“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” – Michael E. Porter

 

Introduction: Why Diversification Isn’t as Simple as It Sounds

When does business diversification accelerate growth—and when does risk pushing your company off course?

It’s an easy trap to fall into. A customer asks for a bespoke product. A competitor enters your space. You spot a new sector showing signs of life. Before long, you’re chasing multiple opportunities that all feel urgent. But here’s the thing—success rarely comes from doing more; it comes from choosing what to do well.

That’s where business diversification comes in. It’s a smart strategy for spreading risk and creating new growth opportunities, but successful diversification isn’t about rushing into every market or product opportunity you come across. The real winners—the ones who achieve sustainable growth—are those who know how to choose their battles. They understand that the secret to successful business diversification isn’t speed; it’s structure. This article provides a diversification roadmap to guide that process.

Take the cautionary tale of Zemco, featured in The Art of Scale. This company had an impressive start, dominating its remittance market in the early 2010s. But after securing a significant venture capital round, they expanded too aggressively across new products and markets, before ensuring that their core business was stable. This led to operational chaos and almost brought them to collapse.

So, they refocused on their core strengths, cut back on distractions, and streamlined their approach, and in so doing achieved a superb 380% growth over the next 18 months.

The key takeaway: Diversification isn’t about speed—it’s about structured execution.

In this article, we’ll explore:

• How to assess diversification opportunities and research markets
• Understanding risk vs. reward profiles and avoiding over-expansion pitfalls
• Planning for resources and ensuring financial and operational readiness
• The critical importance of focus and how dominating a niche can deliver more sustainable growth than chasing everything at once

This builds on the previous article in this series, “Business Diversification Strategies: Driving Sustainable Growth with New Products and Markets,” which explored the importance of diversification for resilience and scaling. In that piece, we spoke about the danger of relying too heavily on a single revenue stream—or failing to evolve beyond your initial product.

Here, we move into the how: the practical steps to help you create a business diversification strategy that’s structured, focused, and realistic.

And we begin by ensuring that your core business is in the best possible shape before considering any new growth avenues.

Link to Previous Article:

• Business Diversification Strategies: Driving Sustainable Growth with New Products and Markets

 

The Prerequisite: Is Your Core Business Truly Fortified?

Before diving into diversification, the first step is a ruthless assessment of your core business. This is a critical step because, just like you can’t build a new wing on a house with crumbling foundations, you can’t successfully diversify if your core operations are weak.

The Foundation-First Principle:

Diversification requires a strong foundation. If your core operations aren’t optimised, expanding into new ventures is like trying to build a skyscraper on sand.

Think of it as de-risking your core business before adding anything new. You must have the financial stability, operational efficiency, and customer loyalty to support any new venture. If you haven’t optimised your core operations, then it’s too soon to expand.

Core Business Health-Check:

Profitability & Efficiency

• Is your core business running as efficiently and profitably as it could be?
• Are your systems and processes optimised, or are there significant gaps or inefficiencies?
• If your core business isn’t maximising profitability and operational efficiency, venturing into new markets or products could stretch your resources too thin. Strengthening your core operations will provide the stability needed to fund and support new initiatives..

Reference article:

• Mastering Continuous Improvement: The Imperative of Effective Leadership in Driving Success

Market Position

• Do you have a defensible, dominant position in your primary market?
• Or, are you still fighting tooth-and-nail for every customer?
• The stronger your market position, the better your chances of diversifying successfully.

Reference article:

• Performing a Competitor Analysis

Customer Satisfaction

• Are your existing customers delighted with your service?
• Are you at risk of neglecting them while you chase something new?
• Remember, customer retention is often more profitable than constantly chasing new customers.

Reference article:

• “Businesses often forget about their current customers…” – Paul Jarvis

Resilience

• How resilient is your core business to market shocks or economic uncertainty?
• Have you de-risked your primary operations sufficiently to withstand unforeseen challenges?

Reference article:

• Business Resilience: A CEO’s Guide to Future-Proofing Success in Uncertain Times

This isn’t about putting diversification on hold—it’s about earning the right to pursue it with confidence. A solid core will provide you with the stability, talent, and cash flow to support any new ventures. It’s the foundation that will enable your business to scale intelligently.

