DieVersity
Saturday, July 26th, 2008It seems to be a common theme with inexperienced business owners.
“I’m not making enough money on this; let me add that to my list.”
“Mike P” came to my office after a few months of slow business. I had done marketing for him years in the past before the market shifted and he was doing well. But now Mike’s Sacramento construction business was slow and so he decided to add on automotive detailing to his portfolio. He bought a portable pressure washer, cleaning products, buffers, and equipment that he would really only be able to use detailing cars. He figured that while he was working at someone’s home he would offer to detail their cars as well and hopefully be able to pull a few extra bucks in the process.
This may not sound like such a bad idea at first. Many businesses need to expand their offerings during tough times, but there is a right way and a wrong way to expand on your business. Mike’s biggest problem was the simple fact that he had to buy 7k in new equipment and created a new offering that was in no way related to his existing business. After doing the numbers at a $35 profit on each car after materials we determined that Mike would have to detail over 200 cars just to hit the break even point. The other issue was that Mike was listed all over the web as a contractor with all his online advertising and such being related to construction. This would mean some costly additions to his business that he would have otherwise been able to avoid if he just would have talked to a good marketer first.
Eventually Mike learned he had made a mistake, as within 3 months he had only detailed 18 cars and had to sell his equipment to make ends meet.
Diversifying a business is not always a bad thing, but sometimes you want to look at your core and decide if you can expand your products and services with the tools you already have in your arsenal. Often I will have clients either bring me everything they have in equipment and lay it out in the back parking lot, or I will go to their place of business if it’s easier. Many times I look at what they have, think of the market we are presently in, and try to decide the best decision for them that will help them make more money without having to spend a load of extra money.
In Mike’s case, I took note of everything he had for landscaping and fence repair and replacement. It included a post hole digger, several saws, and everything needed to repair or replace fences. He even had about 200 fence posts because of a job that fell through. The idea hit me quick and I started doing some research and making some calls. When Mike came in to my Sacramento office to pick up his new business cards I handed him a two page service expansion summary.
Today Mike digs post holes for real estate signs using his post hole digger and sign posts which are nothing more than a couple of fence posts cut and attached. He contacted countless real estate companies and put together packages for each which allowed him to stay busy and at the same time talk to the home owner about any improvements they wanted in assisting in selling their home.
Solid diversity allows you to create a product or service line that will either promote or compliment your other offerings. Without buying any new equipment, without any additional expenses, and without spending a ton of new money that he didn’t have on marketing, Mike was able to make more money in two months that not only did he make up for the loss of his detailing equipment, but now has a staff who do nothing but post holes for him.
Before you go and add a product or service to your company, ask yourself some questions;
Is there anything I can offer that doesn’t require me to make any additional investments?
As I did with Mike, take a visual inventory of everything you have in your business to perform your job. If you have any specialty equipment you may want to look online for that equipment and see if there is anything else it can be used for. Many times one of these little extras can create a “light bulb” moment and get you going. Before you go nuts however, make sure that the new idea doesn’t itself carry a ton of new investments of its own. For Mike it was great because he had a dido blade, paint and everything he needed to make real estate posts, but if he didn’t we may have had to think things a little differently to get that off the ground. If you find that going off in a direction takes even more money that you don’t have, rethink, and look at something else. Eventually you should be able to find something else you can do.
Will this new widget compliment my existing business?
If your business right now is involved hand writing calligraphy wedding invitations, services such as birth announcements, memorial invitations, and graduation party invitations can help you expand your business while bringing your field of expertise to light with many new prospective. However, offering copying services would probably not give the same results since you are not targeting in on people who will use your other services. Copying is a wide and broad service, where people who hire professional writing artists are a very narrow group. Try to focus your new service to be a tool to present your existing service to your target demographic.
Is this new widget market sensitive?
In Mike’s case, he will be putting in many more posts as the market has forced more and more Americans to sell their homes in a desperate attempt to escape the hole they have dug. However in the above example, people are always getting married, always graduating, and sadly, always dying; so, though there is a seasonal approach on some of those services, for the most part, any market changes will have little effect on the business itself. You always want to consider this before jumping into a new service.
There are many other little things that you will want to consider before you diversify your business. Just make sure they complement each other, and don’t break you in the process or you will be like someone putting half their money on black and half their money on red in a roulette table; eventually green will hit, and you will lose it all.
Joseph L. Zeleny
Chief Marketing Officer
SIA Professional Services
916-361-0792