Most people understand what it means to diversify so don’t resent me for giving a simple definition for the beginners.

To diversify your business is to create or acquire a new product or service to offer your existing customer base. If your intention is to acquire a new customer base then to me you are really entering a new business. Either way the key to a successful venture into this area is to find something that dovetails with your current business.

When I say dovetail I am saying that it is always best to find a way to increase the utilization of your existing facilities, equipment, workforce and especially customer base.

When in the Automotive service business as the 100,000 mile sparkplug came along many service facilities added brake service because simultaneously the disc brakes were taking over and the front discs wore out twice as fast as the rear ones. This is a classic example of dovetailing. The facility had lifts, mechanics and a going reputation with customers. All that was added was a brake lathe and some inventory.

Another example of dovetailing is a Daycare that provides Dance, Music, Gymnastic, and Art lessons on site for a fee. This utilizes the current facility, increases average ticket, and increases the stature of the school’s reputation thus bringing in a higher clientele.

I had a client who manufactured and repaired the 1000 plus foot extension cords that were used in coal mining. They manufactured the plugs that were sometimes 8” in diameter and carried 10,000 volts. When the mining industry was crippled by the legislation that made Illinois coal illegal to burn he had to diversify to maintain. He was able to get into making the cords for the Movie industry. If you have ever seen the behind the scenes set there are cords running everywhere. I recommended another opportunity that he was pursuing and that was making the long power cords that run from large yachts to the power plug-in on the docks. These cords are in an area that is somewhat recession resistant as people who can afford large yachts can afford a power cord. These two diversifications kept the firm in business and utilized the same equipment, technology and workforce.

In essence you are looking for a new market segment that can be served by the existing business without a major investment in retooling or facilities. You don’t want to take on a large debt to increase sales. That is the opposite of what you set out to do, which was to provide more profit without a huge increase in risk.

Whenever you are looking to diversify think in terms of your existing clientele first and what other purchases they are making that you may be able to service.

Here is a short checklist to consider:

• Would my existing customer base be interested?
• (If so the word of mouth could save advertising)
• Could I use my existing workforce?
• (If so their jobs would be more secure)
• Can I operate this out of my existing facility?
• (If so then I can spread the overhead costs more)
• Is there a profit margin that would sustain this venture?
• (If so then I can use that additional profit to grow more)
• Is there enough demand to justify this venture?
• (Is there anyone else serving this need now locally?)