, MBI and trade sale. He has been ranked #30 in CityAM’s list of UK Entrepreneurs.