Your Business Diversification Strategy (With Examples)

Diversification usually is the next stage of growth for your business. It entails moving into new areas closely related to, or maybe different from, your core services—while still offering those original services. Sometimes it simply means a fresh, new way of offering your main services to keep ahead of consumer trends so you can stay competitive.

Whichever path you choose, these new revenue streams open your business up to new markets & clientele, supplement your primary income, and bolster your business in uncertain economic times. Before making the jump into something completely new, let’s explore the benefits of diversifying your business, the steps to take to get there, and a few simple examples!

Why Should You Diversify Your Business?

You may be thinking, “My business is doing just fine—if anything, I need to upgrade my space to do more of what I do best!” And that might be true—your business is doing “just fine.” But, by sticking to the same formula, you may be leaving a big opportunity—and a lot of potential revenue—on the table¹.

The main reasons for (and benefits of) diversifying your business are:

Market Saturation: When the market for what you do and sell becomes saturated with competition, diversifying can help you reach new customers (and new revenue).
Increased Revenue: Common sense right here. As we alluded to, adding new streams of income protects your primary business in slower times and helps contribute to its overall growth.
Risk Management: By diversifying, you can spread your investments & reduce the impact of risks.
Increased Market Positioning: Diversifying can enable you to offer a wider range of products or services, thereby attracting new customers and reaching new markets that your competitors can't or simply don't.
Improved Stability: Diversifying can help stabilize your business by reducing its dependence on a single service or market.

Your Business Diversification Checklist

Keep in mind that diversifying your business can be risky if you don’t have a plan to roll out. Be sure to:

Assess Your Current Situation

Evaluate your current business's strengths, weaknesses, opportunities, and threats. This is what’s known as a SWOT analysis. Understand your core competencies and identify areas where you can leverage them.

Do Your Market Research

To find potential areas for diversification, familiarize yourself with:

The wants & needs of your current clientele. You can do this with a survey questionnaire, having employees simply ask questions, or by organizing a focus group with your top clients.
The needs, preferences, behaviours & pain points of potential customers.
The size, growth & profitability of your target markets.
The strengths & weaknesses of your competitors.

While not directly related to costs, understanding your market is critical for developing accurate financial projections.

Identify Options

This is the fun part. Generate ideas based on your research. Detail the new offerings your business will provide and their unique selling points. This can influence cost structures and revenue projections.

Evaluate Feasibility

Assess the reality of each diversification possibility from above. Consider factors like market demand, competition, resource requirements, and potential returns on investment (ROIs).

Assess the Risks

Evaluate the risks associated with each idea you came up with. Understand the impact it can have on your existing business and financial stability.

Choose the Right Diversification Strategy

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Choose a diversification strategy that aligns with your business goals, brand and resources. To keep this simple, lets focus on four kinds of diversification strategies that all your ideas fall under:

Horizontal Diversification: Enter a new market or industry that is different from, but shares a connection with, your existing core business.
Concentric Diversification: Expand your products or services into new markets or industries that are directly related to your existing core business. In this model, you’d share resources and/or marketing with your existing services.
Conglomerate Diversification: Enter boldly into an entirely unfamiliar territory unrelated to your core business. Imagine a barbershop annexing a tattoo studio (not as crazy as you might think).
Vertical Diversification: Expand into areas of your supply chain or customer journey that are related to your core business. This could be a salon producing their own line of haircare products; a spa with its own skincare product line; a medspa with its own line of post-treatment skincare products; or a gym with its own line of supplements or branded apparel.

Allocate Resources

Allocate the necessary resources—financial, human & technological—to support your diversification strategy. A good place to start is robust booking, scheduling and management software. Come to think of it, we know of a good one. Introduce members of your team and their roles in delivering new services or developing products.

Secure Funding

Getting the space to accommodate your new services can be pricey, especially if you must knock out a wall or two or expand into the building next door. You may also need to buy new equipment. Specify the amount you need and how you intend to use your funds. This section bridges the gap between your financial needs and your expenditure plans.

There are many avenues in which to fund projects like this. Small business funding, like Vagaro Capital, gives you an interest-free alternative to funding options that can take a long time just to qualify for. It makes a cash advance of up to potentially $300,000 available to you in as little as 48 hours, that you pay off as you earn. Research your available options that work best for your financial situation.

Test the Market

Before a full-scale launch, test your new product or service on a small scale to gather feedback and make improvements, maybe in the form of a themed event.

Launch Your New Service

Closely watch the initial launch of your service. Collect plenty of customer feedback, pay close attention to trends, and measure the success of your effort. Always be ready to adapt if necessary.

Synergize With Your Current Business

Now, there’s a popular buzzword that never dies. Creating synergy between your new service/venture and your existing business could involve cross-promotions, bundled offerings, or shared resources.

