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How Technology is Simplifying Revenue Diversification

Ed Marsh Consilium Global Business Advisors | March 9, 2015

Companies need to manage revenue growth just as they do other operational functions – with continuously improving processes based on metrics.  Yet many hesitate because the digital tools which enable this improvement are relatively new and not widely understood.  There’s more at stake than just sales – refining the revenue growth process offers an enterprise enormous coincidental valuation benefits.

But the revenue opportunity and strategic benefits don’t end there for companies that grow revenue with vision (vs. simply forecasts.)

Opportunity vs. concentration risk

Everyone loves those 80% customers; the ones which are stable, profitable, easy to manage and not disproportionately demanding of management’s time. But concentration risk creeps insidiously into a stable business model – as loyal as they are, circumstances change. And if you have one or two customers, which represent a disproportionately large portion of your revenue, buyers will pause, dig deeply, and probably adjust your revenue for that concentration risk.  So while impending transactions eventually focus management on this risk, it’s one which should be preemptively addressed routinely.  Often it is not; or pushed so far enough down the list of priorities by pressing issues that it’s never addressed.

Diversification, the ‘fix’ for concentration risk, is an idea that is sensible in theory but difficult in execution.  Successful diversification simultaneously reduces “concentration risk” and offers numerous other benefits to revenue, profitability and business resilience.  As with many business tasks, the key is a combination of strategic vision guiding relentless execution.  The traditional problem, though, has been that diversification execution required parallel business development efforts which were expensive, unwieldy and unsustainable.

Digital tools have changed that.

Traditional barriers and reasonable hesitance

It used to be tough for companies to diversify.  Whether reaching new customers, expanding globally or expanding into complementary vertical markets, there were large barriers to success.

Sales staff and location was a barrier to simply extending customer reach.  You needed adequate staff to prospect, sell, and retain customers, one to one, in their locations.

Global diversification involved extensive research into potential markets with a substantial resource investment to establish a presence in a new market.  Companies committed 3-5 years of resources, only to often finally conclude that the market wasn’t as fertile as they had hoped.  Any of the assumptions baked into the analysis could be wrong, or incorrectly weighted.  But once committed, companies are loathe to abandon the sunk costs and withdraw.  The result is often a mediocre export sales effort which doesn’t materially contribute to success, yet can’t simply be dropped.

Vertical markets offered a different set of diversification challenges.  Companies with established brand reputation in one vertical started from nearly zero in their effort to build parallel brand strength and market recognition in a new industry.  It was a long, slow, resource intensive slog – one which companies often failed particularly when the investment was timid and resources spread too thin.

Diversification has always been recognized as strategically important for business vitality, smoothing cycles, reducing risk, increasing valuation, etc. – but it’s been a vexing execution challenge.

Shorter path and immediate feedback

Technology and buyer behaviors have changed the diversification calculus.  Digital tools provide a reach which instantly overcomes many traditional hurdles, and the ability to accumulate and mine analytics allows companies, even SMBs, to quickly adapt and continuously adjust to develop effective diversification approaches economically and efficiently.

Digital tools support diversification planning and execution in a number of ways, including:

  • effective and insightful market research – allow a market to chart its own topography and then react
  • ability to establish and project targeted market leading ‘thought leadership’ without substantial brand investment or authority
  • capability to A/B test theories to quickly determine market value
  • scalability using ‘marketing automation’ to deliver personalized experiences which buyers prefer while simultaneously focusing sales resources on the right deals at the right time with the right activities
  • real-time metrics on profitability, predictability, sell cycle, etc. for different prospect types
  • ability to target ideal prospect types with blended passive/proactive approaches

These technology based capabilities translate into diversification opportunities for the same three types of diversification.

Sales staff now work primarily on self-selecting, carefully nurtured and qualified leads which are at a stage in the buying process where they are ready to work with a rep toward a transaction.  Location is now less important in early stages of prospecting and project development which substantially simplifies staffing of field sales (and reduces associated resource requirements.)

International market identification and development is now built upon real data rather than risky suppositions.  Great digital marketing, even if it’s only in American English, generates a very large proportion of international leads.  With marketing automation to automatically nurture and qualify leads, less time is squandered on a large percentage of low value leads.  Gradually a very clear picture emerges, illustrating markets with particular potential.  This supports a very resource efficient, home office approach, which incrementally dives deeper into specific markets.

For instance, if based on your carefully strategized and well executed domestic marketing, your metrics reveal a consistent flow of legitimate leads from Turkey, you can begin to experiment with a series of low cost tweaks to validate the opportunity.  Testing some Turkish keywords (not translated but based on market conditions); building a few Turkish (recognizing language and market specific considerations) landing pages; and creating some limited localized content offers are all easy steps to execute, and ways to refine your understanding of the opportunity.  An easy step is to create a target market persona for an ideal channel partner to leverage the same marketing to find prospects and partners.  Later, once the potential is confirmed, then a substantial corporate commitment of resources can be made with confidence.  (Don’t forget that mobile responsiveness is critical for your marketing at home and abroad, and anticipating growing globalization, consider easy to manage multi-language capability in any web project you fund.)

Vertical market/industry diversification can be achieved in the same manner.  Built on a well researched understanding of the target market opportunity, a company can leverage the broad reach of the internet to establish unique authority through notable thought leadership.  Case studies, whitepapers, webinars and other items that speak directly to the target industry’s challenges build credibility in lieu of brand and market recognition.  (For those saying ‘We’ve tried this and it wasn’t a huge success.’ you’re not alone.  What’s often misunderstood is that the topics of those content pieces must come from prospects rather than you; they must be optimized to be found organically by prospects; they must be promoted through effective channels; and they must be followed up with appropriate nurturing.  It is not a ‘We’ll write it and they will come.’ activity!)

Today buyers expect personalization and you must oblige to ensure your expertise resonates with them.  Just as globalization benefits from a seamless multi-language capability, even different industry verticals should be served variable web content (in English) to create a more effective user experience.  Haven’t heard that’s feasible?  It is, and should be part of every company’s planning!

Strategically significant revenue diversification

In all of these cases the risk of diversification is reduced through very efficient deployment of resources and continuous adjustment.  That shifts the risk/reward curve in favor of more diversification efforts, which in turn enables expansive corporate strategy and ultimately grows revenue and enterprise valuation.

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