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Case studies: consolidate or diversify?

When taking the route to growth, should you stick to what your company does best or should you break new ground? Four SME operators from various sectors offer their view

With the UK economy in 2013 growing at its strongest rate since 2007, according to the Office for National Statistics, many entrepreneurs feel they are finally in a position to take their businesses forward. So what should be their next move? Consolidate their position in the market and do more of the same? Or should they branch out with exciting new ideas? To illustrate the various pros and cons of consolidation and diversification, we asked four SME operators in various sectors, from software to consultancy, offer their personal view on these two routes to growth:

Samuel Cropper, CEO of eco-friendly car service Climatecars
“The market within which we operate is presently quite stable and we have a lot of room to grow. Additionally, our service offering is high-value and thus growth is coming naturally with little resistance.

“Diversification at this stage would require reallocation of resources which, as a high-growth and lean SME, is hard to justify. The resources are not just people and cash; they are also brand equity and company values.

“All else being equal, with size comes capacity and less opportunity for market penetration – this means a time will come when we look to other markets and/or other service offerings to maintain growth. When that time comes is a function of the market and our position within it.”

Guy Mucklow, CEO of software company Postcode Anywhere
“It is always important to keep an eye on the growth potential of your existing product set and make adjustments where necessary.

“In our business, we have set ourselves some very ambitious growth targets, which require us to achieve a 50% increase in our revenues each year for the next five years. Given that our existing product set is relatively mature, we will be looking to develop other revenue streams to achieve our targets.

“The combination of a very ambitious target, alongside setting up and developing a completely new and exciting product, are helping to create a real buzz in our business and, unlike when we went through the start-up phase for our original business, we can manage it all in a relatively low-risk way.

“As we have the comfort, as I describe it, of having the ‘four Cs’ behind us: the contacts, credibility, customers and, most importantly, capital to make it happen quickly.”

“It is always important to keep an eye on the growth potential of your existing product set and make adjustments where necessary.”

Saad Aslam, CEO of HC MedSpa
“At HC MedSpa the word ‘growth’ is used at least 50 times a day, which is why our strategy is always based on diversifying our brand. Without growth and progression our company runs the risk of competitors moving in and taking over a percentage of our market share.

“We spent 20 years perfecting the core product, beauty and medical solutions. Internally, we have continued to invest in new brands such as ‘Noir Novae’, a new product range, and later in the year we will launch the HC Academy, which will offer extensive training to develop our staff.

“Whilst growth can be costly, if your core is strong your company should be able to take a few setbacks. I have continued to introduce new ideas and products to stay ahead of our competitors.

“I look at companies like Blockbusters that were ultimately wiped out by Netflix. Blockbusters were stagnant and set in their ways, and, by limiting the brand, you struggle to keep up with an evolving market.

“They had the chance to buy Netflix and declined, and to me, this is an example of a brand avoiding diversification, which proved to be a mistake.”

Daniel Pearce, Partner at law firm Temple Bright LLP
“Introducing a new product line in a new area of the market for your business will require you to consider a range of legal issues.

“For instance, you should consider whether there are specific regulatory issues applying to your new product and/or its market; whether you can or want to protect your product or its branding by registering intellectual property rights, e.g. trade marks, designs or patents.

“Consider whether you may infringe competitors’ intellectual property rights by marketing your product; whether you have sufficient product liability insurance to cover your risks; and to what extent your usual manufacturing, supply and distribution arrangements would need to change.

“In short, get to know your product and its market at an early stage, and take professional advice.”

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John Carroll - Helping businesses achieve International success. Head of Product Management & International Business, Santander UK