Brainstorming methods to generate more revenue is probably one of your top priorities as a small tech business owner. You can hustle to land more clients (see: "6 Proven Strategies to Win More Clients for Your Tech Business") or research how to grow a business. But many entrepreneurs overlook the importance of diversifying revenue.
Tech entrepreneurs who successfully diversify typically follow one or more of three paths: tapping into additional markets, adding a new service or product, or changing their company's business model altogether. Let's look at these paths in more detail.
1. Think Global
According to serial entrepreneur
cofounder and managing director of
The South Florida Accelerator
(@TSFAFL), many entrepreneurs don't think big enough. For example, just because you are based in the United States doesn’t mean that all of your potential customers are, too.
"For US entrepreneurs, it's like an afterthought when they start thinking about the global perspective for their products until they've had some influence by going to trade shows or at least starting to travel," says Buchar. "Then they start looking at how their product fits from a global perspective."
You might not be ready to promote your business in Europe or Asia. But that doesn't mean you can't seek out new customers the next state over.
2. Expand to New Verticals
Let's say you create websites for a living. Does that mean that's all you know how to do? Of course not. Take stock of other talents you and your employees have and think about how you can expand your service offerings.
"Look to leverage your core, underlying skill set to create service revenue opportunities," says
Terence Channon (@terencechannon),
managing director of
(@saltminesgroup), a startup studio for early-stage businesses. "Evaluate the pain point your product / service addresses and find tangential items to support the end goal."
This way you aren't abandoning your existing services and customers. You are creating more value for current and future customers by offering one-stop-shop services. (Related reading: "Make Every Client Happier: The Helpful Way to Cross-Sell and Upsell.")
Mahir Abdi is the
which sells refurbished servers. Abdi said he noticed companies were shifting away from investing in their own servers and toward outsourcing storage. To meet that need, he formed a second company, Virtual Stacks Systems (@VirtualStacks), which provides web hosting.
"We pivoted. Instead of selling our products, we used them to create our own data center and supply organizations with what they are seeking," says Abdi.
Just make sure you don't neglect existing clients. Buchar says becoming complacent is a common trap he has seen entrepreneurs fall into. Landing a client doesn't mean they'll stick around forever.
3. Do Your Homework before You Make Any Major Changes
Dave Durand (@DaveD), a
partner and the CEO of
(@forestgiant), a creative development collective, quickly learned the value of market research when he set out to sell a product instead of services. Rather than dive in headfirst, Durand spent 18 months working on the product Otis before eliminating any of his business's core service offerings. He also invested in research to make sure there was demand for it.
"You have to go where you have market attraction and where you can gain traction," says Durand. "Before you go and build something, you need to make sure that the market actually wants what you have."
- Are there competitors in the landscape?
- Are people doing similar things?
- How am I differentiating myself?
- How can I prove that people will pay for it?
"Don't get too caught up and spend the next two years building something and hoping that it diversifies your business," advises Durand. "Try and prove that as quickly as possible."
4. Stop, Collaborate, and Listen
Vanilla Ice may have been onto something in the song "Ice Ice Baby." Sometimes you need to collaborate. In fact, collaborating with competitors is part of a growing trend known as co-opetition, according to Buchar.
"Co-opetition is like cooperating with your competition," explains Buchar. "Look at your competitors and see if there's actually a chance that your product has differentiators that could open a door to a partnership with a competitor to move your product forward."
Abdi agrees that working with competitors can give both of your businesses a boost.
"The new approach in growing a business – the core of what is the most important thing – is synergy," says Abdi. "Like-minded companies can try to utilize each of their skill sets and expertise to grow businesses that complement each other."
5. Don't Be Afraid to Fail
You will make mistakes when learning how to diversify revenue. Don't be reckless, but don't be too scared of goofing up. It happens to the best of us.
"We tried a couple products, and to be quite honest, they didn't work out," says Durand. "What we quickly realized was if the products we were going after were not directly aligned with our core skill set, it didn't really make a lot of sense. So our new product really accentuates the skill sets that we've developed over the last decade."
For more advice on how to grow your small business, read "21 Resources to Fuel Growth in 2017."
About the Contributors
A software developer and a serial entrepreneur / investor, Mahir Abdi has founded and managed a handful of successful product and service businesses, including MKB Technology, LLC and Virtual Stacks Systems. Mahir’s specialties include developing affordable SaaS solutions, cloud products, and advanced digital marketing services.
Thomas Buchar is a former DOD intelligence analyst, angel investor, conservationist, and serial entrepreneur who has founded, funded, and exited several successful global ventures. Most recently, Mr. Buchar is the cofounder of The South Florida Accelerator and a managing partner of its venture fund. In addition, Mr. Buchar is founder and chairman of the Nembeza Wildlife Foundation.
Terence Channon is the managing director of Saltmines Group, a startup studio for early-stage businesses and professional services provider that helps startups prepare for funding.
Dave Durand is the CEO and cofounder of Forest Giant, a strategy, design, and development collective that engineers software solutions for some of the largest companies in the world. When he's not building Forest Giant, you can find him helping the local community with the nonprofit he cofounded, City Collaborative.