The Lead Taker: Diversify, diversify, and get a finger in every pie!
This article is written by someone with insider knowledge of the industry. I will be saying what everyone is probably thinking.
You may be getting the message from all sides that diversification is the name of the game and will solve all your problems by providing new income streams. However, according to the latest business research and to pure common sense, this is not always true and there are lots of “ifs” and “buts” attached.
My email box is constantly bombarded with emails claiming quick hit opportunities to diversify into areas of new business, which, it is claimed, will provide me with additional income at little or no trouble or cost.
My email box is constantly bombarded with emails claiming quick hit opportunities to diversify into areas of new business, which, it is claimed, will provide me with additional income at little or no trouble or cost.
For example, brokers are often invited to do business on the side by becoming agents for utilities companies, getting into debt counselling or giving advice on issues ranging from divorce to employment law, repossession to immigration.
If you are the sort of person who can’t resist an impulse buy, like purchasers of the old “Ronco fluffomatic”, the item you could not live without, I would give up reading the rest of this article!
But ask yourself, if it was really this easy and the benefits were so obvious, why wouldn’t we all have spotted these opportunities previously and moved into these areas as specialists? In reality this type of so-called opportunity is often much less about the benefits to your business and more about other people trying to tap into your client base. The offer of a no-cross-sale agreement is only worth its salt if your business is still around in the sector at the end of the day.
One of the dangers of being tempted to wander off after a golden goose unrelated to your core business is that it always takes time and money to do so, has no guarantee of return and forces you to take your eye off the ball.
One of the dangers of being tempted to wander off after a golden goose unrelated to your core business is that it always takes time and money to do so, has no guarantee of return and forces you to take your eye off the ball.
Recent research from leading business institute, Roffey Park, showed that during the recession many businesses have been trying to limit the impact of the downturn through diversification. Last year 66% of businesses spent time looking for opportunities in new markets for their existing products and services, and 53% looked at developing new products and services for existing customers.
Both of these strategies carry risks, particularly if the new element of diversification is beyond the experience of the existing business. In more than two thirds of business failures, a key factor is that the business has moved too far from its core without being strong enough to sustain the new development. The moral of the story seems to be that it is best to stick with what you know and do well.
Additionally new activities bring issues about your business insurance risk management. You could find yourself being sued for something that is not covered, and part of the applicant’s case against you will be that you were doing an activity which does not relate to your main business, for which you are known.
If you start new types of business, you may also endanger your Professional Indemnity Insurance in future if you have litigation against you in an unrelated area. This applies even if you have spoken to your insurers about your new activity and they have said that they are not prepared to carry the new risk, which falls outside the remit of the policy.
A further danger is that of regulation. For instance, if you are offering any kind of debt counselling service, this needs to be covered by your Consumer Credit Licence under Category D, Debt Adjusting / Counselling. If your Licence does not cover you for a certain activity, you could have it withdrawn, even for a relatively minor breach, as the Office of Fair Trading is tightening up its policing.
If, in spite of everything, you are tempted to go into completely new business areas, take some common-sense precautions on the way:
· If you are a member of a business network, see what their opinions are and see if they have a distribution channel for the type of business you are considering.
· Look around the market place, check with some of the broker forums and see what the word is about the opportunity you are considering.
· If you decide to go to an introductory seminar, go with an open mind but resist the hard sell and don’t get your pen out just yet!
· Don’t do things on a handshake. Have a formal contract / agency agreement, setting out procedures. You will find that the better long-term opportunities come from those organisations which are not necessarily making the biggest promises but are better administered and resourced.
So what is the answer then? How do businesses create additional income streams without compromising their core activities?
In my view, strategic alliances are the way forward. They have always provided a way of strengthening successful businesses and this is no less true in hard times. Alliances that work are ones which are mutually beneficial and where all parties have a specialism.
For example, if you were tempted to go into the debt counselling field, rather than have a go yourself you would be well advised to strike up an alliance with an existing debt counselling business, specialists in their field. They would pay you commission for business you refer to them and they would make referrals to you, also in return for commission. This way you, your clients and your new alliance partners will all be happy. It is win-win all round. This is so much more effective than trying to Do It Yourself and getting into deep water.
So the message for this month is not to wander too far from your core business as it is a desert out there, littered with the burnt-out wrecks of ideas that failed because there was not enough time, energy or cashflow to make them work.
Instead, stick with what you do best and build strategic alliances with businesses that are related to yours but are not direct competitors. This is the way to generate genuine mutual benefits which will last for years.
In conclusion, a cautionary tale of a broker who told me in conversation that he had started doing commercial mortgages as, after all, it is an unregulated area so there is nothing to bother about! He was seemingly unaware that any commercial deal will be supported by professional advisers such as solicitors, accountants and bankers, who will all act with the client to seek redress on poor advice from the broker.
He was acting and speaking with the complete confidence of the totally ill-informed and he, like many other DIYers, may be headed for a fall. A final quote: “Beware of the half-truth – you may have got hold of the wrong half”!
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