Diversification Is Great … As Long As You Do It the Right Way

Adding new services takes the right equipment, workers who know how to use it, and market demand. Hit on all three and you can find success.
Diversification Is Great … As Long As You Do It the Right Way
Erik Gunn

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If you’ve been in business a while, chances are you’ve seen some new opportunities cross your way.

Maybe you’ve got good cash flow, comfortable revenues, and an established routine. Or maybe you know you’re doing a good job but frankly have some challenging ups and downs — seasonal peaks and troughs, or simply the uncomfortable realization that your market isn’t growing.

Whichever your scenario — and there may be others, too — you may be interested in branching out. Expanding from what you do now into an allied line of business is one of the most obvious ways to grow your revenues.

It’s a natural strategy for many reasons, and if you do it right, the payoff can be spectacular. Do it wrong, and the failure can be just as spectacular in its own way.

The contractors highlighted below have all been through the process of expanding services, and they provide some great tips and perspective to help you do the same.

Logical choices

First of all, make logical choices. Kline’s Services started in 1955 as a south-central Pennsylvania septic pumping business in and around Lancaster. Over the years, it evolved into a full-service company, with septic system repairs and sewer line work.

“We eventually added a treatment plant, which allowed us to expand into the commercial and industrial business,” says Dave Kline, former president and grandson of the founder.

Each of those new business segments was a natural growth from the company’s roots. Over time, the company’s success grew. A little over two years ago, it was acquired by New England-based Wind River Environmental, where today Dave Kline is now vice president of business development.


Do your homework. That should be obvious, but just what is your homework? Take the time to suss out the real answer to that question.

In deciding to add on a new line of business, “We would want to understand what the growth potential would be,” says Kline. “How much competition is in the field that we are looking at, and how well do they perform?”

It doesn’t stop there. You need to know what the new line of business will really cost to get going — what equipment it needs and how much manpower?

“What is the payback time?” Kline says. “Will it distract us from our core business, and if it will, what is our plan to handle that?”

But homework can also be much more intuitive. Early in 2017, Doyle Parsons added trenchless sewer repair to the menu of services provided by Parsons Plumbing, Heating, and Cooling in Ball, Louisiana.

Parsons will tell you he simply acted on “intuition, faith and a lot of guts” — but the real story isn’t quite so impulsive as that might sound. For one thing, he’s been in business for 10 years and has kept a close eye on his market.

Then, Parsons ran across posts on social media from plumbing businesses around the country that were using trenchless technologies. Scoping out its potential for his own business, he engaged professionals he works with daily, such as building inspectors, picking their brains on local practices and asking who was doing trenchless work in his own backyard.

The answer? No one. That was a lot of the homework he needed. But Parsons still took time to scope out alternatives, culminating in a trip to the 2017 WWETT Show in Indianapolis, where he did a final vet of the vendors he wound up partnering with.

Face the commitment

Tom Ferrero is a project manager at FRANC Environmental Inc., a full-service wastewater management company in suburban Philadelphia.

To be effective in branching out from one service line into another, “You really have to be committed and understand that it’s a separate business,” Ferrero says. “It’s an additional profit center that takes time and effort.”

And if you are one of those active owner-operators who are directly part of the front-line service crew, get ready for a big change of scenery.

“Get your butt out of the seat of the truck,” is Ferrero’s standard advice to anyone expanding. “If you’re a two- or three-truck operation and you’re driving a truck, it’s really hard to manage a whole other business.”

Cushion and scale

You can’t expect to be a success in the new service from day one — but you may need new equipment and new employees right away. You’ll need to be prepared to carry those costs until the revenues rise to cover them.
That’s not an argument against expansion. “When I make that decision to buy another truck or hire another person, I may not have work committed for that,” Ferrero says. “But we always grow into it.”

At the same time, you need to be large enough that the new business doesn’t cannibalize the manpower from what you’re already doing — especially if that manpower is you.

“I can’t see a one-truck operator who goes out and buys a backhoe and a dump truck so he can install septic systems,” Ferrero says. “When he’s driving the backhoe, the pump truck is sitting there idle.” You definitely don’t want to be that guy.

Parsons made his move into trenchless repairs during a slack period in his existing work. It was the perfect time to send employees for training in the new technology without spreading people too thin on the continuing business that was, after all, still his company’s mainstay.

“It doesn’t put as much pressure on your team” that way, he says. “If you’re in your peak season and you remove two guys (to take on the new work), you’ve just doubled the work for the rest of your guys.”

Employee buy-in

And speaking of your team, consider your current workforce.

That actually has two parts. One is assessing your employees’ ability to take on these new services.

“I would review with myself the qualities of my employees to make sure that I’m covered on financial and operational expertise,” Kline says. “I always look at whether we have the horsepower to gut it through when we are looking at adding additional service lines. You can have smart people in your company — but do they have the horsepower to get the job done when the going gets tough?”

But knowing your crew can do it isn’t enough. You need to make sure the plan has their support: They’re the folks who will make or break it.

“Have open discussions with your employees on their thoughts of adding the new service,” Kline says. “Get their buy-in. I believe this is the most important step.”

Proper support

Finally, make sure you commit to the necessary marketing for your new line of business.

Parsons discovered his pathway to growth on social media, and so he naturally employed social media to help make the community and potential customers aware of his new services. He’s also planning to expand geographically. “We’re trying to branch out and cover the whole state,” he says.

The bottom line? Definitely consider whether adding new services will help your business. Make sure you understand what you’re getting into, but also don’t be intimidated.

“You’re going to have competition,” Parsons says. “The question is, can you do it better? Can you do it more effectively, and can you do it professionally?”

Branching out isn’t a guarantee of success, but if you approach it sensibly, it’s one way to help your business grow.


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