Is Diversification Important When Running a Business?

If you run a business, you may think that you need to diversify to ensure success later down the line. There are instances where this isn’t always mandatory, though. Crocs are a fine example here, and going strong even after being in business for 20 years. They might have come a long way, but they are still focused on their flagship product and are now worth millions. Nokia, on the other hand, once sold paper products but then ventured into phones.

While diversification isn’t essential, it could still give your business some level of security.

Diversification Could Be the Key to Business Success

Tesla, a very successful automotive creator is now focusing more on energy and batteries. They are embracing new technology and offering something new to the world, which has helped to safeguard their future as a company.

You don’t need to go down a completely different avenue when diversifying, though. Take Paddy Power’s roulette betting games for example. At one point, standard roulette was the only game you could play. Now there are many variants, including Quantum Roulette, themed games like Age of the Gods Bonus Roulette and even Premium French Roulette. Even though they have diversified their offerings, they haven’t gone down a completely new avenue. This goes to show that as a brand, you don’t need to change your identity. You just need to adapt to the needs of the market.
 

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Risk Factors with Diversification

Diversification always comes with some degree of risk. It also comes down to how much money you have available to invest. Using your instincts is key here. If you have a feeling that a new and emerging technology could be a game-changer for the sector then invest in it, and use it to your advantage. Calculated risk is always a good thing, but don’t let impulsivity guide your decisions. 

You need to take into account many factors when diversifying, including your target audience, your current successful products and which direction the market is moving in. A company that sells garage doors would benefit from the age of automation if they offered a new smart system that opened the door automatically.

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They might not, however, benefit from simply going into different types of doors. Although this will diversify their offerings, the market is incredibly competitive as it is, and this change alone probably won’t provide the desired edge or security customers are looking for. To branch out further, a company-branded app could even be developed, along with security add-ons available with the option to record and save video data.

This is just one example, but it goes to show how important it is to take into account the needs of the market, as well as how much you’re willing to invest. Stress tests can be done to try and find out your financial tolerance when it comes to making new investments. When combined with market analysis, it can be a good indicator as to whether or not you should diversify, or keep things as they are for now.

Diversification isn’t for everyone, but for some, it could be the key to becoming a key player within your industry.