Diversification | Weekly Insight #1

Everyone knows that diversification is important. Diversification in sales channels (wholesale vs direct to consumer), diversification in supply chain (multiple suppliers or sources of inputs), diversification in marketing channels (newsletters, social media, bricks and mortar) & diversification in markets (export vs domestic). 

But what is the trigger inside your business to make you do anything about diversifying? Unfortunately for most, it's a crisis of some kind. 

Your diversification and your backup options are usually created in response to a critical piece of the puzzle falling apart. 

Covid. The Global Financial Crisis. Regional wars. All are global disruptors that have had, and continue to have, far-reaching and unpredictable impacts on day-to-day business. But sometimes the disruption isn’t global at all. Sometimes it’s just one customer finding a cheaper alternative.

Building a diversified sales and export strategy can be one of your most important decisions to invest in. 

Losing 70% of the business overnight

When we were introduced to this business, they were in crisis mode. They had built the entire model around a single customer. 

They relied on that one customer’s brand to bring in all the business. They relied on that customer’s growth to scale their own. They had contracts and agreements in place, goodwill and a good relationship. But when it ended suddenly with no fault of their own, 70% of their revenue disappeared overnight.

When a crisis hits, vulnerability to one customer (or one region, or one sales channel) is felt the hardest. 

What we did to diversify in response to a crisis: 

In getting the business back to stability, we did the following three things: 

1. Communicate the rebuilding and acknowledge the crisis 

Communication is the most important thing. We were intentional about crafting a communication strategy that was focused on rebuilding. This was communicated to the staff, suppliers, and anyone else we needed support from. We held a 2 day strategy session to review corporate objectives and build out a strategic plan, which was then presented to the entire team. 

2. Conduct a capability and capacity audit 

We worked with the business to build its own brand and establish independent sales channels. They were experts at creating the product, and we guided them on building sales and marketing.

3. Build an export strategy and utilise the capability and capacity: 

We focused on developing export markets and attracting new manufacturing clients. It took two years, but they rebuilt a diversified business across retail, wholesale, and direct-to-consumer. They were also diversified in their export markets from Hong Kong to Germany. After 2 years, they even attracted their original customer back - the one who had cost them so many years before.

Diversification for this business meant that the one original customer didn’t hold all the power. They became a valuable piece of a much healthier customer spread.

Takeaways: 

• If any client or sales channel accounts for more than 20% of your business, you need to look at your vulnerability to them and start building a diversification strategy. 
• Every time you rely solely on one customer, one supplier, or one sales channel, the power in the relationship shifts from you to them. 

Diversification isn’t a growth strategy. It’s a protection strategy — and the best time to build it is before you need it.