 

Clarifying Your Diversification Objectives

Before getting stuck into research or exploration, step back and ask: Why are you considering diversification at all? If you’re vague here, everything else will be messy.

Business diversification must be aligned to a clear strategic purpose, not just a reaction to external pressures or fleeting opportunities. Whether your aim is to boost resilience, build revenue, or protect against market decline—clarity here will shape all downstream decisions.

Use clear, SMART goals for what you aim to achieve with diversification to guide your decision-making and help you evaluate which opportunities are worth pursuing.

Why SMART Objectives Matter

Setting SMART objectives (Specific, Measurable, Achievable, Relevant, and Time-bound) will help you stay focused and avoid getting sidetracked by every new shiny opportunity.

Here’s an example of how you can break down your diversification objectives:

Objective	Specific Goal	Timeline	Key Metric
Market Expansion	Enter 1 new international market	18 months	Revenue increase: 15%
Product Innovation	Launch a new AI-enabled automation tool	12 months	User adoption rate: 20%
Risk Mitigation	Diversify supplier portfolio	6 months	No supplier > 20% of revenue

 

These examples should be tailored to your own context. But the principle stands: you can’t build a diversification roadmap without knowing the destination.

Reference articles:

• Crafting a Three-Year Strategic Plan
• Developing a Strategic Roadmap
• Harnessing the Power of KPIs and OKRs for Effective Execution

 

The Practical Steps to Diversification: Researching and Testing

Before you jump headfirst into diversification, thorough market research is essential. Without this, you’re just guessing—and guessing is a recipe for failure.

Understanding Market and Product Opportunities

To diversify successfully, you need to assess both market and product opportunities—doing market research. This includes evaluating industry trends, customer feedback, and economic factors to determine where growth opportunities exist. Some key questions to ask:

• What other problems do your best customers face that you could solve?
• Where are your competitors weak? What are they failing to provide?
• Could you expand into adjacent markets, technologies, or customer segments?

By answering these questions, you can identify areas where your business has a competitive advantage and where there’s potential for growth.

Reference articles:

• The Power of a SWOT Analysis
• Performing a Competitor Analysis

• “Wonder what your customer really wants? Ask. Don’t tell.” – Lisa Stone

Testing Product Ideas

Testing your product ideas through low-risk pilots and feedback loops ensures that you fail quickly if an idea is not viable, saving you time and money. Consider using tools like MVP (Minimum Viable Product), creating prototypes to test, or introducing a pilot in a limited fashion to a small market or particular client before making large-scale investments.

You can also consider “smoke tests”—for example, launching a landing page for a product that doesn’t exist yet to see if there’s customer interest before you commit to the full development.

And talk to your customers—both current and prospective, asking them what they would pay to solve the problem that this new product can solve.

Testing your product ideas through MVPs or pilot programmes doesn’t require a large budget. Even SMEs with limited resources can run tests using tools like Google Ads or Facebook campaigns to validate interest before fully committing to new product development.

This isn’t about box-ticking. As we often say in strategy sessions, “If you’re not willing to kill a bad idea quickly, you’ll end up protecting it out of pride.”

Reference articles:

• Mastering Scenario Planning
• Conquer New Markets: Strategies for Explosive Business Growth

Assessing Resource Requirements

Next, assess whether your business has the financial, operational, and human resources to support the diversification. Can you afford to invest in this new venture without compromising your core business?

• Develop a budget for the diversification process and establish KPIs to track progress.
• Perform a gap analysis to identify any resources or skills that need to be acquired to succeed.
• Consider using external support—at least initially—on the project; this can be more cost effective (for example fractional executives) and quicker to change if the project demands this.

Risk and Opportunity Profiling

You need to balance ambition with realism by mapping potential risks alongside opportunities.

• Balancing Risk and Opportunity: Using tools like the Ansoff Matrix will allow you to weigh the risks and rewards of entering new markets with your existing products versus introducing new products to your established market. Both options come with unique challenges, so choose based on your current business strengths and market needs.
• Risk Assessment: Combine SWOT, risk matrices, and financial modelling to decide: is this a manageable risk—or a leap too far?
• Focus Where You Can Win: As Jason Goldberg puts it: “If you can’t be first in a category, set up a new category where you can be first.”

