Category: Growing a Business

There Are Huge Benefits to Diversifying Your Business—Here’s How to Achieve Them

By Alexander Bachmann

As both an entrepreneur and an investor, one of the most common questions I get is, “Why put the effort into looking for new lines of business when you have something that’s already working and has the potential to be developed further?” To this, I bring up a metaphor, “Can you sit in an ordinary chair with just one leg?”

The answer is that you could if you were great at balancing, and some people might enjoy that challenge. However, what happens if that leg breaks? Now imagine that each leg on the chair is a business unit you’re pursuing—even if one or two legs break, you can still stay seated, even though it’s a bit of a balancing act.

The simple truth is that business ventures often die for one reason or another. There are some foreseeable, avoidable reasons, like poor market fit or lack of capital. But other things, such as currency devaluations or a global pandemic, can’t be anticipated.

Diversification is a way to mitigate these potential risks and losses, but you must do it carefully. Otherwise, you’ll run the risk of failing because your focus is too divided.

There are many other potential benefits of diversification, and here are a few tips for making the most of it.

Leverage new markets to stimulate growth

Every entrepreneur is chasing growth, but they don’t always have a concrete idea of what that means. It’s important to remember that a business can only achieve so much vertical growth before it either plateaus, combusts, or becomes a monopoly. In all three cases, this type of growth ultimately will lead nowhere.

For example, if a company is incredibly successful, it can become a monopoly in its space, like Google, Amazon, and Meta. These mega companies can no longer utilize their tried-and-true strategies for growth. They start losing traction over time, as we saw with Facebook. To remedy this, Meta acquired Instagram in a “horizontal growth” move that allowed the company to capture a new audience and bring back some users that had abandoned the platform.

Too many founders are focused on providing investors with 30 to 40% year-over-year vertical growth numbers—and this is not sustainable. Instead, once a business has a well-established management team and things are running smoothly, owners should start looking for new markets to achieve cross-vertical growth.

Treat new lines of business like investment projects

Another familiar problem companies can run into when trying to diversify is not knowing when to give up on a project that isn’t yielding results. Devoting resources to R&D and expansion is important, but knowing when to stop pursuing an idea is equally important. For my businesses, I treat every new idea like an investment project. It needs to have actionable hypotheses, a dedicated amount of investor capital (i.e., budget allocation), and a defined runway.

As an example, since September 2021, I have had a team working on trying to turn an existing business feature into its own line of business. Unfortunately, I recently had to close the project because it was not feasible to bring the product to market, despite the year and a half spent looking for ways to make it work. The risk was no longer worth the investment, so it was time to move on.

There is no precise formula for a business to follow when it comes to determining how long to infuse cash into a diversification project, but founders must set a timetable and budget and stick to it, even in the face of losses.

Look for synergistic business opportunities

There are two basic types of diversification: synergistic and experimental. With the first, your company looks to related verticals for expansion and security. The Facebook to Instagram pipeline is one such example, and Disney’s National Geographic and Marvel acquisitions are another. However, there are also experimental lines of business, such as Google’s attempt to branch into the social messaging space with Google Hangouts.

Both modes of diversification have merit, but new businesses should focus more on horizontal integrations than large jumps to a new space. Finding niches within your current company’s industry is a great way to make the most out of R&D investments while also pursuing horizontal growth for additional security.

The automobile industry is well-known for this. Many manufacturers will start with a core set of car models and eventually expand into related markets, like trucks or SUVs, or even make the leap into aircraft manufacturing, as we’ve seen with Honda.

Remember that focus trumps diversification

Founders are notorious for spreading themselves too thin. They are visionaries and creatives, so they always have new ideas they’re excited to test. However, the mark of a truly great entrepreneur is someone who can direct their focus on the venture in front of them without becoming distracted by other projects.

Business owners must realize there is a difference between intentional diversification and experimenting simply because they have a promising new idea. One of the best strategies for developing new lines of business is to surround yourself with intelligent, competent people who can help you determine whether an idea is worth investing resources into or not, and then delegating to them when it’s time to pursue the new project.

Diversifying is the key to mitigating the risks of keeping a company running, and it’s also an excellent way to expand your organization’s reach through related projects, making it more sustainable in the long term.

FAQs on diversification and growing a business

What are 3 reasons why businesses adopt a diversification strategy?

Diversification can help with long-term growth, risk mitigation, and the overall sustainability of your business model.

What is an example of a diversified business?

Popular examples are Apple and Disney. Both expanded their original offerings into related and unrelated verticals to become the industry giants they are today. Apple grew from PCs to music to mobile devices and beyond, and Disney grew from an animation studio into real estate, merchandise, and global entertainment.

What makes a company diversified?

A diversified company operates in several different segments that are often unrelated, usually through the acquisition of an already operational business or through entry into a new market.

About the Author

Post by: Alexander Bachmann

Alexander Bachmann is the founder and CEO of Mitgo, a global tech company focused on delivering innovative solutions and promoting entrepreneurship. Previously, he had founded Admitad as an affiliate network, which is now recognized as one of largest affiliate platforms for advertisers and publishers. Alexander has been in the martech space for over 20 years and has extensive expertise in martech, fintech, smart shopping, and IT-driven startup incubation sectors.

