The Advantages of Single Business Strategy
As your small business grows into a larger, more stable enterprise, you might be advised to diversify your product and service line. This can open new revenue opportunities and prevent you from putting all of your eggs into one basket. Doing so can lose you some of the benefits of running a single line of products or a narrow array of services. Listing the advantages of staying with a single-business model will help you decide if diversification is right for you.
One of the most obvious benefits of staying with a single-business strategy is that you’ll obtain the financial economies of scale of producing one type of product or service. When you move into a new area of the market, or a completely new market, you might have to add new machinery, staff members, consultants and suppliers. If you make 1,000 widgets per month, making another 1,000 can reduce your materials cost per unit as you buy larger orders. Your production units per unit get lower because you simply keep your line running without having to shut down and re-start every 1,000 widgets. If you add 1,000 units of production making something other than widgets, you don’t enjoy those price and production-cost breaks.
Making one product and making it well sends a message to the marketplace that you are an expert in that area and gives you an advantage over competitors who make that product as a sideline. If you sell women’s clothing, and then begin to sell sporting goods in your store, you can either confuse the marketplace or alienate your customers who want an expert in the women’s apparel business. Moving into a new business under a new name and in a new location can protect your brand, but it puts a strain on your resources. KFC doesn’t sell pizza or tacos so that it can protect its brand of being a leader in chicken. Its parent company, Yum Brands, sells pizza and tacos via its competing Pizza Hut and Taco Bell stores, which have stand-alone administrative operations.
Adding a second business to your marketing strategy puts a bigger workload on most if not all of your administrative departments. Your accounting department will have to keep separate records, create separate budgets and add new vendor accounts. Your marketing department will need to conduct additional research, develop separate advertising, promotions, social media and PR campaigns and manage different distribution channels. Your IT department might need to create and maintain a different website and manage different online sales-processing systems.
Running only one business lets you and your staff focus on that one effort. This includes increasing and improving your knowledge of your market by attending your industry’s trade shows and conferences, monitoring marketplace trends, watching the competition and continually evaluating how you can make, sell and deliver your product better. When you must do this for two different businesses, you lose focus on your primary business. At the very least, you must cut back the time you spend on one business to dedicate it to the other, often no longer sweating the details, which helped you succeed in the first place.