Diversify or dig in?

Should your company diversify its offerings or focus on its specialty? This is a common question for leaders, especially as many companies blur the lines of their traditional industries and expand into new areas.

Diversification brings opportunities and lessens liabilities, but digging in helps companies establish themselves as leaders. There’s no correct answer, as both options have pros and cons.

Diversifying

Diversifying means expanding a business into a new sector or industry. It can be as comprehensive as a total pivot or narrower by transitioning an existing product to serve a new customer base.

Pros

One of the biggest pros of diversifying is the increase in opportunities. By expanding into new areas, companies have more opportunities to build partnerships, gain customers, and grow. Diversifying also allows companies to expand their brands and gain more recognition.

Diversifying can also be a protection plan. If a business’s original industry is disrupted by new technology or becomes obsolete, it can turn to its other, diversified areas. Diversifying can also protect geographic areas if customer demographics or demands change in a certain area because there is another market to fall back on.

Cons

With startup costs, marketing campaigns, new product development, hiring new employees, and many more expenses, diversifying typically requires a substantial up-front investment. And that investment can be risky. Many companies try to expand to new areas but fail. In that case, they may lose money and have to make other decisions to save face about the failed experiment.

There’s also a risk of being spread too thin and not having the resources to dedicate to everything a diversified company requires. Companies may find themselves expanding to a crowded market and unable to compete.

Digging In

When a company digs into its current strategy, markets, and products, it sticks with what is working and becomes a leader. That’s not to say that these companies don’t evolve and adapt, but they stay in their lane.

Pros

Digging in helps companies stick with what they know. If a business establishes itself in a certain niche, digging in strengthens that brand and builds credibility and trust with customers. Digging in helps a brand establish itself as a leader in the space, which can build a strong tradition and culture to attract new customers and employees.

Digging in also helps companies maximize their resources and operate efficiently. Instead of trying new things and investing in new people and supplies, these businesses can leverage their existing resources, potentially increasing their margins.

Cons

Companies that stick with what they know may miss the chance to try new things and could be giving up growth opportunities. While businesses around them diversify, these companies may need to be updated and more active.

There’s also a risk of getting too stuck in how things have always been and not being agile enough to respond to changing technology and markets. Customers may outgrow your business as it changes and advances, so you may have to attract new customers to your target market.

There is no correct answer to the question of diversifying or investing. Leaders need to weigh their resources, competition, customer base, and other factors to make the right decision for their business.

Written by

Michelle Kaiser
Michelle Kaiser

Senior Editor | CEO.com

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