Company: Mitgo

Website: www.mitgo.com

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How to Build a Unicorn Startup—And What to Do Afterward


By Sagi Gidali

Sitting in a dinky little diner in San Francisco’s Union Square, about to take a bite of a greasy cheeseburger, I scrolled through my phone. A press release had just gone live announcing that our company, Perimeter 81, had secured $100 million in funding to bump our valuation to $1 billion.

What I dreamt about for several years was finally true: I built a unicorn.

I saw all the media coverage we had received, all the kind, congratulatory messages hitting my inbox, and the life-changing moment I was waiting for never came. This is a major milestone I had worked for since I became an entrepreneur. Don’t get me wrong, it was exciting, but I realized that the achievement wasn’t an end goal that made me a different person. The hard work was only beginning.

You might expect the founder of a unicorn to be throwing a lavish party or having brunch in the lobby restaurant of a five-star hotel. I was sitting at a booth in a hole-in-the-wall diner feeling pressure and responsibility to lead us to the next milestone. The perception of a unicorn is that the growth doesn’t stop, so I had to make sure we kept our collective foot on the gas pedal.

With each milestone you pass, there’s increased expectations from the board and investors to continue innovating and scaling your company. Employees are also looking for increased leadership, and to understand what the company’s growth means for their own careers and futures. You need to lead by example and reward their efforts so your company can maintain its growth plan.

Our next goal isn’t directly monetary—it’s to disrupt the cybersecurity industry. We are on a mission to simplify the way we consume cybersecurity and are well-positioned to do so since the world has changed drastically in the last couple of years. Getting to this point was a nine-year journey. That journey is far from over, but I’ve learned enough that I can share some helpful tips that may make your entrepreneurial journey that much easier.

How to build a unicorn startup

Take risks and be bold

In 2013, my cofounder and I
started our first company. We certainly weren’t perfect, but we learned from each other and from what didn’t work. We found that you need to assess a combination of things, from the landscape of the market you’re looking to enter, to your own hunch about what you’re looking to bring to the table, to customer needs, and many data points.

With that first company, SaferVPN, we compiled tons of data points by talking with customers, collecting and analyzing feedback, showing insights, talking with industry analysts, and seeing what competitors were doing. When you combine all those data points, you can make better tactical and strategic decisions.

In 2019, we took the biggest risk and stopped the company. We used our infrastructure and intellectual property as inspiration for Perimeter 81. We had a B2C solution and started building a B2B tool in parallel, but the resources began cannibalizing each other and we were starting to lose focus. It was a big struggle at the time, but we decided we couldn’t keep them both.

The B2C was profitable, but we didn’t see a sustainable future. Perimeter 81 was nothing more than our assumption of trends. We foresaw the shift to the cloud, and that remote work would be the way of the future (of course, we had no way of knowing that a global pandemic would accelerate adoption). We sold SaferVPN because we saw a huge opportunity. It was also a huge risk. Our bet paid off.

Build strong management

I have a great relationship with my cofounder, Amit Bareket—after all, I started two companies with him. But it’s more than just maintaining that one relationship. You should surround yourself with strong people who are experts in their field, and let them help you.

Learn to delegate and understand that you can’t do everything, which is tempting when you’re building your own company from scratch. Just lead the way, be the sherpa for the people in your company, and trust them to do what you
hired your employees to do.

That manpower may not always be the same. Economic conditions may determine who is right for your company at any given point. People that you really like, who were very good from the beginning, might not be able to match expectations and deliver what’s required at a certain point of growth for your company. It’s a painful change, but a sign of strong management if you can make the right decisions.

Stay humble

I’m proud that Perimeter 81 didn’t change when it became a unicorn. If I were driven by ego instead of my genuine desire to see our company change the cybersecurity landscape, perhaps things would be different. The way I see it, our success hasn’t changed our culture. I’m not secluded in a corner office, shut off from the rest of the team. I sit with our valued employees during my workday and initiate conversations with them.

If Perimeter 81 were the kind of company to blow millions on a celebration, it would affect the talent, employee retention, and create a different
company culture than the values we’ve prided ourselves on. Humble leadership is required for growth. You’ll need to develop other skill sets along the way, of course, but remaining steadfast in how you behave sets the course for your future growth and keeps your focus on the task at hand.

Until, that is, you enjoy a quick cheeseburger before attending a major conference. Then you find a new goal and keep grinding.

About the Author

Post by: Sagi Gidali

Sagi Gidali is a serial entrepreneur who creates, scales, and optimizes new SaaS solutions. As a UX/UI leader and expert designer with over 15 years of experience in the field, he has also worked for Siemens as a UX consultant. Perimeter 81 is Sagi’s second venture after transforming SaferVPN, sold in 2019 to J2 Global, from a bootstrap startup to a self-sustained business. At SaferVPN, Sagi led all the product, marketing, and design aspects of the service. Sagi served in the IDF’s elite visual intelligence unit (Unit 9900) and worked as a software developer for Imperva. He holds a B.Sc. in Computer Science and Economics from Tel Aviv University.

Company: Perimeter 81

Website:
www.perimeter81.com

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Twitter and LinkedIn

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