The Question of Diversification
Successful Mortgage Broking businesses, like any other growing business eventually reach a market stagnation point they will need to transition, if they want to continue to grow.
It is the time in a business’s evolution when service offerings may need to be expanded to achieve that growth. On the surface, the two choices are to remain focused or to diversify. Linear thinking suggests the decision to focus or diversify is a one-or-the-other call, which can leave a business pondering which is the better strategy for them.
However, a third option suggests focus and diversification can co-exist.
Much can be said for a focused strategy. It can reinvigorate motivation and improve profitability and cost-effectiveness through streamlined processes, procedural innovation, restructure, automation and new ways of delivering existing services.
However, its vision may be limited. While it can do much for operational efficiency and expense control, it may not be the best strategy to boost revenue. Increasingly, clients are looking for a breadth of services, convenience and something extra, when choosing a finance professional. This psychology can see them move to another broker whose business provides more holistic and comprehensive services. An example, often cited in business schools is that of the camera giant Kodak. Despite a huge brand following, the focussed approach that Kodak chose, resulted in them not keeping up with the times and eventually losing out.
So, a diversifying strategy looks appealing. However, diversifying takes time and puts a drain on a business’s resources. And, if you bite off more than you can chew, you can bring down your entire operation. Diversification can be an unpredictable strategy.
As such, a combined strategy, especially during a transition phase, is compelling. With the right strategies in place, one can balance the other and increase the combined benefits they bring to a business. It pays to think beyond the one-or-the-other scenario and instead look at a combination of the two.
Whichever strategy you choose, the following points are worth careful consideration.
Remember Your Core Business
Even large and successful companies can lose sight of their core business. In the 1990’s, Encyclopaedia Britannica failed to recognise their core business was imparting knowledge, not publishing books. According to the previous Australian Managing Director, Tim Pethick, ‘We were clinging tenaciously to the fact that we publish books. We had not really considered ourselves as electronic publishers or providers of information’ [Banaghan, 1997]. Britannica’s myopic view had led it to focus on solving short-term problems without considering the longer-term implications of those decisions.
We can all occasionally get caught up in daily operational intricacies, to the detriment of our business. Finance Professionals are no exception, with endless dealings with lenders and compliance, it is possible to forget that the core of a Broking business is understanding clients’ finance needs and helping them, which may include solutions that go beyond lending.
By reapplying your core business definition, you can gain clarity on appropriate ways to diversify your service offerings. Offerings that align with your value proposition and complement your current/core business approach.
Repeat Clients
Repeat clients can be the lifeblood of a professional finance business, and diversification can strengthen your existing business by enhancing the value proposition for your clients. A fundamental purpose of diversification is to gain repeat business from the same client for different but related needs.
Timing
As your finance business grows, diversifying your service offering may seem an obvious next step. Or, an opportunity may present itself, at some point in time, which requires a decision to be made about the introduction of a new range of services. Before either of these occur, your priority should be to make your core business is stable in terms of both capital and resources. Your core business is paramount in funding future diversification. If it is currently losing steam and becoming unviable, you may need to shore it up before looking at other options.
It’s also important to recognise that a diversification strategy requires significant amounts of time and energy. There must be enough capacity in these key resource areas for a business to effectively roll out a diversified service.
Knowledge
At the centre of a finance professional’s diversification strategy is the deep-seated knowledge and understanding of the new services they will provide. Education and training are the fundamental keys that help an individual or business determine:-
a) If diversification is the best strategic option for them;
b) Which area(s) of diversification are the most appropriate for them; and
c) What they need to know to offer the services
Business Finance is a natural consideration for many mortgage brokers as an area of diversification. There is alignment to their current core business; existing clients will have business finance needs; the timing is relevant given the shifting industry environment, and the experience and learning gained from the traditional mortgage broking role provides a solid base for the additional learning that will be required.
In conjunction with industry experts, elevateB has developed a self-paced, online, interactive Business Finance Certification. This program will provide you with the knowledge and skills required to become a successful business finance broker. In addition, it provides business strategies and soft skills to assist you to better market and deliver your existing and new-found client offerings.
For more information on the Business Finance Certification, click here.