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At some point in my life I have heard the phrase “He who does not risk, does not win .” And the concept behind this expression has to do with people who believed in an idea, took risks, managed to stand out from the competition, and even became millionaires after a great act of courage.
Under this same paradigm, business diversification is governed, which is defined as a process by which an organization begins to offer new products (or enter new markets) by acquiring or investing in other businesses.
Business diversification is about growth and expansion strategies. This allows companies and / or entrepreneurs not only to attract new clients, but also to expand their area of activity in the market. And while this strategy may seem risky, icons such as Mark Zuckerberg , Warren Buffet , Elon Musk and Jeff Bezos have chosen it and made huge profits, as they are now considered the richest men on the planet.
Therefore, we will have to ask ourselves, if an entrepreneur or entrepreneur wants to diversify, what are the steps to follow so that their strategy is successful? Next, I share the steps that I have followed during my career:
1. Analyze the company
First of all, it will be necessary to analyze the organization to know its current and potential situation. In this process, the most important thing is to build your business model focused on diversification. (It is wise to consider this strategy until the business is stable and profitable, otherwise time and money would be wasted.)
2. Analyze costs
Before carrying out this strategy, the Accounting area must make sure that your company can recover the expenses it absorbs to diversify. Unless one party or the other gains a competitive advantage, diversification should be avoided as costs may never be fully recovered (payback time will need to be analyzed and should not exceed five years).
3. Choose type of diversification
First, you will have to choose what type of business diversification you want to apply, since there is your own investment, the acquisition of companies, the concentric and the conglomerate (it should be noted that applying one or more of these strategies will depend on market conditions and objectives you have in mind). If the decision is to invest, you should take into account the potential of the business partners and the risks involved in betting on the company.
4. Choose the right products and market
According to various sources of the economy, it is best to invest in products and markets that have an inverse relationship to what your current markets and products have. The reason is that a decrease in demand in your already established markets can be offset by a simultaneous increase in the new ones, and the company can be independent of the cycles of the economy. Additionally, it is very important that the product goes hand in hand with market trends (and ecommerce platforms) and that it has a long-term permanence.
Not for nothing, this is one of the strategies par excellence to promote expansion plans, since it allows us to take advantage of the potential to meet other types of demands and target new consumers. The job of an entrepreneur or a leader will be to decide how to do it based on their philosophy and opportunities. A business must be able to, in addition to generating income, maintain itself. Staying where you are or not innovating will never be an option.