Reference article:

• Navigating the Minefield: A CEO’s Guide to Identifying, Assessing and Managing Business Risks

Why Market Specialisation Wins

Specialisation will almost always beat scattergun expansion:

• Easier customer acquisition: Targeting a specific audience strengthens messaging.
• Brand authority: Focused businesses are seen as experts in their field.
• Higher profitability: Specialised markets generate stronger margins.

 

Focus vs. Overextension: The Importance of Strategic Decisions

It’s tempting. The product trial went well, the market data looks promising, a key client is nudging you to expand faster. But here’s the reality: most diversification failures aren’t due to bad ideas—they’re due to lack of focus.

Let’s go back to Zemco, our earlier example from The Art of Scale. Their expansion into multiple markets and offerings stretched them to breaking point. The management team were overwhelmed and, frankly, exhausted. It wasn’t until they refocused on their core market—doubling down on what they already did well—that they achieved the explosive growth they had hoped for.

The key takeaway: Diversification is important, but strategic focus is crucial. If you want to scale successfully, focus on markets and products where you can dominate and become the #1 player in that niche. Too many products or markets without a focused approach will only lead to chaos and failure.

Avoiding the Pitfall of Trying to Do Too Much Too Quickly

The temptation to pursue every opportunity that comes your way can be overwhelming. But diversifying too quickly often results in overextension, resulting in:

• Operational drag: Resources scattered thinly, slowing delivery and increasing costs.
• Team burnout: The people who carried your early success can’t keep pace with the new spread.
• Loss of strategic clarity: Your brand becomes harder to position and harder to defend.

It’s essential to scale at a sustainable pace. Diversifying successfully requires staggered, manageable steps.

By focusing on one or two areas where you can truly make an impact, you’ll be able to:

• Build a strong market position before moving on to the next.
• Retain customer loyalty by maintaining consistency and quality.
• Create a focused brand that customers can rely on.

Tools for Strategic Focus:

To keep your focus sharp and prevent overextension, consider such tools as:

• Roadmapping: A detailed plan for the year, broken down into key strategic goals and timelines.
• OKRs (Objectives and Key Results): A framework to track progress on measurable goals.
• KPIs (Key Performance Indicators): Specific metrics to ensure you’re moving in the right direction.

The Art of Scale has some excellent frameworks.

Reference Articles:

• Fortifying Your Business through Risk Mitigation and Resilience
• Planning to De-Risk Your Business Against Future Threats
• Developing a Strategic Roadmap – Guiding Your Business Towards Success

 

The Need for a Diversification Roadmap

Once you’ve assessed your core business and clarified your diversification objectives, it’s time to build your diversification roadmap.

Just as you wouldn’t set out on a long journey to a new destination without a clear map, a diversification roadmap serves as a clear, actionable guide for the next steps in your diversification strategy. Without one, your efforts could lack focus and direction, leading to wasted resources and missed opportunities.

Creating a Diversification Roadmap

Your roadmap should be structured around the following key components:

1. Defining the BHAG (Big Hairy Audacious Goal):

What is your overarching goal for diversification? This should use a formula like: “We will grow from [current position] to [desired position] by [deadline].” Make sure this goal is ambitious yet achievable and measurable, with clear milestones, and ideally with a deadline of 3-5 years out.

2. Establishing Clear Milestones:

Define the short, medium, and long-term goals of your diversification. Set deadlines for each stage (e.g., 6 months, 12 months, 18 months), and identify key metrics to measure progress.

3. Set OKRs and KPIs:

Be clear about what you want to achieve and by when. Align your diversification efforts with long-term strategic goals. For example, entering new international markets or launching new products should be tied to measurable results.

4. Allocating Resources:

Set aside the necessary financial, human, and operational resources. Ring-fence these resources for the diversification effort so they don’t conflict with your core business’s needs.

5. Review and Adjust:

Diversification isn’t a one-time effort. Regular reviews (weekly, monthly, quarterly) will help you gauge progress and make adjustments as necessary.

6. Define Go / No-Go Points:

Be clear on when to continue pushing forward and when to walk away.

Planning for Success

Successful diversification requires careful planning. Make sure you have the right milestones, KPIs, and budget allocation before starting. As with any new venture, ensure that you have clear success criteria. Know when to cut your losses if a diversification strategy isn’t working. Regularly evaluate your progress and adjust the plan if necessary.

