Are you seeking to diversify your business? Have you been running your business for a few years, and you are unsure if it is the right time to grow your portfolio? Every entrepreneur’s dream is to grow their business. Expansion makes entrepreneurship sweeter. However, not every entrepreneur knows the right approach to business expansion. Probably there’s no perfect approach.
Businesses diversify to achieve more revenue and tap into the opportunities in the marketplace. This is achieved by launching new services, products, including new features, or even rebranding your business to appeal to your target demographics. There are many reasons to diversify. Here are a few things to keep in mind:
Why should you expand your business?
Diversifying your business with new products or services is a great way to appeal to your customers. But is it right for your business to diversify? To get started, ask yourself the following questions:
- Would diversification diminish your business value?
- What types of diversification are most likely to create value?
- Is it better to specialize or diversify?
- Is there an optimal degree of diversification?
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Why is business diversification important?
There are several reasons for business diversification; however, four primary reasons are prevalent among UK and international businesses. Companies diversify to:
- Grow their revenue
- Exploit potential synergies
- Reduce the economic risk of a limited product/service portfolio
- Survive a decline in their core business
Three tests of diversification value
If you consider diversifying your business, there are three basic tests to determine if diversification is valuable to you.
- The attractiveness test: Is the market or industry likely to generate a profit?
- The cost-of-entry test: Will the cost of entry into the market erode potential profits?
- The better-off test: Can diversification help you achieve success by sharing the resources among different businesses?
Diversification in business happens all the time, and there are several success stories of diversified businesses around the world.
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