4 Reasons Why You Should Not Diversify Your Business Too Early

15 Flares 15 Flares ×

diversify your business 2 photo Diversifyyourbusiness2_zps7ab5b24e.jpg
Image Source: freedigitalphotos.net

Business diversity is one of those subjects a lot of people have spoken in favour of over the years. Acclaimed business teachers believe you should diversify your business. The question is at what stage should you diversify your business? Providing an answer to this important question would definitely help intending business owners to know how to prepare themselves and when to think of diversifying their small businesses.

The purpose of setting up businesses is to grow, make profit, diversify and make yet more profit. So everyone is in haste to get to the stage of making more profits. This rush for more profits has actually put more small businesses into trouble from which they never recover.

Before you diversify your business

Diversification is very important, and in fact, unavoidable in the long run. But before you diversify your business, there are one or two things you must first put in place so your business does not run into troubled waters. Failure to put these things in place means courting trouble for your small business and the consequences could be grave.

1. Build Your Brand First:

Everything has its milestone. Business is like a newborn baby that must follow the milestone without skipping important areas. Every newborn must learn to suck breast, accept semi-solid food, sit up, crawl, stand, walk, talk, run and go to school, etc. Trying to walk before sitting up would definitely cause some troubles for the baby no matter how smart such baby is. Same thing is true for every new business. You need to grow through some stages of learning to the stage of perfection before thinking of diversifying. You must build your brand. People have to know what your business stands for; your customer base has to grow with a lot of people able to say what they understand about your business.

2. Credibility:

Have you built some level of credibility into your business? Can anybody trust you? Do you already have some success stories to share before thinking of ways to diversify your business? Your business must get to a point where people can believe in it. It must at least grow to the point where they can trust it.

3. Financial strength:

What is the financial strength of your business? Does it have the wherewithal to cater for its staff, maintain equipment and continue production without any interruptions? If you cannot efficiently run your business, and if the business cannot yet generate adequate profit to keep moving on, why then should you be thinking of diversifying?

4. Staffing:

The staff strength you have, are they the ideal you need? Are they enough to successfully run your business without hitches? Would the day-to-day running of your business get your staff burnt out? Instead of having one person to do the job of thirty persons, it is better to get enough hands to stabilize your business before delving into other areas or expanding.

diversify your business photo Diversifyyourbusiness_zpsa026885a.jpg
Image Source: freedigitalphotos.net

Effects of diversifying too early

Diversifying your business too early has its drawbacks. Some of the problems this is likely to cause you include:

i. Higher failure rate:

Failure rate is higher when you diversify your business at a time when your business is not yet ready for such. If you do not yet have the necessary infrastructure in place, chances are that your business is going to fail easily. Most times, both the parent business and its baby would crash because none has a solid footing yet.

ii. Distraction:

Too early diversification brings about distraction. Because you try to run the two businesses at the same time, given each the much needed attention and care would definitely not be possible. Mark you, at this stage, both businesses need equal and concentrated attentions because none is yet solid enough to stand on its footings.

iii. Frustration:

The next thing that sets in is frustration. You become frustrated and discouraged because you are not getting the desired results – no adequate funds to run the business, no adequate profits and no total commitments from your staff due to backlogs of unpaid salaries.

iv. Quitting:

At this stage it becomes obvious you can no longer run the business on debt, and you can no longer bear the incessant complaints from your staff. House rent and other bills are piling up. The natural thing you would want to do at this stage is to quit the business. Invariably the essence of the diversification has been defeated. You were not patient enough to allow sometime for your business to mature before you decided to diversify your business.

Conclusion

It is good idea to diversify your business. But before that is done, you should be sure that your business is already strong and making enough profit to take care of itself. You should also be sure that you have gained some credibility, and that you are not going to depend on loans to run your business.

I have not said everything that needs to be said on this topic. So your inputs are needed. Tell us what you feel has been left out; we are ready to learn from you. Please drop your comment in the comment box below.


Related Posts

About The Author

Add Comment

15 Flares Twitter 2 Facebook 9 Google+ 3 Pin It Share 0 LinkedIn 1 Reddit 0 StumbleUpon 0 Email -- 15 Flares ×