 

Common Pitfalls and How to Avoid Them

While the benefits of diversification are significant, there are a number of common pitfalls that can derail your efforts if you’re not careful, which even experienced leaders can fall victim to. To help you stay alert to these, here’s a simple acronym to spot the warning signs:

DUNESS – The Six Pitfalls of Poor Diversification

Just as sand dunes can be treacherous, so too can the potential pitfalls with business diversification.

• Defocusing on Your Core Business:
  As you focus on diversification, it’s easy to neglect your core customers and operations. Ensure that your core business remains strong while diversifying. Diversification should add to your business, not detract from it.
• Underestimating Resource Requirements:
  Diversification is resource-intensive, and it’s easy to overestimate your capacity. Be sure to assess financial, human, and technical resources before committing to a new venture. Don’t stretch your existing team too thin.
• Not Optimising Your Core Business First:
  As highlighted in The Art of Scale, a common mistake is diversifying without first ensuring that the core business is optimised. Always strengthen the foundation before expanding into new areas.
• Executive Confusion:
• Pulled between conflicting priorities of existing and new business, the leadership team loses direction and focus to the detriment of everything.
• “Shiny Object Syndrome”:
  The urge to chase every new opportunity can result in scattered focus. Don’t try to diversify into too many products or markets at once. Instead, focus on what fits with your core business and where you can dominate.
• Stakeholder Involvement Lacking:
  Not involving the right stakeholders early in the process can lead to a lack of alignment. Ensure that everyone, from leadership to operational teams, is on board and understands the goals of the diversification effort.

Each of these can derail even the strongest diversification strategy. Spot them early, and you avoid sliding down the dunes into trouble.

 

Real-World Examples of Successful Diversification

Apple:
Apple provides an excellent example of successful diversification. While the company began as a computer manufacturer, it successfully expanded into consumer electronics with products like the iPhone, iPad, and Apple Watch. Apple maintained brand consistency and leveraged its technological expertise to dominate multiple markets, Mind you, even they didn’t always get it right—remember the Apple Newton? It didn’t just diversify—it extended customer trust across categories.

Virgin Group:
Virgin’s journey from a record shop to a global conglomerate shows how diversification can work when strategically planned. Richard Branson expanded Virgin into multiple industries, from airlines to health clubs, maintaining a consistent focus on customer service and innovation, and showing how expanding into aligned customer experiences can build iconic brands.

Netflix:
Once a DVD rental service, Netflix transformed itself into a streaming giant by diversifying its business model to include original content production. By creating its own shows and films, Netflix secured a unique position in the entertainment industry. Its transformation is a study in strategic growth through market and product innovation.

 

Conclusion: Focus on Strategic, Manageable Growth

Diversification done well is a growth engine. Done poorly, it’s a resource drain. The key lies not in ambition, but in structured execution guided by clarity, resilience and customer insight.

Before you expand:

• Validate your core
• Research your options
• Test on a small scale
• Allocate resources intentionally
• Stay relentlessly focused

Because if you lose focus, you lose momentum. And if you chase too many things, you’ll likely catch none.

Make calculated decisions, optimise your core business first, and only then expand into new markets and products where you can build a competitive edge.

Diversification isn’t a quick fix, nor is it a one-size-fits-all solution. Focus on the long-term benefits, and ensure you have a clear roadmap for your growth journey.

Now consider your own business, and where you are on the diversification roadmap…

 

It’s your turn now:

What’s the biggest challenge you face when considering diversification—market research, assessing risk, or finding the resources to execute effectively? I’d love to hear your thoughts in the comments, or feel free to drop me an email directly.

 

P.S. For You: Are you ready to take the next step in diversifying your business? If you’d like a Business Diversification Readiness Assessment Tool to evaluate your company’s preparedness for diversification, just click here to drop me a note.

 

FAQs from this Article:

 

1. What is a diversification roadmap?

A diversification roadmap is a strategic plan that outlines how a business will expand into new products or markets over a defined period—while measuring risk, allocating resources, and ensuring the core business remains strong.

2. Why is focus so important in a diversification strategy?

Because trying to do too much at once spreads your resources thin, causes confusion, and increases the likelihood of execution failure.

3. How do I know if my business is ready to diversify?

You’re likely ready if your core business is profitable, systemised, and stable—and you have leadership bandwidth and financial capacity to support expansion.

