08 Jul 6 Reasons Not To Diversify
The typical business advice is to diversify and cross-sell your way to a “safe” business with a balanced portfolio of products and services. The idea is that when one area of the business is down, another area will be up. But the problem with selling too many things – especially for a small company – is that you spread yourself too thin – “a mile wide and an inch deep” – to the point of mediocrity.
Here are six reasons to stop being a jack-of-all-trades and start specializing in doing one thing better than anyone else:
- It will increase the value of your business – When you sell one thing, you can differentiate yourself by pouring all of your marketing dollars into setting your one product or service apart, which will boost your company’s value.
- You can create a brand – Big multinationals can dump millions into each of their brands, which enable them to sell more than one thing. But for most small business owners, every new product leads to a dilution of your marketing dollars.
- You’ll be easier to find on search engines – When you Google “helmet camera,” Go Pro is featured in just about every listing, despite the fact that there are hundreds of video camera manufacturers. It’s easier for Go Pro to optimize their website for the keywords that matter when they are focused on selling only one product.
- Nobody cheered for Goliath – Small companies with the courage to make a single bet get a bump in popularity because we’re naturally inclined to want the underdog to win. When Google launched its simple search engine with two search choices “I’m feeling lucky” vs. “Google search,” we abandoned Yahoo. Now that Google is all grown up and offering all sorts of stuff, we respect them as a company but do we love them quite as much?
- Every staff member will be able to deliver – When you do one thing, you can train your staff to execute, unlike when you offer dozens of products and services that go well beyond the competence level of your junior staff. Having employees who can deliver means you can let them get on with their work, freeing up your time to think more about the big picture.
- It will make you irresistible to an acquirer – The more you specialize in a single product, the more you will be attractive to an acquirer when the time comes to sell your business. Acquirers buy things they cannot easily replicate themselves. For example, Go Pro is likely to be acquired someday by a larger company. They are so far ahead of their competitors that it will be easier to buy the company rather than trying to grab market share from a leader with such a dominant head start.
Diversification is a great approach for your stock portfolio, but when it comes to your business, it may be a sure-fire road to mediocrity.