Things to Consider Before You Risk Diversifying Your Business

Australia’s two-speed economy has created opportunities for businesses in fast growth – and in struggling – sectors to diversify.

For example, if you are in the mining services industry it is boom time as your business struggles to keep up with the amount of work you are being offered by the big mining companies.

Sometimes, because you already have a good relationship with a mining company, they may ask you to provide services that are out of your business’ direct area of expertise.

Or, if you are in a non-boom sector, such as retail and manufacturing, you may be looking to diversify your business so that you CAN get a piece of the mining and resources action.

At Vantage Performance we’ve noticed a growing number of cases around the country where strong and successful businesses have got themselves into trouble by leaping into business diversification without considering all the consequences.

In most cases we’ve been able to help them turn things around, but sometimes they’ve left it too late to put up their hand for assistance, and a potentially solid business has gone to the wall.

Before you risk diversifying your business, here are some important points to note:

  • Review all the facts and fully understand all the ramifications first – don’t just consider the potential upsides.
  • Be realistic – it is normally very hard to move into unfamiliar territory without proper knowledge and experience in a particular field.
  • Ask yourself: does it fit with our current business and in how many ways does it actually compliment it? Can we cross-utilise resources?
  • Be local aware! There are many different ‘givens’ and industry ‘norms’ that to a newcomer can be completely missed. This can prove very expensive.
  • Moving interstate to take on projects in a similar but different field (for example, moving from general earthworks contracts to mining contracts) may look attractive. However you need to be fully aware of the ‘real costs’ of doing business in remote areas – it can be financially devastating and totally defeat the purpose of the initial shift. Worse, it can bring down the whole business.
  • Be contractually aware and get help if you are unsure. For example, large mining companies have very specific and usually extremely complex, penalty-driven contracts that, if not fully understood, can quickly bring a business to its knees.
  • Consider putting in place a general manager who can ensure crucial administrative components of fulfilling new contracts are not overlooked.

By considering these points you are in a better position to decide whether the opportunity to diversify is right for your business.

David Osborne is a Client Director at Vantage Performance, an award-winning national business transformation and turnaround firm.

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