Diversification
Diversification means growing into new markets or products to spread risk and open growth beyond what the current business can give you, whether the new venture is related to what you do now or not.
Follow the decision through five steps, from sizing up how concentrated the risk really is to reviewing whether the new bet actually paid off.
Reach for this when…
- One product or market carries almost all your revenue and that scares you.
- A downturn in your core industry just showed you how exposed you are.
- You have capability or customer trust going unused outside your current offer.
How to run it
- Get honest about how concentrated your risk actually is right now.
- Decide related, using what you already have, or unrelated, a genuinely new bet.
- Test the new venture at small scale before committing serious capital.
- Keep it structurally separate enough that a stumble there doesn't sink the core.
- Review whether it's actually reducing risk or just adding complexity.
A worked example
Situation. Maria Santos ran Santos Mangoes, a mango-processing business in Cebu, Philippines, entirely dependent on one export contract that could vanish with one bad season or one lost buyer.
Applied. She chose related diversification, using the same cold-storage and logistics capability to process and export dried mango and other local fruit for smaller growers nearby, rather than chasing an unrelated business she knew nothing about.
Result. When the original export contract was renegotiated down the following year, the dried fruit business was already covering the shortfall.
The catch
Diversification is sold as risk reduction but often just swaps one risk for a different, less familiar one; unrelated diversification in particular fails as often as it succeeds because the new market punishes the lack of expertise nobody budgeted for. It also drains management attention from the core business exactly when that business needs it.
If you can't say what capability the new venture actually shares with the old one, you're not diversifying, you're gambling twice.
Origin: Igor Ansoff