I’m an avid sailor. One of the first lessons of sailing – even to the novice – is you can’t sail directly into the wind. It’s the old “You can’t take a straight line from Point A to Point B” routine. So you head upwind by “tacking,” which is turning left and right in a zig-zag fashion while working your way upwind with each turn. The most important thing while tacking, is to keep your eye on the spot upwind you’re trying to get to, otherwise all the zig-zagging can take you off course.
A similar strategy exists with growing a business: most of the time implementing a growth strategy feels like trying to sail upwind. You try growing in your current market and the gale forces are strong competition – often your salespeople say “The only way we can win more business is to get more aggressive on quoting.”
So you aim instead for new markets, except now the gales feel like tsunamis coming over the bow – from unfamiliar language to new geography to certification requirements with letters and numbers you’ve never heard of before.
But in your gut, you know the end goal – your Point B, is profitable growth, and it’s worth some tacking to achieve it. The business owners’ challenge typically is which way to tack first, and how far “off course” do you go before turning back?
Do you try taking a series of short turns as in P1 on the diagram, or can you reach Point B faster making fewer or only a single turn as in P2 or P3? In your mind, you can’t help but think that with every tack, there’s a risk of running aground due to navigating unfamiliar waters, or tacking so far in 1 new direction to achieve success there that the end goal disappears from view. What to do?
Diversification is one smart means to enhancing company growth, because like with investment portfolios, diversification helps minimize the company exposure to a single customer base. Before subjecting your business to potential tsunamis, its best to have a plan. When it comes to successful diversification, like navigating a sailboat, the best plan is to take the path of least resistance. Crawl before you walk, and walk before you run.
Here are 3 ways to diversify your company, using the path of least resistance, starting from the most familiar and working your way to navigating into more unchartered waters.
1. Channel Diversification – Expanding your sales channels is usually the fastest and least costly means to achieve sales growth. Channels are the means by which a company sells its products and services. Channels include direct salespeople, manufacturers sales representatives, distributors, and online sales to name a few. The strategy behind channel diversification is achieving higher penetration of current markets before moving to less familiar territory. Some customers prefer interfacing with company salespeople while others prefer distributors and some prefer buying online, avoiding interfacing with people if they can. If you currently use 1 or 2 channels, consider diversifying by adding another channel.
2. Geographic Diversification – Expanding geography is usually the second fastest means to achieve profitable sales growth, and the costs are usually reasonable. If your sales are concentrated with customers in the Midwest, consider finding similar customers in other parts of the U.S. If you sell throughout the U.S., consider expanding internationally. Following the path of least resistance approach, you’d want to find new geographies where potential customers are most like the ones you already have. Expanding internationally for example, try English-speaking countries before others – because your company website, sales literature, and customer service will all remain valid and comfortable. The important thing to remember here is after expanding into a new geography, then go back to the first diversification method to maximize sales – that is, expand channels in the new geography to achieve higher penetration before moving onto the next new geography.
3. Industry Diversification – Expanding into new industries or markets is likely the toughest path of diversification growth, but like the others, using the path of least resistance approach helps. If you’re largely an automotive supplier, targeting Trucks, Busses, Agriculture, Lawn & Garden – industries with engines and wheels – is likely to yield success before unrelated industries, say Alternative Energy or Medical. Adjacent markets and industries are easier to navigate than those farther afield from your primary industry. With each new industry targeted, start simple – 1 channel in 1 geography for example. Then as the industry becomes more familiar, expand channels and geography before targeting the next new industry.
Achieving company sales growth through Diversification doesn’t have to be rocket science. Lots of it is about using common sense. Sometimes the next direction to tack isn’t so obvious. That’s where Market Research can lend invaluable assistance. Market Research can provide insight into the path of least resistance, or what is often called “barriers to entry.” That is, some channels, geography and industries have higher barriers to entry than others. Growth GPS’s Diversification initiative helps companies grow with the right Market Intelligence, maximizing ROI for each new action. The result is a pipeline of diversification actions, helping companies navigate the best path to achieve solid growth while minimizing the risk of running aground. Learn more.
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