Diversify your business and survive
The world is a difficult and sometimes stressful place for UK SMEs. Rampant energy bills, rising inflation and a cost-of-living crisis are all putting the squeeze on consumers and businesses alike. At times like these, many small firms are looking at ways they can generate extra income through business diversification.
What is business diversification?
Simply put, diversification is a business strategy where a company utilises any spare resources in a new, innovative way, develops new products and services, or enters new markets. In difficult times, it can be a lifesaver for a struggling firm.
Business diversification can take a number of forms:
- Horizontal diversification is when a company introduces new products or services in line with their core business, that will appeal to existing customers.
- Concentric diversification involves developing new products, similar to ones you are already selling but targeting new customers.
- Conglomerate diversification is when you add new products or services that are entirely different from your core business. Tread carefully here: the risks can be high and you might be out of your comfort zone.
There are some key questions you need to ask yourself when thinking about diversification.
- Do you have any resources that aren’t being used, or could be made available?
- Is it possible to evolve your service or product in a small way without doing something completely different?
- Is there a new audience or audience segment you could reach, without alienating your existing customers?
- Could we link up with other businesses to provide a more comprehensive service?
Where do you start?
You might feel more comfortable by starting the business diversification process with small steps. You can start this process by working through our Kitchen Table Guide, which will show you how to take stock of your assets, including cash in the bank, stock, machinery, property and staff, amongst other things. This exercise should help you identify any redundant assets you have that you could put to use.
For example, do you have spare office space? Subject to the conditions of your lease, you could sub-let this desk space to another SME or micro-business, or even individuals. Not only would this generate rental income, it would cut your bills including the cost of lighting and heating, etc. You could even let car parking spaces to other businesses and individuals if you have the space.
Here are two examples of diversification in action.
Hot-desking
Take the example of a small publishing house based in London’s Docklands. The company rented a two-room office space, but after downsizing in the wake of the pandemic found it had more desks than it needed, although it still required both rooms.
By implementing hot desking and a work-from-home rota (meaning more home days for some employees), the company was able to completely free up one of the rooms. It was then able to sublet this free room, increasing revenue and cutting costs in the process.
Car parking
This example comes from a non-league football club, based in Surrey and located close to a large hospital.
Needing to raise funds for ground and pitch improvements, the club struck a deal with the hospital, allowing hospital staff to use the football club’s large car park from Monday to Friday. The deal, renewed annually, is a genuine win-win: it raises much-needed revenue for the club, while relieving the pressure on the hospital’s limited car parks.
Of course any such arrangements need to be carefully thought through. Considerations include security, insurance, public liability and possible disruption to your day-to-day operations.
In these straitened times, the resourceful SME manager or owner needs to be able to ‘sweat the assets’, and by diversifying can generate valuable new income streams. If you’re approaching insolvency and are looking at ways to rescue your business, our licensed insolvency practitioners and business rescue experts can help you assess your situation and look at all the possibilities for the future.
For further advice on business diversification, please call our expert team on 01455 555 444