One of the biggest questions facing entrepreneurs is how to diversify your small business.
This is especially the face if you are the proverbial ‘one-man-band’. I’ve seen many of these start-ups over the past year, as changing economic circumstances and technological improvements have provided the environment for many to try it on their own.
In my former life as a financial adviser, the overarching imperative for any investment portfolio was ‘diversify’. It’s been proved time and again that diversification is the only free-lunch the market gives you. That is, it costs nothing extra to diversify your investments, yet it provides additional returns and reduced volatility.
This is nothing new. 3000 years ago, King Solomon was exhorting us to ‘invest in seven ventures, yes in eight, for you do not know what disaster may come upon the land…for you do not know which will succeed, whether this or that or each will do equally well’.
What holds true in investing, holds true for our businesses. A business that relies on one product or service, or one income stream, or even one type of customer, is a business that needs to diversify.
It’s easier to see this in others than assess it in ourselves. So let’s look at a great case-study to illustrate how to diversify your small business.
How to diversify your small business – Case Study
I first met Gillian at a training retreat in mid-2017. She has a great energy about her, but honestly, I first got to know her as she was one of the few native English speakers in the group! Gillian has been coaching for over six years.
Gillian is a fully qualified Professional Coach, providing both personal and group coaching. Most importantly, it is super impressive how she has worked to diversify her services, revenue streams, and client base to build a more robust sustainable business.
In turn, this has allowed her to spend more time in her professional community (where she is very active in the International Coaching Federation) and with her family.
Business Model Challenges
From a business model perspective, a coaching practice has many of the challenges that face professional service providers.
Challenge 1: It is principal dependent, which means there is often a key personal reliance. This means that if the principal is unable to work, revenue ceases.
Challenge 2: Services are typically delivered personally and are time time-based. Earnings happen when the coach is face to face with a client. That’s the only time revenue is being generated. This means that it is difficult to find revenue leverage.
Challenge 3: The goodwill, or brand value, of the business, is strongly correlated to the individual coach. Clients love their coach! The downside of this otherwise positive aspect is that it makes it hard to transfer this trust in a specific coach into trust for a coaching brand. Coaches themselves have a limited number of clients they can see, which means that there is an upper cap on the value of the business. If the coach leaves (or closes the business) the goodwill disappears. It makes it very hard to corporatise or develop a brand value that transcends this individual relationship.
Now, these are only problems if you decide they are. There is nothing wrong with this, if, like thousands of business owners, it brings you a good lifestyle and a gratifying professional life.
However, If you have grander plans, or even simply if you desire a journey of self-actualisation, then it brings challenges. There is no one magic solution. The starting point is understanding what your clients are looking for and what you enjoy doing.
It's a pyrrhic victory to succeed in business if you don't suceed in life. Put it another way - unless you succeeed in life, you will never truly succeed in business.
Diversifying Target Markets
Gillian’s desire to grow and develop her business was driven from the best motives. It came from a desire to meet the needs of her clients and the market. Uppermost in her mind was helping her clients, not evolving a business model.
What is impressive is how Gillian has analysed the needs of the market and the challenges of her business model. Most importantly, she has done so in a way that allows her to lead a balanced and diversified lifestyle, allowing time for herself and family, and for playing a role in her broader community.
They are very relevant for all small businesses in these current pandemic times.
Firstly, she has expanded her range of services. In addition to individual coaching, she developed and marketed expertise in group coaching. Now, entire companies can use her services, and group exposure means she has a ready pool of potential individual clients for follow-up coaching.
Gillian took this a step further when she saw that there were some very specific coaching needs that weren’t being met by her competitors. For example, using her own experiences as a base, she has developed a program on Transition Coaching. This is specifically aimed at people experiencing a life transition such as expatriation or study programs.
Finally, her own experience as a coach made her aware of the significant needs that coaches themselves have. In her words ‘Coaching is a lonely old game’. In response, Gillian obtained her supervision accreditation and started offering Coaching Supervision services.
This has been so successful that now, the majority of her work is as a supervisor of coaches. You see, coaches need coaches too! They need somewhere to gather themselves. And Gillian has created a service that provides a nurturing space for them to do this.
From a business model perspective, Gillian has turned her former competitors (coaches) into a new target market of prospective clients (for her Coaching supervision services).
The outcome of these three additional areas of services was that Gillian successfully diversified her target markets and client base. Instead of just relying on a particular client profile, she has services that attract individuals, companies, and the coaches themselves. Three separate but closely related target markets instead of one.
Still, all of this remained dependent upon Gillian’s personal, real-time involvement. And, while it diversified her services and target markets, it didn’t diversify her revenue.
Diversifying Revenue and Leveraging Time
Enter the Inside-Out Academy!
Gillian’s motivation was to provide a coaching service to her previous clients that missed the interaction but for whatever reason couldn’t schedule a personal session. Equally, she saw that there was a huge group of people that either couldn’t afford personal coaching or weren’t ready to commit – but who were in real need of the help that a coach can bring.
Gillian has designed a complete 24 part online coaching program – that’s two full years of online coaching that is available.
This is provided under a subscription model. For the clients, they have 24/7 access to coaching tools and videos that guide them through identifying and achieving their goals.
From a business perspective, this service provides diversification of revenue as well as leveraging Gillian’s talents – the service earns revenue without requiring her real-time presence.
This Intellectual Property (IP) collateral can be taken a step further by repackaging it and placing it on other subscription channels.
Importantly, none of these actions dilutes the quality nor value of the service the client receives. And, it all provides additional exposure for other Inside-Out Coaching services.
Reducing Principal Dependence
Like many small businesses, Gillian sub-lets a space in which she conducts her coaching work. This rent is a fixed cost to her business.
Recently, the opportunity came for her to take on the master lease. This would allow her to renovate the property and convert the remaining space into specialist coaching spaces which she, in turn, can sublet to other coaches.
This means taking on additional risk in the form of a higher lease – but it also means turning fixed costs into an additional revenue stream. It also means that she creates a new local coaching community centre that will raise the profile of the entire group.
This decision is not one to be taken lightly, but only after extensive modelling and business planning. This showed that her break-even occupancy rate for the new coaching spaces was within her risk tolerance.
Importantly this also means that her business has an additional revenue stream that is completely independent of her coaching time.
The role of the Business Mentor
Most people think that the role of a business mentor is to help entrepreneurs thrive in their businesses. That’s partly true. Business mentors look not only at your business in isolation, but in the context of your life, your priorities, your values.
In my experience, it’s a pyrrhic victory to succeed in business if you don’t succeed in life.
Put it another way – unless you succeed in life, you will never truly succeed in business.
A person who lives a diverse life will not only have a greater sense of happiness and satisfaction – they will also be the sort of person that people will want to do business with! It becomes a virtual circle.
It’s the role of a Business Mentor to counsel you within this context.
Of course, we also have specialist skills devoted to business excellence. For example, this case study shows some of the actions we took with a start-up, while you can read here about the 4 Ultimate Guiding Principles for buying a business.
Better yet, contact me today and let’s start your own, personal case study!