You’d Be Mad Not To Diversify

The Sunday Times

To stay on top in these tough times companies need to be open to making changes, writes Sandra O’Connell, The Sunday Times.

Einstein defined insanity as doing the same thing over and over again but expecting different results. In this sluggish economic climate that phrase is more pertinent than ever. So maybe it’s time to do something different.

Michael O’Neill, a co-owner of O’Neill Industrial in Limerick, reckons diversifying is the key to surviving this downturn.

Until recently, his company specialised in supplying compress-air equipment and services to high-tech multinationals, including Dell. “During the boom, we were meeting ourselves coming back, we were so busy with orders,” said O’Neill, whose firm employs 27 people.

“Our whole orientation was towards big multinationals like Dell, Pfizer or Johnson & Johnson,” he explained. “Now, as result of the global downturn, we are focusing on traditional, indigenous businesses that we overlooked before.”

The company is working on such innovations as automatic gates and equipment for the agriculture and leisure industries, both of which constitute new territory for the business.

“Business is like a tree. As one branch matures, there is always a greater risk that it will drop off. So you always need to be cultivating new green shoots,” said O’Neill. “To survive in the current environment, you cannot be afraid of change. You must be open to it and to diversifying if necessary.”

In recent years, developing new areas was hampered by a full order book. Now, however, the downturn means there is time to attend to the task properly, following shoots to see where they go. In another departure for the firm, for example, it is looking at green technology.

“Part of the ‘Obama effect’ will be a much stronger emphasis on green energy and we are looking to capitalise on that opportunity by concentrating on energy-efficient solutions,” said O’Neill.

“It’s all about recognising opportunities when they present themselves and adapting your business to make the most of them, rather than being fearful of doing anything different or new.”

Darryl Kavanagh, the founder and chief executive of Ellickson International in Waterford, agrees. He started his business in his garage in 1998. Initially, he employed just three people at the firm, which specialises in making automatic gates and barrier systems. Today he has a staff of 42. The company grew rapidly during the construction boom, giving Kavanagh the opportunity earlier last year to set up a new division specialising in software.

It recently launched a monitored drinks system for pubs whereby customers can serve themselves at their table. The product is now used worldwide by the drinks company Diageo.

It’s a long way from automatic gates, acknowledges Kavanagh. “The fact is, once you have a strong enough administration in a business, which is the costliest element of any business, you can adapt it to produce any product,” he said. “Equally, you can adapt your premises.” For Ellickson International, which already had a fleet of vans on the road crewed up to service automatic barrier systems, it made sense to train them up to service table-top dispensing systems too, he says.

“It is synergies like that which allow you to diversify. Of course there is a learning curve but once you have gone through it, you’re off,” said Kavanagh.

The company has another potential winner in production, Shopping Mate, which allows consumers to compile a shopping list by scanning in product bar codes at home as they run out of goods. When complete, the device will be able to compare prices in various stores before the shopper sets out.

Such innovation is important for small firms, says Paul Davis, of Davis Business Consultants. He advises entrepreneurs to be open to change like never before.

“Question everything,” he said. “Be creative about how you do things. Look for creative input. It can come from staff, from books or TV or from looking at how the competition does things. Just be open to it.”

Taking a new direction doesn’t have to mean changing your existing products or services. “It could mean changing how you deliver them, or doing things in a different way so that they add value to your customer,” said Davis. “And right now, value for money is all anybody is talking about.”

In this respect, small nimble firms have an advantage over their larger counterparts, says Ian Duncan, a director of Vision Consulting, a management consultancy.

“There will be great opportunities out there during the downturn as larger companies consolidate and spin off non-core competencies,” he said.

“Attentive firms that are willing to move rapidly and make the necessary changes will be in a good position to exploit these.” He cites the example of an architecture firm he is working with that is using the recession to train up the eastern European staff it had taken on in the boom with a view to opening offices in their home countries in the near future.

“Diversifying for that firm is about changing markets, and there are similar opportunities for other small firms that are open to seeing them,” he said.

Seamus Butler, of Butler Manufacturing Services, heads up one such company. Butler took over his father’s general and civil engineering firm and turned it into a specialist supplier of sewage treatment works. There were a number of drivers behind his decision to diversify.

“First, we recognised long ago that the Irish construction industry was not going to be enough to sustain us,” he said. “It is significantly cyclical and when things are good they tend to be very good but when things are bad they are awful.”

In business for 22 years, Butler says he has been through two previous downturns “and a number of dips”.

Last year Butler Manufacturing was hit by the downturn at home, with staff numbers falling from 30 to 20. At the same time, the company had its best year in overseas sales, with licences for its products selling in 35 countries.

“We were in a me-too business, spending all our time tendering for public works contracts in which we were up against anyone who could drive a digger,” he said.

The nature of the public works it undertook meant it was also subject to the vagaries of government spending.

“Then we saw a local county council put in a prefabricated sewage treatment plant that we knew we could have made, at a time when there was a big push for import substitution,” he says.

“The time to think about diversifying your product or service is when times are good and you have the money to invest in research and development,” said Butler. “If your back is up against the wall, you have very few options.”

Many firms won’t be able to afford to follow Butler’s lead in a downturn when cash is king and any operation that eats it up could put the whole enterprise at risk.

“In such cases, the best thing you can do is strive to be a niche player, focusing on being the absolute best at what you do,” he added.

Diversification should still be part of your ultimate plans, Butler believes. “And if you had success with a product or service in the Irish market, rather than changing course to introduce a new one, look instead at replicating that success in those markets which haven’t been hit so hard by the downturn,” he said.


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