In the third blog of our business growth series, Tait Walker outlines the fundamentals of diversifying a business.

Successful diversification uses change as an engine of growth, while spreading the business’ exposure to risk by channelling activity into a number of different market sectors.

However, diversification in itself can be risky because it means funding new product or service lines and entering unfamiliar markets, as well as acquiring extra skills and technical resources.

The importance of an eye for opportunity

All the same, the potential for fast and powerful growth often justifies the risks.

An effective diversification strategy involves an entrepreneurial and fleet-footed management team redeploying revenue to exploit opportunities, and shifting quickly into gaps in various markets.

The challenges of managing a diverse business

The main challenge is the need to identify and interpret market changes, then realign the business to benefit from them. This skillset requires a sharp eye on a diverse business landscape and an appetite for risk when opportunities are spotted.

The main disadvantage of diversification is that businesses must buy in expertise from areas outside of their core competencies. This often means substantial investment in human and technical capital. In addition, you need to make certain your competitive position in your original market doesn’t deteriorate as a result.

The power of a strong brand to drive diversity

Notwithstanding the inherent risks of diversification, it can – and does – deliver enormous rewards, if the brand is strong. Take, for example Richard Branson, whose Virgin business has moved into sectors as diverse as music, air travel, rail transport, mobile phones, cable television and fashion.

In summary, diversification requires the ability to spot and exploit opportunities, the determination and focus to make it happen, and sound strategic and financial planning. A good checklist for diversification is:

• Ensure your core business is stable and profitable
• Look for areas of natural progression in terms of products and services you offer
• Look backwards and forwards along your supply chain for opportunities to strengthen your grip on the market
• Thoroughly research new markets before diversifying
• Ensure you have the cash and resources to make diversification work
• Do you have the right people and expertise in place to diversify
• Think about where a diversified business would fit into the overall picture. Would it be part of the existing business, or would it need to be ring-fenced as a separate business?

In the second blog of our business growth series, Tait Walker lists six of the most popular ways of growing a business.

1. Open in other locations

Physical expansion is the most direct way to grow, although it requires careful research and planning. Before going down this route, ensure you have adequate funds in place and your business model is both robust and transportable.

2. Acquisitive growth

Buying other companies is a great way to build a business quickly, but acquisition finance is not easy to come by. Fund providers want to see compelling evidence of a successful track record. Integrating an acquisition is also a challenging process if the deal is to generate value.

3. Organic growth

Organic or internal expansion can be generated by upskilling your people and creating new marketing channels, as well as innovating fresh products and services. You can also improve your bottom line by delivering higher service levels to underpin customer loyalty, while greater staff retention will create a motivated and productive workforce.

4. License your product

This can be an effective, low-cost growth driver for businesses with a strong brand. Licensing means you can receive upfront revenue for continued sales. It is, however, essential to take specialist legal advice on intellectual property rights to minimise the risk of losing control of your service or product.

5. Joint ventures

Teaming up with another business through a joint venture (JV) helps you access new markets, customers and a larger skills base. Most joint ventures are carried out by businesses offering complementary services or products – operationally or geographically.

6. Expand globally

As mentioned in our previous blog, exporting is a highly effective way of growing your business by selling into new markets. The government’s advisory organisation, UK Trade and Investment (UKTI) can access extensive global resources to help businesses to research overseas markets.

In the first of a series blogs on business growth, Tait Walker looks at how to develop a business growth strategy and identify growth opportunities.

A clear strategy detailing what you’re going to do and when is essential to any business growth programme. It’s the route map showing how you will take your business from where you are now, to where you want to be in three to five years’ time.

Planning for success

A strong business plan is a key to unlock funding and investment opportunities. Investors will be impressed by a plan that gives evidence-backed information on how you will develop your business, the track record of the management team driving this growth, and how you will handle financial management.

Evaluate where you stand in the market

Get a clear perspective of your position in the market. Look at your suppliers and ask yourself if you can negotiate better terms? Identify your competitors and objectively compare their strengths to yours. And consider the dynamics of your sector – is the market open to all-comers, or are you protected by high barriers to entry? If the answers are favourable, growth is a realistic prospect.

Increasing market share

Evaluate your product or service and establish how effectively you are meeting your customers’ needs. If you are losing customers, do some research to see why this is happening – and fix it. The same applies if you are gaining customers. Find out why and focus resources on developing this success.

Entering fresh markets

Exporting is a highly effective way of growing your business by selling to new markets. First time exporters can start off close to home in counties such as the Republic of Ireland, the Netherlands and Denmark. The government’s advisory organisation UK Trade and Investment (UKTI) is a great place to begin your research and get free help.