How to diversify your small business

Overview

Businesses may diversify to seize new opportunities and grow, or to survive in difficult trading conditions. Aside from acquiring a new business, this may involve moving into new areas related to their core business or trying something completely different.

While there are probably as many ways to diversify as there are businesses, there are general themes which can provide a framework for idea generation:

• Can we adapt how we provide the same service?
• Is it possible to evolve our service or product in a small way without doing something completely different?
• Is there a new audience or audience segment we could reach, without alienating our existing customers?
• Could we link up with other businesses to provide a more comprehensive service?

Adapt how you provide your service

With this approach, you keep your core offering the same, but simply change how you bring that service to your customers.

• Process changes: Minor changes might involve your basic processes so you can still deliver the same service. For example, pre-arrival online check-in for hotels to reduce the time guests spend queuing at reception, or pre-arrival health questionnaires for practitioners such as dentists and physiotherapists so patients don’t spend time completing forms in a waiting room.
  
• New systems: For example, online booking for venues, classes and activities to manage demand and reduce the need for staff to work on the premises may actually open up new opportunities in the long term, making it easier for customers to do business with you 24/7 and be aware of the full range of services and add-on options that you offer.
  
• Changing location: If some customers can’t come to you, then taking your service to them can work well. Restaurants and cafes can offer takeaway or delivery. Photographers can leave their studios and work at the client's location. Personal trainers can meet clients outside in the park rather than at the gym or at home.
  
• Trading online: Bricks and mortar shops can create eCommerce websites to sell part of all of their product range. Instructors and tutors can adapt how they deliver classes, switching from face-to-face classes to online video and tutorials such as with dance, martial arts or foreign languages.

Making it work

Changing how you deliver your service to customers may mean you have to alter the service you provide.

• Adjusting the service or product: Some changes may be required to suit the new format. For example, an hour long class may be fine face-to-face, but online it may work better if it’s shorter. Or, your most popular restaurant dish may not travel well for takeaway or home delivery so the recipe or packaging may need to be amended, or video instructions on how to present it might be needed.
  
• Reviewing pricing: In some cases, the cost of adapting is too much for it to be viable without further adjustments. E.g. some garden centres find that the complexity of transporting delicate plants means it is only sustainable if they charge for delivery.

Evolve your service or product

This is where you stick with your core product or service but create a different version of it to meet different customer needs and circumstances.

• Respond to new circumstances: As times change we often see shifts in technology, culture, travel, and the environment which can create new circumstances for business, and new opportunities to respond to customers in different ways. For example the boom in delivery apps and services has enabled many cafes and restaurants to offer takeaway and delivery services, who previously may have only focused on table service.
  
• Meet new needs: Customer needs also change with time, creating new opportunities. For example, if transport providers (such as trains and airlines) change their luggage rules or dimensions, consumers may then need new bags and luggage items that meet these new requirements.
  
• Service new ‘wants’: If circumstances change customer "needs", then eventually these will expand to include "wants". If summers are warmer for longer then people will want to make the most of them. A baker could expand their range to provide dough for outdoor pizza ovens, or a designer of soft furnishings could offer luxury outdoor cushions to meet new customer ‘wants’ for something different, designer or even giftable.
  
• Anticipate new customer priorities: Look ahead at trends and see what your customers of tomorrow will need. With the legacy of the pandemic, an ageing population, and pressures on health services, perhaps more groups will be focused on maintaining their health. For example, chiropractors and physiotherapists may find there is more demand for services on optimising back and joint health rather than just treatment.

Making it work

• Remembering different regulations: If you are adapting your offering for a new purpose, you must check if you need to comply with different regulations. For example, if a restaurant starts offering meal kits, then ingredients labelling may be required. If a craft company now offers sewing kits for children, these may need to be marketed and labelled within safety regulations (or even formally tested) for an appropriate age range.
  
• If the change in circumstances or need was only short-term: You may be able to build on the new relationships and goodwill created when you temporarily met a need. Your new contacts may happily recommend you or become customers using your core services when the need dissipates. Or perhaps your adapted service could become a small but valuable sideline to meet a need no one had considered before. E.g. a photographer creating virtual class photos may be able to provide a service for schools and parents in more normal times where a few pupils were ill on the day of the official class photo.

Reach a new audience

At any time, it’s worth businesses considering if they can adapt their offering for different audiences.

• Different age groups: If you offer music lessons for children, then consider if parents may be interested too and expand to offer adult classes at different times. Likewise if you offer cooking experiences for adults, consider expanding to children's parties.
• New local audiences: With more home and hybrid-working, local businesses may have a different audience and age-range at lunchtimes. If traffic restrictions make it harder for audiences to travel into cities at the weekend, then they may spend more time in local shops and restaurants.
• Wider domestic or international: Online classes and digital products can transcend local restrictions. Online courses and 1-2-1 classes could mean a maths tutor previously working only with local children can reach much further afield within Scotland and the UK, or even internationally. Small shops with an eCommerce offering are no longer restricted by the footfall past their premises.

Making it work

• Review your marketing and content: When reaching new audiences e.g. different ages, genders, socio demographic groups, or locations you need to understand who you’re speaking to and consider how you need to adapt any copy and images to reflect their needs, culture ,or language. You may also have to adapt the channels you use. A city centre restaurant normally attracting office workers, may need to reach the local audience with promotions on different social media channels or targeted leaflet drops.
• Adapt your service or approach so it’s relevant: Some small changes to your offering may be needed for different audiences. For example, a bike shop which previously mainly serviced committed and experienced cyclists may now be able to reach a wider family audience who need services (at an appropriate price range) specific to kids’ bikes or need products and support at a more basic level. A guitar tutor with more adult pupils may need to change the music and approaches in their standard lessons to include something of more interest to an older audience.

Leverage other business relationships

Having learned from the pandemic, in some places there is a greater sense of community with businesses more open to supporting each other to build resilience, make the most of any new business leads or provide a more holistic service to customers. For example, SEO consultants cross referring leads to web designers or a physiotherapist bringing a nutritionist into the practice.

Making it work

• Shared mindset: For any successful collaboration or partnership, it’s best if you share the same attitude to customer service, the same values and ethics for doing business, as well as the same level of ambition (e.g. ‘just surviving’, growing steadily or world domination). If not, you’ll end up out of sync, with conflicting agendas and a lot of stress!
• Trial basis: Best to take a slow and steady approach - try how it works out on one or two projects, or on a trial basis for a month, and then review.
• Longer-term commitment: If the arrangement becomes more permanent, you may want to discuss having a formal agreement, contract or joint venture.

Test and learn

As with anything in business, there’s always costs, risks and complications for anything you do. This is why for small businesses in particular, diversifying by carefully evolving one element of your approach or audience is much safer than leaping into something completely new.

In rapidly changing circumstances, many businesses have no choice but to plunge into different ways of working, but when the situation is a little steadier, you can minimise risk by:

• gathering feedback from staff and customers on your existing offering and any new ideas
• running a small pilot project to test your idea, without committing to any long-term contracts with suppliers or customers

Finally, don’t be afraid to consider another option to diversify if your first attempt didn’t go to plan - often the process of trying something new will help you generate a new ‘light bulb moment’.

Business Gateway can help you plan to diversify or restructure your business. For 1:1 support from an experienced adviser just get in touch with your nearest office today.