Continuing the beginning of year theme of strategic planning. The question is, why diversify my business now, when everything is going so well?
Anyone who has hired an investment advisor knows, all of them advise first and foremost, to build a diversified portfolio. And, despite all the data supporting the long term benefit of diversification, some investors believe they can time the market. There are LOTS of stories in the investment press about the risks and consequences of market timing.
Those of you who are frequent readers know that my background is in financial services and investments and I often compare running a business to managing an investment portfolio. And, as with some stock market investors, when it comes to our businesses, we frequently ignore our advisors and the diversification advice they give. We have a great product or service, we are making money, we think “if it ain’t broke, why fix it?”.
Over the years, I have worked with a number of businesses and watched this process unfold…
Business is great, there are industry measures that indicate the product or service is maturing, but business still remains strong. Then suddenly (one could argue it wasn’t suddenly), it isn’t strong anymore, in fact, the business has gone from significant profits to losses, seemingly overnight.
The thing about income statements is they are lagging indicators. If we ignore other key indicators, especially the external industry trends, it is easy to be lulled into market timing behavior. And as with market timers, by the time the CEO realizes the market has turned, it is often too late to adjust without incurring significant losses.
As you continue your planning for 2014 strategic actions, I encourage you to pause and ask yourself the following questions:
- What are the trends in our industry; where is our industry in its business life cycle?
- How does our product/service compare to others in the industry; are we a leader or a follower?
- What is our current level of product/service diversification; where would we like it to be?
- What new product or service can we begin development on this year that will replace our core offerings in the future?