The 4 Rules Of Diversification

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During this pandemic I am seeing a patchwork of economic responses across the country.

Some companies are booming, like the clients I spoke with in Utah, Connecticut and Pennsylvania. Business is up!

And other companies are currently on hold, e.g. in the San Francisco area and in Michigan.

If you have ever thought about diversifying (or further diversifying), now is the time to give this serious thought.

Proper diversification requires a broad mix of services, clients, and profit centers.

One of the challenges is finding the right mix of services, not too many that your efforts are diluted, and not too few that you are still hampered even if one fails. Think of it more like car with 4 wheels, when one tire blows, the car is still in control.

You have to be careful, adding too many new “service lines” without a business strategy can lead to:

– Under utilized equipment, and higher expenses

– Inefficient crews from lack of momentum (jack of all trades, master of none)

– Fuzzy financial accountability, which hides inefficiency

Therefore, it’s best to have the intention that you will grow the new service line into a business unit of at least $1million in revenue (and for those of you at $20M+ in revenue, you can double that number).

Strategy counts. When you expand, you can either add a new service or a new client, but try not to add both at once if you can help it, because, “a new service to a new client” brings with it the most risk.

Is maintenance the safe bet? I spoke with a very successful $15M commercial contractor in Arizona last week that had added commercial maintenance in order to diversify further. However, their maintenance clients are now pulling back (because tenants are not paying their rent). “So much for maintenance being a safe haven,” he told me. Go figure. Even  “maintenance” needs to have its own diversification strategy.

One of my favorite shows is Shark Tank, and a few times a season Mark Cuban and others will say “that’s not a business, that’s a product”. Mark wants to invest in businesses that are scalable. It has to be worth his time and upfront investments.

Same for you!

I want you to take that same attitude as you expand your services.

A+ Lawn and Landscape, in Des Moines is a good example of a highly diversified company, with multiple divisions that are scalable. (For this reason I am holding my Summer Growth Summit there this August. Save the date and learn more here).

A+ will survive this pandemic in very good shape, because they follow my Four Rules of Diversity:

  1. Make it stand alone financially and with dedicated leadership.
  2. Make it profitable; never keep a division that is just a loss-leader.
  3. Make it scalable; so that it can grow to support the company and weaker divisions in times of crisis.
  4. Make it synergistic; so that it brings value to the other divisions.

To learn how to optimize your service mix for increased market share and profitability, check out this event. The Super Early Bird pricing is good through May 15.

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