Think Twice Before Diversifying Business

I drove by a competitor’s yard the other day and saw a truck that he used to blow insulation sitting idly in the back. It was obvious from the dust and leaves around it that it had not been in service for some time. Coincidently, that same day I happened to have lunch with a friend of mine who is in the insulation business. Out of curiosity, I asked him how his business was doing. He said they were quite busy blowing in insulation for customers wanting to take advantage of the tax credits that are currently available. I thought about how interesting that a dedicated insulating contractor was quite busy while an HVAC contractor trying to do that same work apparently didn’t have any work.

The occurrences of that day brought to mind the last time that we had a downturn in the economy. One of the things we heard frequently from the “experts” was that we, as contractors, should diversify and add on some types of work that are sort of related to our basic HVAC business. Recently I read where some of the “experts” are again saying that we could increase our bottom line by increasing the number and types of services we provide.

I, like the “experts,” feel that this downturn is going to last considerably longer than any of us would have at first projected. Therefore, I think that we, as contractors, do need to take additional steps to protect ourselves and our businesses. Hopefully you have already acted on many of the suggestions you have read in this and other publications. Overhead should be trimmed to a bare minimum; all steps should have been taken to ensure maximum productivity. With all of these things done, then a next potential step would be to add some additional services to those we already provide.

ITEMS TO THINK ABOUT

There are several things to consider when making a determination as to services to add to your offerings. Does the new product/service fit within the culture of your company? What are the start-up cost risks in performing that new service? (I think of the competitor with the idle truck and blower). Are there any significant potential future risks or liabilities that you may be incurring?

Over the years, as I have reviewed potential additional services for our company, I am reminded of a warning made by a well known consultant at a seminar many years ago. This occurred during a previous downturn in the economy.

“Sometimes we struggle to succeed in our core business, the business we have been in all of our lives and which we know backwards and forwards. So in desperation, we decide to go into another business, one we really know little about and in which we have no experience. And we are entering that business as a start up, in a down economy.”

Think about it; are the odds really very good for this new venture to be successful? I suggest that if you consider diversifying into another business (like insulation) think about partnering with a reputable (insulating) contractor in your area. At this time, more than likely he has excess capacity and would welcome the opportunity to have more business. Although this may provide less potential for large profits, it will also greatly reduce the amount of risk. In addition, it will give you an opportunity to study and learn about the business. And if you choose the right contractor with whom to partner, it is very likely that he will bring you some additional HVAC leads as well.

In our area we have seen very few instances of contractors successfully entering new markets and remaining profitable. I would urge you to make sure you have maximized the potential for expansion and growth in your core HVAC business before you strike out into the unknown.

Publication date: 11/15/2010