Check Your Financial Projections

This may all sound like a lot of work. Like, maybe the kind you’d pass off to a consultant? It isn’t. In fact, you did it, or should have done it, when you created your original business plan. Think of this as an extension of all that.

In fact, now is a suitable time to revisit your business plan, particularly the sections that touch on costs and financial projections:

Operational Plan: Describe how your business will now function on a day-to-day basis. This might include information about facilities, production processes, technology, and other operational elements that influence costs.
Marketing & Sales Strategy: Outline how you plan to attract and retain customers for your new services. Your marketing efforts will impact costs and revenue generation.
Financial Projections: This is the heart of the financial aspect of your business plan. It includes several key components:

a. Sales Forecast: Estimate your anticipated sales over a defined period.

b. Income Statement (Profit & Loss Statement): Present projected revenues, costs & expenses to determine the expected profitability of your business.

c. Cash Flow Projection: Illustrate how cash will flow in & out of your business when you launch your new services, highlighting when expenses are due and when income is expected.

d. Balance Sheet: Present a snapshot of your business's financial position, showing assets, liabilities & equity at a specific point in time.

e. Break-Even Analysis: Determine the point at which your total revenue equals your total costs, helping you understand when your new services & offerings will become profitable.

Ideas for Diversification

You may have already outlined your growth and expansion into other markets and services in your business plan. If not, here are ideas for a few industries that Vagaro knows well:

Salon Diversification Examples

Expand Your Retail Section: Branch out from beauty products into fashion products, like jewellery & clothing, that match your services and brand aesthetic. Cohost an event with a local boutique or similar business and display their products in your salon, and they can do something similar for your business. This can help you assess the viability of a long-term partnership.
Event Services & Planning: Offer hair and makeup services for weddings, proms & other special occasions. Expand further to include event coordination service if you’re up for it.
Classes & Consultant Work: If you have multiple certifications and/or are a licensed cosmetology instructor, you can expand your client base to fellow professionals & salon owners by stepping into the educational realm of things.

Barbershop Diversification Examples

Mobile Barber Services: Provide haircuts and grooming services to clients in their homes or offices. Concierge work has its benefits, especially if offered to high-earning clients. Just be sure to structure your pricing by figuring out things like travel costs and the different tools you’d need to use.
Barbering Classes: Offer barbering classes & workshops for aspiring barbers or individuals interested in learning basic grooming techniques for personal use.
Barbering Events: Organize themed barbering events or pop-up shops that highlight your barbershop's expertise and provide grooming services at festivals, expos, or community gatherings.

Gyms/Fitness Studio Diversification Examples

Nutrition Counselling: Create custom meal plans and map out macros for members’ goals and body types. Offer this all-important service individually, or as part of a membership package.
Healthy Food & Supplements: Open a robust retail section featuring all the brands you trust the most—or launch your own brand. Selling online (e-commerce) is a huge driver of round-the-clock sales.
Offer Recovery Services: Offer sport & trigger-point massage, cryotherapy and even physical therapy to maximize athletic motion and recovery.

Spa Diversification Examples

Low-Touch, or Touchless Therapies: What do cryotherapy, flotation therapy, LED treatments & IV therapy have in common? They not only reduce swelling, stress, wrinkles and hangover symptoms, but also free up your and your therapists’ time to focus on other treatments simultaneously.
Wellness Retreats: This involves heavy coordination but a big payoff if you can generate enough interest. Organize retreats that combine spa treatments with mindfulness activities, yoga sessions, and healthy nutrition programs.
Beauty & Wellness Subscription Box: Curate and sell subscription boxes filled with spa products, wellness items, and self-care essentials that you sell in-store, but just delivered to customers' homes.

Med Spa Diversification Examples

Hair Restoration Services: Introduce treatments for hair loss and hair restoration, offering medical solutions for clients concerned about hair thinning.
Post-Surgery Recovery Services: Provide specialized treatments and services to aid in post-surgery recovery, collaborating with medical professionals to ensure proper care.
Establish an In-House Pharmacy: Provide prescription skincare products and medications recommended by you or your staff, ensuring seamless access to necessary treatments for your clients.

Diversification is an exciting way to grow and expand your business, opening new revenue streams & customer markets. Just Remember that diversification should be well-planned and aligned with your business's core strengths and goals. Vagaro provides business owners with all the tools to effectively manage expansion, from scheduling & marketing to selling an array of products, packages & memberships online. Vagaro also provides a business-friendly avenue to fund diversification efforts in Vagaro Capital.

Vagaro and a plan is all you need. But don’t take our word for it. Start your 30-day FREE trial and experience it for yourself!

Sources:

https://www.forbes.com/sites/branching-out-why-it-might-be-time-to-diversify-your-businesss-offerings