Business Diversification: Why It Is Important?

Business Diversification - Why It Is Important

What is the ultimate goal of any business? 

It is to promote business growth with expansion in the number of customers, types of products and services to generate more revenue every financial year. 

However, this is not how it goes for several small businesses. One of the reasons for the downfall of small businesses is relying way too much on a whale of a customer. Initially, having one client generating 90% of the business revenue might seem beneficial. It brings great joy to a small business owner when this single client relies heavily on its services and takes them wherever they go. 

But what happens when this single business client of yours files for bankruptcy? 

They go down while taking your business down too!

Hence, a small business fails to achieve the ultimate goal of extensive business growth and generation of high revenue every financial year. How can a small business prevent this predicament? 

The answer is simple! It is to diversify your business in the market to stay afloat. 

Importance of Business Diversification

  • Risk Reduction

You might have previously heard people say, “don’t put all your eggs in one basket”. This is true in the areas of business, finance, and investment. Anything that includes the use of money requires you to reduce your risk of loss. Also, it requires you to reduce the risk of volatility and instability. 

Business diversification allows you to not depend on a single source of revenue generation and reduce your risk of losses. In fact, diversification will help you increase your chances of continuous revenue. This will, in turn, help you reduce volatility and increase the stability of your business. 

  • Develop Balance

Business diversification allows you to bring balance to your business. When you rely on only a single client or service, any big loss to them will be detrimental to your business. 

However, when you have multiple streams of revenue generation, even if your one client suffers losses, you can still pull your business up towards growth without tipping the scale way too much. 

  • Business in Every Season

As mentioned above, your business must be able to generate revenue for the whole year. This is possible only when you can offer your services in every season. 

For example, if you have an ice cream business, you will have more profit only during the summer. People don’t prefer eating ice cream during the winter. This means you will generate revenue only during one season while you may struggle to make profits for the rest of the year. 

However, if you diversify your ice cream business and start providing, say, instant hot chocolate mix as one of your brand products, you will have high revenue generation during colder months of the year. So, in the summer, your business generates revenue by selling ice cream, while it generates revenue in the winter by selling instant hot chocolate mix. This way, your business can generate revenue every season for the year. 

  • Avoid Skyrocketing the Costs of Buying

This is especially true for businesses that have global clients. If you have a greater number of clients from one country, any currency changes will affect the costs of buying for your business. 

For example, as an Australian business, you might work with a greater number of clients from the US. If the Australian dollar drops as compared to the US dollar, you might have to experience higher costs of buying. Similarly, your selling prices may go down, resulting in losses.

However, if you diversify your business and work with clients from multiple different countries, you can find another option or clientele to buy and sell your products while incurring a lesser loss. 

  • Fulfill Customer Demands

For any business, its end customers are one of the reasons to drive sales and profits. Hence, business diversification can help fulfill those customer demands. 

One of the best examples is McDonald’s. When the fast-food franchise expanded its business to Middle Eastern Countries, Asian countries, and more, it had to diversify its fast-food menu. In India, they had to remove any products containing beef and introduce a greater number of products with chicken, fish, paneer, and veggies. Similarly, when they opened their outlets in Middle Eastern countries, they had to remove any products containing pork. 

So, on one hand, they still provided their original menu items in the US, they diversified their menu to cater to the needs of customers around the world depending on their food choices. 

As you can see, business diversification will help you create a strong foothold for your business in the Australian and global markets. 

But how do you diversify your business? 

Two Ways to Achieve Business Diversification

  • Develop New Products and Services

Investing in research and development is not just meant for large businesses. Small businesses must also invest time and money in research and development. This will help you develop new products and services to generate multiple streams of revenue. 

You can work with your team to brainstorm different ideas to bring new products and services or improve existing products and services to generate more revenue streams. You can create a mind map and perform SWOT analysis to find new opportunities of diversification. 

  • Increase Your Sales

Another way to diversify your business is to increase your sales. Push your sales with 10 times more effort and utilize your “people” assets. 

This is what you will do. You will first determine if you need to hire more people to handle more customers. If not, this is your time to diversify by increasing your sales using your “people” assets. Your current team is already handling your current customer base. Now, if you can add a few more customers without hiring new people to handle them, you can get an edge over-diversification. 

For example, if one of your account managers has the capacity to handle 5 more customers without getting burnt out, you can now bring in those 5 customers to your business and generate more revenue than before. And you aren’t paying any extra dime to your team. This will boost your diversification efforts. 

Wrap it Up

Revenue generation is important for any business to grow and gain more profits. And business diversification is the way to achieve this goal. It will not only generate more revenue for you but help you increase your business stability and develop a strong foothold in the market. 


To gain more insight into business diversification, get in touch with us at Keystone Executive Coaching. We are amongst the prominent companies to offer training programs to businesses and entrepreneurs, helping them navigate the market efficiently. 


Whether it is marketing, finances, hiring, diversification, and more, we provide assistance for all business functions boosting market and financial growth. 

Contact us now to know more!

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