PRODUCT and service diversification can be one of the most effective growth strategies for small businesses. Offering consumers more choice is a way of adding value and using innovation to encourage both new and repeat sales.
Having a diversified product or service offering is particularly useful in times of market disruption. Take Covid-19, for example – the pandemic represented an unprecedented challenge for small businesses, some of whom had grown very comfortable within their product and service niches.
Remove physical interaction, add a high degree of economic strain and blend in a few supply chain issues, and what we saw during the pandemic was a recipe for disaster. However, many small businesses saw this abrupt shift as an opportunity to change direction, review their strategy and find ways to exploit the newfound gaps in the market.
Alcohol breweries and distilleries leveraged ethanol supplies to break into the market for hand sanitisers. Interior design companies started manufacturing space dividers for offices and used 3D printers to manufacture personal protective equipment (PPE) and face shields. Fine dining restaurants that were heavily reliant on aspects like physical presentation brought a sense of glamour to the takeaway food industry by providing gourmet dine-in packages.
Some of this diversification tapped into the potential for businesses to enter new spaces and target different demographics. For others, it was a temporary strategy to weather the storm of the pandemic until they could get back to business as usual.
As an SME owner, these are the kinds of questions you need to ask yourself before diversifying your offering:
- The question of cost: can diversification be done cost-effectively?
Before expanding your product or service offering, you’ll need to weigh up the cost of staying the same versus the cost of adding completely new products or services or variations on your current offer.
Here, you’ll need to consider hidden costs like the cost of marketing the new offering, the cost of acquiring new expertise or skills, legal costs and increased overheads. You will need to determine whether there is a business case to be made for diversification – forecast returns should justify the cost of investment and consider the financial viability of expanding.
- The question of timing: is your industry ready for and receptive to expansion?
A mere two years ago, the market for fabric face masks was non-existent. The pandemic gave rise to an entirely new niche in the fashion sector. As a result, many SMEs in the fashion arena pivoted and started manufacturing face masks to keep their factories going. Timing, however, was everything.
First adopters needed to act quickly and with agility to seize the new opportunity when the market was open and receptive, and demand was high. Now, with the market for face masks becoming more saturated, there is little wiggle room for new entrants into the space, and the only way for manufacturers to gain a competitive edge is to introduce a completely new spin on PPE. With the effects of the pandemic waning however, it may not be the right time to enter the market. Diversification relies heavily on being in the right place, at the right time.
- The question of partnership: could collaboration be the solution?
SMEs have relatively fewer internal processes to navigate where collaborating with external parties and other brands are concerned. This provides a unique advantage and the opportunity for small businesses to consider how partnerships can help them cut down the cost of diversification.
One brilliant example of this is the Granadilla Swim brand – a South African company that produces printed swimwear. During the pandemic, it collaborated with local, small-scale farmers and used its online ordering system to offer fresh produce and pantry staples. The service did so well that it led to the brand expanding into an entirely new sector with an online store called Granadilla Eats, which was recently acquired for an undisclosed amount by UCOOKSA and Faithful to Nature, both part of the Silvertree Brands stable.
Ben Bierman is the managing director at Business Partners Limited.
BUSINESS REPORT