Don’t Bet on Just One Horse in This Race

With Houston’s oil-driven economy collapsing all around him in 1984, restaurateur Bob Borochoff was determined to survive. He bought and sold eight restaurants while times were tough but realized that he needed a long-term solution.

So, in addition to his Boston Sea Party Restaurant, he set up Epic Catering to keep his chefs and kitchens busy during slow times and created Epic Special Events to stage celebrations.

By taking the people and equipment he already had and deploying them in new ways, Borochoff has built a thriving, three-part small business.

“I’m absolutely convinced every small business can diversify,” he said. “Everyone who survived the Texas oil bust did it by diversifying.”

Small-business owners around the country should consider diversifying into new product lines or services as America girds for an economic slowdown. The secret is to make changes without having to spend a lot of money or add new employees.

“Now is the time to look at your strategic plan and see if it still makes sense,” said Anthony Radaich, partner in charge of Arthur Andersen & Co.’s enterprise group in Woodland Hills. He suggests that business owners assess their companies’ strengths and weaknesses and figure out the best way to capitalize on their strengths.

For example, Radaich said, a client with a metal plating business boosted sales by setting up a second shift to do contract plating jobs for other firms.

About a year ago, Camarillo-based California Amplifier realized that its dependence on military orders for its microwave amplifiers was hindering growth.

“When it became obvious the government business wasn’t going to help us grow, we refocused our efforts into what was a small part of our business--the commercial sector,” said Barry Hall, chairman and chief executive of the public firm, which had sales last year of $11 million and employs about 130.

“Business people have to accept the fact that while they made money one way in the past, it won’t be the same in the future,” Hall said.

Based on the success of the diversification, California Amplifier recently sold its military products division to focus entirely on providing equipment to satellite dish manufacturers and television stations. And, Hall said, the company has turned around the quarterly loss it suffered a year ago, and this quarter is showing a modest profit.

“A manufacturer has to make sure he has taken all the juice out of his products,” advises Pamela Roth, president of P. J. Roth & Associates in Los Angeles. “You should see if the products you make could be changed slightly to appeal to a broader market.”

Roth, a marketing consultant, has helped several small businesses turn around through diversification. One firm, which produced cosmetics for Latinas, broadened its advertising campaign and product literature to appeal to women of different ethnic types.

“We made the change with little or no investment after identifying a larger market for the products,” Roth said.

“Small-business owners selling things over the counter should also look into selling them in catalogues or through direct mail,” said Roth. “You have to think broadly today because target marketing can kill you.”

Arthur Andersen’s Radaich also recommends looking at your equipment and vehicles to see how they can be better used. For example, if you are sending your products out on trucks all day, maybe you can haul another company’s products back to your city at night.

If you have a machine shop, why not ask fellow business owners if you can do any work for them? In the same vein, see if you can send a part of your work out to others so you don’t have to buy expensive new pieces of equipment.

And, if possible, seek out other business owners to perform tasks for you, so you don’t have to hire new people.

DIVERSIFYING YOUR BUSINESS

* Revise your business plan to prepare for an economic slowdown.

* Look at new or different uses for your equipment, vehicles, buildings, etc.

* Ask your customers what new services or products you could provide to them.

* Cut costs by farming out projects to other small businesses.

* Discuss new business possibilities with your vendors or suppliers.

* Consider what other consumers could use your products.