Diversify to Lower Risk

Your business may be performing well, but there may be a hidden risk you haven’t considered.

Changing Times

In 1964 Bob Dylan recorded a song called “The Times They Are A-Changin”, and yes, changing really was misspelled in the title. Forget about the words to the song as it is the title that matters here. Nothing stands still. Over time everything changes. That is a vital fact to grasp if your business is to survive.

But We Have a Great Product

While your product may be great today, will it be tomorrow? There are a couple of big retailers that come to mind as I think about this. For a long time their stores experienced heavy traffic and for many people they were the go-to place for many everyday items. Even if you couldn’t go to the actual store they had catalogs from which you could order. Both of these retailers are now experiencing significant struggles. What happened?

What Happened?

As time has passed the rate of change in consumer tastes has accelerated. Many people now hate going to large malls. They would rather go to smaller malls or strip centers where they find stores with lower prices and there is less hassle. Optionally, many spend significantly online, and this is growing rapidly. These retailers tried, for the most part, to stay the course in their old mode of operating. By doing this, they became victims of the risk that is inherent with refusing to change as consumers change. They failed to diversify how customers could buy from them. Ease of purchasing became as much the product as the actual items purchased. As the saying goes, they were late to the party. Time will tell if they will survive.

Products Have a Limited Life

Here we are not talking about how long a product will last before it wears out or breaks. This really has to do with product life cycles. As you have probably seen, products tend to have a fairly common life cycle that includes:

  1. Introduction of the product
  2. Growth (increasing sales of the product)
  3. Maturity (the product is now widely accepted and used)
  4. Decline (the product is losing its appeal, often as a result of changing consumer tastes or the availability of something better or less expensive

This life cycle of products is another risk. Companies need to constantly be evaluating their product mix and where each product is in this cycle. It is important to remember that the length of time a product spends in each of the four stages varies. Some products have a very short life cycle (think electronics), while others may last years.

The best way I know of to manage the risk caused by product life cycles is to offer diverse products. They may be in the same industry and have the same target customers, but without variety of offering a company runs the risk of becoming irrelevant. Some even are what we refer to as “one-hit wonders” because they had a hot seller but failed to follow up with new products..

Take a close look at what your company offers. Is it becoming dated and stale? Do you have a plan you are executing to remain relevant to your existing and potential customers? Are you being deliberate in trying to diversify your offerings and how you deliver the products and services customers want?

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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