Diversification or Diversion
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I just returned from ACCA’s IE3 conference in the nation’s capital. I was struck by how much conversation there was at the conference on whether or not HVAC contractors should add new services to their customer offering, as well as the best type of service to add.
An important part of deciding to add a service is assessing the degree to which the new service actually diversifies your business, and the potential for the new offering to be a diversion or distraction from your core business.
At Contractor Nation, we use Janesky’s Diversification Index to help our contractors evaluate whether a new service offering makes sense (Larry Janesky is the founder of Contractor Nation). The index allows you as a business owner to assess these 10 elements of a contractor’s business processes:
- Marketing audience
- Marketing techniques
- Leads – customers who call for an estimate
- Salespeople
- Sales processes
- Office processes
- Your facility
- Your installation teams
- Vehicles
- Ongoing service
When a new product or service cannot use one of the elements of your existing business in the index, it means you have to change your business to accommodate the new service successfully. The more elements on the index you have to modify to accommodate the new service (the higher the score out of 10), the more difficult it becomes.
The higher the score out of a possible 10 points, the more different and foreign the new service is to your existing business, and the more effort it will require to be successful at. The lower the points the new service scores, the more related it is to your original business.
New services scoring 5 points or less are “add-ons” to your existing business. Services scoring a 6 or more are Diversifications, and should be treated as a separate business with separate staff leading the cause.
You can use Janesky’s Diversification Index to score the new service relative to your existing business.
Existing Business_____________________ New service/business being scored____________________
We have to consider the other elements of any new service as well.
For example:
- Is there much of a market for this service in my area?
- Does my product or new service work very well?
- Will my customers be happy with it? (and therefore with us?)
- Can I make money from it? What are the margins?
- Can I do it “part-time”? In other words, if I only do a little of it, can I still do it well and is it worth messing with?
The key is to know what you are getting into, what will be required for success, and be willing to make an intelligent commitment.
After assessing whether or not the new service or product is and “add-on” service or will require a more separate or stand-alone business structure, you as the business owner need to understand one thing. You must be clear – WHY? Why do you want to diversify your business?
We’ll review some of the answers we’ve seen to this question and tackle this vital consideration in my next article.
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