Manufacturers, service providers, and distributors often suffer from a lack of diversification. They exist to serve a highly specific market and often fail to look at the opportunities that exist outside of that market. In many cases, though, industrial businesses offer products or services that are in demand outside of their chosen industry. For example, an oilfield hauling service is committed to hauling products in the energy sector. However, the same company could make a transition towards hauling heavy equipment in the forestry industry.
According to a recent BDC study, regardless of size, businesses that are better diversified outperform their competition.
As an industrial marketing technology firm, we work with businesses looking to expand their customer base and generate predictable revenue streams. These are the four most common diversification issues we see industrial businesses facing:
More than other businesses, it is easy for manufacturers and service providers to rely on a single customer for the majority of their business. In many cases, industrial work involves large orders and recurring business, which makes it easy to rely on a single revenue stream. However, if a single customer accounts for a majority of revenue, a business will be in trouble should they lose the account.
Many industrial businesses get their start due to the surge of a single industry. Concentrating operations in one sector makes businesses vulnerable to fluctuations that are out of their control. When the industry is booming, business will be great, when it declines, so will business.
Manufacturers and service providers often build their businesses around a single product or service, such as an oilfield pump business. Since technology and demand shift continually, having a single focus is usually an unsustainable business model.
Geographic factors have a big influence on business revenues. Similar to businesses operating in a single sector, businesses operating in a single geographic region will be impacted by changes in the economy of the region. Businesses with a geographically dispersed customer base are better positioned to take advantage of booming regions as well.
Diversification is important, and many businesses have the capability to introduce new products and services or branch out to new regions and industries – the next question is how?
The biggest challenge in diversifying a business is connecting with potential customers in new markets, whether they are geographic, industry or product based.
In the past, many industrial businesses have relied on word of mouth, local advertising, and who they know to generate new customers. That strategy is not effective when entering new markets, making diversification seem like a daunting, if not impossible task.
Luckily, however, advances in marketing technology have changed they ways businesses find customers and enter new markets. It is now easier, and more affordable than ever, to target audiences in specific locations and industries. A proper online strategy ensures that businesses are easily found by customers who are already looking for their products or services. This simplifies the process for businesses to find quality leads in markets which they have no experience.
View the full BDC report on diversification for industrial businesses.
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