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How to diversify your business to beat 2020

How to diversify your business to beat 2020

A savvy business owner and a consultant share the key considerations to keep in mind.

BY Prospa, 7 min READ
 

Thanks to our friends at Prospa

This year has seen business diversification become less of a practice of the strategic business owner and more of a necessity for survival.

Prospa spoke with savvy business owners who quickly learnt the value of putting all your eggs in different baskets, and a business consultant who talks through some of the considerations to keep in mind when embarking on business diversification.

When the COVID-19 pandemic began to shut down economies around the world, businesses were forced to deal with unimagined challenges. Many small business owners went to bed feeling confident and awoke the next day to discover business had come to a standstill.

This happened to Allie Szwarcberg-Poch and her husband Braian who own Allie’s Pressed Juices in Sydney, a small business that specialises in beverage manufacture and distribution.

The business case for diversification

Prior to the pandemic, the Szwarcberg-Pochs had a business model that was heavily reliant on wholesale products. They supplied their cold press juices to many cafes and venues across Australia.

Then lockdown hit and hospitality venues were forced to close their doors.

“It was devastating,” says Braian Szwarcberg-Poch. “We dropped about 90% of our weekly revenue from one week to the next.”

And it wasn’t just the loss of revenue that caused problems, Szwarcberg-Poch explains.

“Because manufacturing takes time, you typically hold about three to five weeks’ worth of stock in cold storage, ready to go so that you can always service your client needs,” he says.

“We had an enormous amount of juice that usually we’d get through in three to four weeks.”

The business was looking at spoilage, cash flow problems and profitability concerns – a daunting future. But rather than panic, they decided to reassess their options.

“We never really had a business in ecommerce, although we had the set-up on our website,” Szwarcberg-Poch says. “But what started happening is a lot of our friends started ordering online just to support us.”

This sparked an idea. If they invested a little time and money into getting their online presence up to scratch, they might be able to make it through the pandemic unscathed by focusing on the end-consumer.

This, paired with media reports about the juice company whose ecommerce business was actually expanding during the downturn, attracted fresh attention to the company. Before too long, it was servicing 300 online orders in two days – up from around two end-consumer orders per week.

The key innovation, however, was taking their food-service product – a five-litre bag of juice, jazzing up its packaging and adding a tap to it, so it could be used as a consumer product.

“Everyone was really into it because it was a goon sack. It was very Aussie. It just kind of took off,” Szwarcberg-Poch says.

“So that got us out of all of that trouble around excess stock, cash flow and profitability, and got us through a very, very, very tough moment. And now we’ve rebalanced because the normal trade has picked up again.

Getting started with diversification – and risks to consider

Diverse income streams have become more than just a smart strategy – in many instances, it has become necessary for survival, says Joe Tawfik, founder and CEO of Kinetik Consulting Australia, a Sydney-based business and customer-experience consultancy.

Tawfik shares his tips for business diversification:

  1. Don’t overstretch yourself – start by asking yourself if you have the resources to pull it off and, where possible, avoid being overly ambitious, he suggests. “Does your existing team have the experience and expertise that you need? Do you need to hire a consultant to help establish your new business offering?”
  2. Look at the complete picture – consider if you’re going to diversify with a complementary service to your existing business or branch out into something new. Whichever path you choose, Tawfik suggests treating it as if you were starting a new business from scratch.
  3. Do your due diligence – “Don’t take shortcuts on things like research, evaluating competitors, SWOT analysis, business planning and budgeting. This will give you confidence about the approach you’re going to take.”
  4. Avoid brand confusion – “If your brand is renowned for providing low-cost items, then you end up diversifying into a higher-end luxury or prestigious line of business, if you retain the same brand you’re going to compromise it and your consumer will be incredibly confused.”
  5. Be careful of diversifying your attention – “The big risk some businesses face when they diversify is taking their eye off the ball of their bread and butter business, and then both end up failing. That’s where proper planning and budgeting can save you.”
  6. Think about what you’re good at – “What do you do that your customers love and you do better than your competitors, and how can you provide an additional service or enter a new market with that asset?”

 

This content was originally published by our friends at Prospa. Subscribe to their blog today.

Setting the right prices is one tool to grow your business. Funding is another. Talk to one of Prospa‘s small business lending specialists on 1300 882 867 about how a small business loan can help you take advantage of opportunities as they present themselves, or how a line of credit can smooth out cash flow when you need it.

 
 
 
 
 
 
 

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