4. What tools can help test diversification ideas?

Consider MVPs, customer interviews, pilot programmes, and smoke tests (landing pages to gauge interest). Validate fast, kill weak ideas early.

5. How do I manage the risks associated with diversification?

Use structured tools like the Ansoff Matrix and risk matrices. Track financial, operational, and brand risks. Mitigate through pilots, phased launches, and contingency planning.

6. Should I ring-fence resources for diversification?

Yes. It prevents cannibalising your core business and ensures the new initiative is given proper attention and budget.

7. What if my first diversification attempt fails?

That’s okay—if you’ve tested in a measured way. Use the learnings to improve your next move. Diversification is iterative, not binary.

8. How can I keep my team aligned during diversification?

Use OKRs, clear communication, regular progress check-ins, and defined milestones. Ensure team members understand how the new initiatives tie back to the company’s mission.

9. Should I always aim to be first in a new market?

Not necessarily—but aim to be differentiated. As Jason Goldberg notes, if you can’t be first in an existing category, create one where you can lead.

10. Where can I learn more about scaling my business before diversifying?

Explore Scaling for Success and The Art of Scale to strengthen your foundation first. 

 

If you’ve found these answers helpful and want to dive deeper into the subject of diversifying your business, you can explore the full article and more resources in the previous sections. And as always, feel free to share your thoughts in the comments below or reach out to me directly for further insights.

 

Want more tailored advice on business diversification? Book a free 30-minute strategy session today and get personalised advice.

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This month, we’re exploring the topic of Business Diversification, with this being the second article in the series. The previous one, should you wish to review it, was:

• “Business Diversification Strategies: Driving Sustainable Growth with New Products and Markets”

 

Stay tuned for further articles to help you take your business to the next level – or better yet, subscribe to my blog and receive the latest insights straight to your inbox. Click here to sign up or send me a note here and I’ll add you to the list.

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Related Posts

If you’d like to learn more about business strategy and diversification, risk, leadership and the areas we’ve covered here, the following articles and posts might be of interest:

• Mastering Continuous Improvement: The Imperative of Effective Leadership in Driving Success
• Performing a Competitor Analysis
• “Businesses often forget about their current customers…” – Paul Jarvis
• Business Resilience: A CEO’s Guide to Future-Proofing Success in Uncertain Times
• Crafting a Three-Year Strategic Plan
• Developing a Strategic Roadmap
• Harnessing the Power of KPIs and OKRs for Effective Execution
• The Power of a SWOT Analysis
• “Wonder what your customer really wants? Ask. Don’t tell.” – Lisa Stone
• Mastering Scenario Planning
• Conquer New Markets: Strategies for Explosive Business Growth
• Navigating the Minefield: A CEO’s Guide to Identifying, Assessing and Managing Business Risks
• Fortifying Your Business through Risk Mitigation and Resilience
• Planning to De-Risk Your Business Against Future Threats
• Strategic Growth vs Opportunistic Expansion: Choosing the Right Path to Scale Your Business Successfully
• Cultivating Excellence: Building a Culture of Continuous Improvement in Your Business
• Scaling for Success: Unleashing Growth and Profits in Your Business
• Mastering Business Agility and Resilience for Sustained Growth
• The 20-MileMarch: A Proven Framework for Sustainable Business Growth
• Scaling Success: Tools, Metrics & Execution to Drive Sustainable Business Growth
• Building Your Dream ‘A-Team’ – Hiring A+ Talent

 Book: The Art of Scale and Website

Backgrounders

HBR – 4 Rules for Diversifying Your Business

• To Diversify or Not To Diversify

McKinsey – Testing the limits of diversification

• Growing beyond the core business

Entrepreneur –  Why Businesses Need to Diversify Everything Right Now

• Diversification – Entrepreneur Small Business Encyclopedia

Forbes – Diversification Strategies To Thrive In A Changing Global Economy

NumberAnalytics – Key Steps to Build a Diversified Strategy Map

#BusinessFitness #Accountability #ArtOfScale #BusinessDiversification #BusinessGrowth #BusinessResilience #BusinessStrategy #CompetitiveAdvantage #ContinuousImprovement #Culture #Execution #Growth #Leadership #Planning #Risk #Strategy #VUCA #QOTW