Is Bigger Actually Better? – By John Stiernberg

April 25, 2012 by John Stiernberg

DIVERSIFYING AND SCALING FOR GROWTH

So you want to grow your business and revenue. Outside of raising your fees (which may be difficult in a competitive and budget-conscious market), there are two primary paths to bringing in more cash: 1) diversification and 2) scaling.

Diversification focuses on adding capabilities and products so you can offer more and charge more to your clients. Scaling points to more total gigs per year using your current rig and team. Do you need to diversify? How do you scale larger without getting overextended? Is there a hybrid scenario that combines the two? This article addresses these issues and recommends three action tips for success.

WHY DIVERSIFY?

Mobile entertainment used to be pretty simple. The pioneering DJs of the 1970s and 1980s provided sound, music programming, MC work, and (sometimes) stage lighting for shows. The range of product offerings has expanded a lot. The menu now includes audio and video recording, karaoke, gaming, and “soft” services like meeting and event planning. Sure these are marketable, but why do them?

The obvious reasons are 1) revenue growth and 2) competitive positioning. The additional revenue is a result of being more important to each client and providing “one-stop shopping.” That way the client does not have to engage separate contractors for each of the various elements of the show or event. Sounds simple, right? Maybe on the surface, but there is more to it than that.

In order to diversify, you need to 1) own additional equipment, 2) promote the additional products, and 3) be good at all of it. (It’s tough to build a company that provides excellent service to begin with.) There are three upsides beyond the potential increase in revenue:

The ability to re-market to existing clients. You can go back to your “regulars” and offer new capabilities. They know you already, and are likely to be receptive (no guarantees though).

Dealing with competitors. You can count on the fact that your competitors are thinking about diversification too. Offensively, you can beat them to the punch. Defensively, you need to anticipate their moves.

Efficiency behind the scenes. While there are increased costs, the planned revenue and marketing benefits can potentially make you more profitable overall. Example: Promoting new capabilities on a website or Facebook page does not cost more after the initial setup is done.

WHY SCALE?

The reason to scale up is also revenue growth. Doing more show dates leads to increased revenue and market presence vs. competitors. Booking more gigs with your current setup (i.e. stage rig, performance team, and business team) assumes 1) that the gigs are available and 2) that you have the tools and people to do the work.

There are risks involved here too. What if you book two gigs on the same date and you only own one sound and lighting system? Do you rent, buy, subcontract, or turn down one of the gigs? Not such an easy question to answer. As such, the “when to scale” part of the equation is just as important as the “why” part.

HOW TO DIVERSIFY AND SCALE ON YOUR OWN TERMS

Do I buy more gear? Do I hire and train more people? How do I promote the new company position vs. competitors? Whoa, slow down! Here are three suggestions for how to approach diversification and scaling in a systematic way that addresses the risk factors before you spend money or other resources.

Action Tip 1: Quantify the market potential. Whether you operate in a major metropolitan market, college town, or semi-rural area, you need to know how many potential jobs are out there and what the competitors are doing. Know that no company gets 100% market share. Run the numbers and see if there is enough work to plan for growth.

Action Tip 2: Re-assess your capabilities. What are you known for now? If your brand identity is primarily music, sound and lights, what additional service (e.g. video, karaoke, etc.) could you tiptoe into it without betting the company on it? Success tip: Talk to past and current customers who know you and get their feedback.

Action Tip 3: Update your business plan and budget. Create a preliminary budget that includes the increased revenue but also the expenses (payments on new equipment, subcontractor fees, promotional costs, etc.). Look at the resulting numbers and determine if you are comfortable taking the risk. Important success tip: Do this before buying equipment or hiring anyone.

HERE’S THE POINT…

While revenue growth is great, the path to it is risky, especially in today’s ultra-competitive market. Thoroughly think through both the advantages and risks of diversification and scaling. Be sure to implement the Action Tips in sequence: 1) quantify the market potential, 2) re-assess your current situation, and 3) run the budget numbers before making any financial, staffing, or promotional commitments.

Next time we’ll talk more about the strategic planning and decision-making process. In the meantime, best wishes for success in mobile entertainment in 2012!

John Stiernberg is founder of Stiernberg Consulting (www.stiernberg.com). His book Succeeding In Music:  Business Chops for Performers and Songwriters is published by Hal Leonard Books. Contact John via e-mail at john@stiernberg.com. You can find John on LinkedIn, Plaxo, and Facebook and follow him on Twitter.

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John Stiernberg John Stiernberg (16 Posts)

John Stiernberg is the founder of Stiernberg Consulting (www.stiernberg.com), the premier business development consultancy serving the entertainment technology and music products industry. With over 25 years experience in these fields, he currently works with audio and music companies on strategic planning and market development. His book Succeeding In Music: Business Chops for Performers and Songwriters is published by Hal Leonard Books. Contact John via e-mail at john@stiernberg.com, find him on LinkedIn and Facebook, and follow him at http://twitter.com/JohnStiernberg.


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