Friday, April 13, 2012

Factor #8 of 10: Diversity


Reliance on particular customer, event, or product mix

In the Self-Assessment, we asked you this question:

  1. Our business has:
    1. developed a solid product offering to meet and exceed the needs of our broad client base consistently over the fiscal year without significant seasonal variations.
    2. several product offerings to meet general market requirements consistently over the fiscal year with acceptable seasonal variations.
    1. a product we sell to the general market with some variations in activities levels over the fiscal year with seasonal variations.
    1. a product we sell to a sector of customers. We have significant seasonal variations in activity levels over the fiscal year.
    2. a product we sell through a few special events with a modest amount of activity the rest of the year.

As an entrepreneurial small business owner, it typically is a major challenge to balance a particular set of products or services to a clearly defined target market. Most entrepreneurs are very reluctant to turn away any business, particularly in startup. The consequence to the business model is when a small business is trying to be everything to everyone; nothing seems to get done really well. Revenue streams can become diluted based on a broad range of products and services which are not directly related. The challenge to the Buyer is developing confidence in the vendor’s business model.

Some business models are built around a particular marketplace event (i.e.: Calgary Stampede) or a particular event within a client (i.e.: a designing/printing company printing clients annual report for shareholders). A business that relies on a broad range of related events and related customer interest is perceived as having greater value.

While you the business owner understand why you do what you do and focus on who you focus on, the challenge becomes how the buyer perceives the product mix versus the customer base. As the business owner the buyer will need to understand the validation for your product mix versus your client/customer base. When the buyer can clearly understand your rationale for generating revenues, your business is perceived as having a higher value in the marketplace.

TO DO:
  1. Revisit your list of revenue streams to confirm this list properly represents the full scope of your diversity. Prepare a simple document describing each revenue stream and your rational for how each product or service is related. This process helps you clarify your explanation of why your business provides each product or service.
  1. Review your list of events or sources of customers. Relate your source of customers/clients to your revenue sources. Look for the area where you have to do the most amount of work for the lowest amount of return. Decide if you can provide that product/services more effectively or make a plan to replace that product/service with something that provides a higher rate of return.
  1. While almost every business starts out with one primary product or service, a valuable business is diversified in a way that makes the business stronger. Pick one thing to improve or replace in your business over the next 90 days and make the change. Your business will be stronger and create greater value for you.