You’ve heard if before, you need to diversify your business so if one income stream fails you don’t lose your shirt.

While this sounds good in theory it’s a great way to create a business that never fulfills your goals.

Now don’t get me wrong, at some point you want to diversify your business in a sense, but it’s not near what most people think as diversified (Walmart).

You might be thinking you want as many income streams as possible that generate a little income each. Again, this sounds good but doesn’t make sense when you start looking at the numbers.

Sidenote: Remember look at what successful businesses ARE DOING.  Remind yourself of this when you read anything that’s a “how-to” for your business (or future business).

Let’s face it all businesses have core products. These core products get the majority of the marketing dollars because they bring in the most customers.

That’s why every week when you look at the ads in the newspaper you see the same stores offering the same or similar products over and over again.

I mean, pick up a Best Buy ad and you’ll see nearly the same thing every week.

But what you’ll realize is this.

Businesses use core products to funnel in their business and sell other products as long as the customer continues to buy.

They use core products to get first time customers, or regain old customers who will then continue to do repeat business with them and buy the other products and services they offer.

Most of the time the core products they offer may not be the most profitable for them.  They may break even or even lose money.  Most of their advertising dollars go into these core products and services.

They know acquiring a customer or re-activating stale customers will make their business more profitable because that is what it takes to create repeat buyers.

Your main products(s) or services should be the driving force to create a customer or regain a customer and building a customer list you can sell related products and services to.

Some more examples of businesses using funnels:

JCPenney is known for selling clothes. They mainly advertise these clothes. They have a second floor for their other products. These are their special order items and upper end products.

Your phone company has only a few core products/services but offers upgrades  to these products once you order the products.  They will also continually contact you with every bill or other mailings asking you to upgrade your services.

Your cable company does the same thing as the phone company.

Movie rental stores advertise the latest releases.

Your grocery store probably advertises the same products every week, fresh meat, canned goods, cereal and drinks.  You’ll buy a lot more then that when you get there.

Microsoft, one of the most profitable companies has a small product portfolio at first look because they only advertise their core products.  But a huge portion of their profit is from licensing and business upgrades.

I could go on and on, but I think you get the point by now.

So why doesn’t diversification work 95% of the time and why doesn’t it work especially for small business and even more so for smaller businesses.

One word.  FOCUS.  When you’re a small business or just starting a business you need FOCUS. You’re probably going to be the only one in your company or possibly have a few people in it.

You can not be the expert in every area if you are totally diversified.

Your business funnel should have core product(s) which should be focused on customer acquisition.

Determining which are your core product(s) will take testing to determine which promotion/products drives the most customers and how much those customers buy.

Other related products or services you offer should be there to fill repeat business, used as upsells, cross sells or possibly a huge backend product.