How to diversify income

Three pieces of insanely great advice

Apple CubeOne of the biggest issues faced by many organisations in the sector, is an over-reliance on a few sources of revenue. Hence one of the most frequent questions I’m asked is: “How can we diversify our income?”

It’s a legitimate question – no organisation, whether business or charity, should be comfortable with most of its revenue coming from a single source. But trying to diversify into lots of new things is not the answer.

In 1997, Apple was in crisis. When Steve Jobs returned to help turn it around, one of the first things he did was to cut 70% of the innovation projects from the product roadmap. Into the bin went Apple’s previous strategy of entering more and more categories, to be replaced with Steve’s vision of a very small number of truly great products, backed by great marketing and great execution.

Instead of diversifying into lots of things, the renewed Apple focused on just a few, really exciting opportunities, and then scaled them beyond what anyone thought was possible. Even now, the world’s most innovative (according to Boston Consulting Group) and financially successful organisation, basically sells just five products: Macs, iPods, iPads, iPhones and watches. And four of them are essentially the same thing in a different sized case.

Apple’s extraordinary success can be put down to three things:

  • They focused entirely on just a few great ideas that they thought could change the world
  • They continually improved them, iterating over and over in a relentless pursuit of excellence
  • They communicated incredibly well about what they did, and what they stood for

So when you’re thinking about diversification, remember this: Apple communicates itself so well precisely because it’s focused so tightly on its core raison d’être. And the only reason it can make its products so insanely great, is precisely because there are so few of them to focus on. Focus is everything. So here are my three pieces of insanely great advice for focused diversification:

  1. Think big. Ideas that start small will only ever be small. Shortlist only those ideas that could potentially be huge. Ask: could this replace 30% of your current revenue in five years time?
  2. Play to your strengths. If you’re going to compete, choose a game you can win. Shortlist only those ideas for which you’ve a clear advantage. Ask: what do you have that no one else has; what could you do that no one else does; and what could you be the best in the world at?
  3. Try, prove, scale. Have you ever heard of the Apple Pippin (1996), the Hockey Puck (1998), the G4 Cube (2000)? Nobody, not even Apple, gets it right first time. Change, test, repeat until you can prove an idea will scale. Ask: what’s the simplest, cheapest, fastest way you can prove those ideas can genuinely deliver their full potential.

The first step is often the hardest. Ask your team or your customers for ideas and you’re likely to get a slew of small, incremental steps – Henry Ford’s apocryphal “faster horse”, but it’s critical you stick with it and find those potential gems. Give me a call if you’re stuck.

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