Many small businesses are seeking to diversify their businesses by creating different revenue streams or expanding their service offerings. But beware – simply increasing revenue does not necessarily grow a business.
“So often people are working hard at the wrong thing. Working on the right thing is probably more important than working hard.”
I recently came across this quote from the founder of Flickr, Caterina Fake and I adopted it for many of our small business clients.
Because what I am seeing a lot of these days is many small businesses seeking to diversify their businesses by creating different revenue streams or expanding their service offerings. But they’re not asking themselves “will these changes really benefit my business in the long run?” Nor do they realise the act of increasing revenue does not necessarily grow a business.
Adding products or services that complement existing ones is a common sense approach to expand a small business. One example would be a gym selling health foods and supplements. It’s a product you know your customers are going to buy so why not be the one to sell it to them. However, offering completely different products or services may just confuse your customers. Just imagine if my business (an accounting business) started selling website builds to its customers. This would only serve to confuse our existing customers; not a great branding exercise.
So the key points to ensure you are ‘working at the right thing’ are:
- Keep refining your core product until it is the best in the marketplace., i.e. never stop refining!
- If you do have multiple products or brands ALWAYS track each one’s profitability independently.
- Don’t confuse your existing customers with new, random product offerings under the same brand.
- Carefully analyse the effect of new products on existing ones, don’t cut off your nose to spite your face.
Most importantly remember this: revenue for revenue’s sake is not the way to go. Each offering to the market must be able to stand on its own, be profitable and not impact on the profitability of other products.
Have you ever added a product to your service offering only to find it was a bad idea?