My Beverage Company Launched a Sunscreen. Here's How We Knew It Was the Right Time to Diversify Our Business. If you're thinking of introducing a new product or entering a new market, ask yourself these four questions.
By Kara Goldin Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Last year, my company launched a new product, hint sunscreen. It's unusual for a beverage business to suddenly move into personal care. But our goal has always been to solve problems for consumers, and creating a fruit-scented sunscreen that improves the experience of sunscreen application while eliminating some questionable ingredients fits with our mission to make America healthy.
Related: 3 Key Ways to Diversify Your Ecommerce Store
Launching a completely new product is also about diversification, and expanding the scope of what you do has many benefits. Not being dependent on one product or market helps your company be more stable. You make new contacts and learn lessons that benefit the rest of your business. And of course, you're furthering your overall mission.
Diversification is also a risk. The effort involved in launching an additional product or service can mean you lose focus on your core business. Entering into any new market is a gamble. But, this time, the stakes you're playing with include the successful company you've spent years building.
When you have a great idea for broadening your business offering, how can you be sure that it's the right time to make it happen? The first thing to always ask yourself is, Does this stay true to my ultimate goals and company mission? If the answer is no, then I strongly suggest reconsidering and taking a hard look at what you hope to accomplish by diversifying. Based on our positive sunscreen experience, I also suggest answering the following four questions:
1. Is it the right time for your customers?
Media and publishing jobs site MediaBistro was a dot-com boom success story. But after that bubble burst, many of the company's customers went bust and the rest were no longer hiring. No job listings meant no revenue, leaving founder Laurel Touby scrambling for a way to save her business.
Related: Risky Business: Should You Diversify?
The downturn in hiring was also bad news for job hunters, and Touby realized that she could help. MediaBistro diversified its service to include retraining classes and workshops, which was exactly what these customers needed. This move saved the business, which Touby later sold for $23 million in 2007.
Listen carefully to your customers to understand the range of problems they face. If your new solution is increasingly relevant, the timing might be right for everyone.
2. Is your business well-positioned to make it work?
Just over 10 years ago, Netflix and Blockbuster were both in the DVD rental business. Today, Netflix is a video streaming service and content producer, while Blockbuster is a cautionary business lesson about not keeping up with technology and changing customer demands.
Yet, Blockbuster had been exploring on-demand streaming options as far back as 2001. But it was still primarily a real-world retail business and couldn't find the right partner to deliver an online audience. By contrast, Netflix's audience was entirely digital. When it launched streaming in 2007, the service was part of the same site where customers managed their DVD lists.
When we launched sunscreen, we were able to go direct to our customers through our already strong DTC business, and those customers were loyal fans who were excited to try our next offering. Whether it's the right assets or a ready-made audience, you need to launch your new offering from an advantageous position.
Related: Staying on Track While Diversifying a Business
3. Do you really have the right skills to succeed?
In 1997, Quaker Oats bought soft drinks brand Snapple for $1.7 billion. Many observers thought that this attempt to diversify its business was a high-risk strategy. But Quaker believed it had a key asset that would ensure its success: a highly effective retail distribution network.
The problem was that the company's distribution contacts were primarily with supermarkets, whereas half of Snapple's sales happened in convenience stores and gas stations. The acquisition proved to be a disaster, and three years later, Quaker sold Snapple for just $300 million.
Markets and customers can often seem superficially similar. You need to dig deeper and ensure your assets will really make a difference in your new field.
Related: How to Diversify Your Company and Tackle New Industries
4. Will moving fast help you win?
When I was developing hint water, I met an executive from a major soda company who dismissed my product because "Americans only want sweet." This told me that my competitors hadn't yet recognized the business opportunity I saw. By moving fast, I got a head start.
We were in a similar situation with our sunscreen. Many of the big players in the cosmetics industry are complacent about what customers want. We've moved quickly to launch a sunscreen with a scent that makes it more enjoyable to apply and doesn't contain some potentially harmful chemicals.
If you have a solution to a problem no one has solved yet, and you're ready and well-placed to jump on that opportunity before anyone else, it's a good time to diversify.
Each of the products I've created has begun life as an answer to an issue I was personally facing. As long as you continue solving genuine problems that are relevant to your purpose and mission, customers will trust your brand and you'll reap all the benefits of diversification.
Related Video: How This Entrepreneur Diversified His Business When His Industry Was Turned Upside Down
