When Vaishali Shah saw the first signs of recession blowing towards her
greetings-card business, she decided to add another income stream by
diversifying into a related market, creating bespoke wedding stationery for
British Asians.
“I saw there was a gap in the market because the invitations designed in India
are too traditional for the modern British Asian couple,” she said. “I had
been thinking about doing this for a while but the economic downturn
crystalised the advantage of diversifying into the wedding sector.”
Shah hopes the new strand to her business will support her firm through the
downturn in the economy. “People are still going to get married next year
even if there is a recession. It is important not to have all your eggs in
one basket.”
As recession bites, diversifying can be a good way of generating additional
income for your business. But if you do not do it right, it can also be a
terrible waste of time and money. Worse still, it can create problems by
diverting focus and resources away from the core business just when it needs
them most.
John Grange, a business adviser with Business Link, said: “Businesses should
be looking at new things and innovating all the time, even in recession. But
equally it can be a case of out of the frying pan into the fire. So you have
to be careful.”
Grange said the secret to successful diversification is to choose areas that
are closely linked to your existing business.
“If you can start with your core business and build on that, you have more
chance of success. Can you sell more to the same customers, can you sell
something new to the same customers, or can you sell what you already have
to new and different customers? Build on your strengths.”
Emma Jones, founder of Enterprise Nation, the home business network, said
selling new things to existing customers makes a lot of sense. “This route
is much more cost-effective because you extend what you have on offer but
your marketing costs don’t increase significantly because you already have
customer data – and hopefully loyalty. You are selling more to your known
audience, rather than having to spend to increase the size of the audience.
Diversify product range, rather than people range.”
That is exactly what sisters Emelie and Louise Olsson have done. When they
started up their business, the Catapult Club, two years ago, they planned to
run weekend courses for women in a country house in Devon on a range of
different skills such as voice projection, relaxation, body language and
posture. Half way through last year, however, they realised that their
potential customers were having to tighten their belts and often did not
have the money to spend on going away for a whole weekend. So the Olssons
also launched a series of day and half-day workshops to cater for the change
in demand.
Louise Olsson said: “The shorter courses have been really successful. A lot of
people who had been interested in the weekends but couldn’t afford them have
found the short courses more accessible.”
While a three-night weekend course costs upwards of £475, a half-day course
costs only £75.
“The advantages are that we are able to offer what we are passionate about and
really believe in to a much broader range of women,” she said. “The cost of
hiring the venues for the short courses is minimal compared with our
weekends away so our risks are substantially lower. And we can do the
shorter courses much more frequently so there are lower marketing overheads.”
Tony Walford, a partner with the Green Square consultancy, said the Olssons
have done the right thing. “If you can offer or acquire services that are
complementary to what you do, then you should do it because clients will buy
related services based on their experience of dealing with you. Don’t try to
diversify into pastures new unless you have clear expertise and are able to
take on the incumbents. If you take your eye off the ball of what you are
actually good at, you may find that someone else has hopped in and eaten
your lunch.”
Neil Duttson has chosen to expand into an area that not only complements his
existing business but is likely to be highly recession-proof too.
Earlier this year Duttson, who owns Duttson Rocks, a jewellery business,
started up a security business providing executives with close protection
services. On the face of it the two businesses could not be more different,
but in reality, he said, one is simply an extension of the other.
“I used to use a security company to look after me when I was carrying
diamonds in London but then I thought, rather than pay another firm to do
it, why don’t I do it myself?” he said. “The security business is a natural
progression of my diamond business. Many of the people who buy my diamonds
are the same people who are likely to need my security service. And because
the world is a dangerous place, this business is recession-proof.”
Duttson’s firm Hestia, named after the Greek goddess of security, employs only
former special-forces soldiers who have been trained in surveillance and
close protection. Hestia is providing services to executives operating in
Afghanistan and hopes to get involved in the London Olympic Games in 2012.
