Home > Business Success and Challenges > Why diversifying business revenue streams is crucial to your success (and how to do it)

Why diversifying business revenue streams is crucial to your success (and how to do it)

Nov 13, 2018 | Business Success and Challenges

Startup success can be a dangerous thing.

It’s easy to become complacent when the revenue is flowing in. You begin to rely on that fixed income stream and you’re more reluctant to tackle fresh opportunities, not wanting to risk falling into the 75% of businesses that fail at launching new initiatives and markets.

But this approach can leave you vulnerable. If that income stream dries up you will still have to pay outgoings while trying to adjust course and find a new revenue source.

Here’s why diversifying your revenue streams will protect your company’s future – and how it’s done.

Sales can dry up, so keep investing in them

In Diversification Reconsidered, authors Peter Frumkin and Elizabeth K. Keating acknowledge that “Business and non-profit researchers have long argued that by establishing and maintaining multiple streams of funding… organizations are able to avoid excessive dependence on any single revenue source, stabilize their financial positions, and thereby reduce the risk of financial crises”. 

I couldn’t agree more with this quote, especially when it comes to sales. It should go without saying that businesses can’t rely on a single sales source to keep them afloat (never mind grow the company). It doesn’t matter how great your client or customer is, or how well your relationship might be working right now. Anything could happen to change that. A fluctuation in financial circumstances that requires a renegotiation of your contract. Or them simply finding a better deal elsewhere. The only way to safeguard against future financial crises is to continually be on the lookout for new sales in order to build a solid portfolio of clients and customers.   

It should go without saying that businesses can’t rely on a single sales source to keep them afloat (never mind grow the company).

My tip: dedicate an hour or so each day to push for new sales

No matter how well things might seem to be going, you can’t afford to be complacent. Set aside some time every day to capturing and chasing leads, even if it’s just one hour. You’ll be surprised by how much you can achieve in that time. However, if your resources allow for it, we highly recommend having a dedicated role in the team designed solely for securing new business, so that you’re looking for new sales at all times.

Competition will be tough, so make the most of your resources with new products or services

One of the pitfalls for startups is that they often won’t make the best use of their resources. It can take time and experience to identify what your strengths (or strategic assets) are, by which time you might be reluctant to change your strategy to make the most of any wasted opportunities.

The benefit of diversification is that it enables businesses to maximise their use of resources and fully realise their potential. You might only be able to diversify horizontally, by adding a new product or service to appeal to your current customer base. Or you could jump into an entirely new market segment, with a new customer base, to take advantage of high growth potential. But, either way, you will be making the most of your resources and ensuring you aim for the best return on your investment possible.

My tip: identify your strategic assets to discover new opportunities

Finding out what your business does well (and better than your competitors) is a good way to see if your resources are being used to support these strengths. It can also help you identify where you might be wasting time, money and skills. This will allow you to see where you can potentially add value for current customers with new products or services, or how you could use your resources better to add value to an entirely new market.


It’s easy for one revenue stream to drain your energy and distract from growth (so don’t let it)

We’ve seen this happen too many times, where one main revenue stream starts demanding increasing focus until it takes over everything. It might be your first cherished client or customer, or it could be the income source that has been most lucrative. Regardless, it can quickly become an obstacle to growth and success by taking up too much of your energy and resources, leaving you little with which to take advantage of new opportunities. Learn to avoid this happening ahead of time, as trying to untangle yourself afterwards is far more difficult than preventing it in the first place.

My tip: make sure you carve up your resources so that one revenue stream doesn’t take up the entirety of your focus

As with my sales tip, I recommend starting out as you mean to go on by setting aside the right amount of time for what needs to be done. This means allocating the appropriate time and resources for each revenue stream and managing accordingly. If one particular stream becomes unmanageable then you know you have a problem that needs resolving. Don’t let it get to the stage where it compromises other revenue streams or other areas of the business.

Successful diversification can help you expand without spending more or hiring extra staff

The ideal scenario for any business is to be able to expand income without increasing your outgoings. Diversification of your revenue streams is a good way to achieve this, because (as I mentioned above) it can be more about using wasted resources than investing more money into the business. Depending on the type of diversification possible, it can either help you tap into exciting new markets to take advantage of high growth potential or it can simply fill a niche that satisfies your existing customer base. But both ends of this approach will help you grow the business with very little added investment.

The ideal scenario for any business is to be able to expand income without increasing your outgoings.

My tip: take advantage of digital data to uncover potential new areas of revenue expansion

We’ve never been more connected as a society. Consequently, there is a lot of digital information available to use to your advantage. You will already be collecting this data through website visits, online searches, product purchases, or service requests. Now you just need to make sure you set aside time to analyse it. Are there any gaps in the market that the data suggests might be lucrative? Is there something your customers keep searching for that you could provide? Using this data can help you find untapped avenues for expansion.


A little preparation can help you succeed with revenue diversification

It is widely acknowledged that, while business diversification is appealing for a number of reasons, it is a ‘high-stakes game’. In other words, both the rewards and the risks are potentially extraordinary. Yet one of the reasons diversification strategies can fail is because they are often ventures undertaken when the company is under pressure and there isn’t time for thoughtful consideration. For example, they might need to jump on a new opportunity before a competitor beats them to it, or their main revenue stream is drying up and they quickly need to find a new income source.

By ensuring you think about diversification of your revenue streams ahead of time, when you’re not under such pressure and you can give it the proper deliberation it needs, you are more likely to find success – and safeguard the future of your business.

Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to info@virtuzone.com, or click here.

Contact Us

Start your business today