Diversification Or Diversion?

When offering too many services affects company growth

Pest control operators and other entrepreneurs often begin to weigh a common question after they have been in business for a while: Should I diversify my services? The question can arise for an array of reasons, both healthy and unhealthy, said Bill Cowley, co-owner of Cowleys Pest Services in Farmingdale, New Jersey. Over the years, Cowleys Pest Services has diversified its services to successfully expand its business, but Cowley cautions against believing diversification offers a straightforward path to more profits.

“It can sound easy,” Cowley said. “Then you jump into it too fast and realize that you didn’t think it through, and you end up not only over your head in this new business, but your core business is suffering, too. You’ve diluted your focus, and now you’ve got twice as many headaches, twice as many problems.”

For operators considering the diversification question, Cowley said it is crucial to take the necessary time and care exploring their options before giving into the temptation “to chase that shiny nickel.” Cowley said the first question any operator considering diversification should ask themselves is why they want to take that step. Cowley said it is essential for operators to take stock of their businesses and to look inward.

In particular, operators with low market share in their core business should ignore the allure of new services and focus on building their existing ones. “If your core isn’t working properly, diversifying is not going to solve your problems,” Cowley said. “It actually is going to make your problems a lot worse.”

Cowley said too many owners decide to diversify for the wrong reasons, such as because they are bored or because they think adding more services will automatically lead to new profits.

“If you’re struggling with your core business, the last thing in the world you should be doing is thinking about diversifying your business or making it any more complicated than it already is,” Cowley said. “You’ve got to get really good at what you’re currently doing. If you can get your current core business working on all eight cylinders, that’s when you can really think about diversifying into another service or business.”

Operators who decide to diversify should also be wary of taking on a new business if they are not willing to ensure adequate leadership and expertise is in place. That means an experienced leader to oversee the new business or one to take over the old business while you shift your focus to the new one, Cowley said.

“Someone’s got to focus on your core business, and someone’s got to be focused on the new business,” Cowley said. “You can’t do both.”

Despite the potential pitfalls, Cowley said diversification offers promising opportunities. Cowley said the best diversification opportunities are “easy bolt-ons,” natural extensions of what you are already doing. That means similar marketing audiences, sales techniques and office processes, and ideally the services can be based in the same facilities. For example, Cowley said HVAC installation would not be as easy an add-on as ticks and mosquitos. “opportunities are “easy bolt-ons,” natural extensions of what you are already doing. That means similar marketing audiences, sales techniques and office processes, and ideally the services can be based in the same facilities. For example, Cowley said HVAC installation would not be as easy an add-on as ticks and mosquitos.

“Ticks and mosquitos are very easy to do because you already have the equipment. You already have the technicians—you just have to train them,” Cowley said. “You already have the vehicles. You don’t need different people answering the phones and setting up appointments. Your marketing only needs to be tweaked a bit. When people call in for estimates, you can try to upsell them on mosquitos, so your salespeople will love it because it’s a new opportunity and it’s pest control-related, so they’re familiar with it.”

Cowley said one can find success with an unrelated business, but it will always represent a larger risk.

“There are a lot more guys that get burned trying something unrelated than there are guys that are successful,” he said.

Cowley said pest control is a seasonal business in the Northeast, and Cowleys Pest Services faces a five-month slow stretch in its pest control services each year. Through diversification, Cowley said the business has cut its slow period to six weeks, allowing it to bolster its revenue, even out its cash flow and keep more workers employed year-round.

Cowleys Pest Services’ diversification over the years has included adding services that include not only ticks and mosquitos, wildlife removal and bird control but gutter guard installation, crawl space encapsulation, attic insulation and mold abatement—the latter four being services that could help customers prevent future pest problems.

“Some of them are closely related, and some of them are more loosely related, but all of those are things that we ended up getting into because we found that our customers were always asking us to help them with these things,” Cowley said.

One clear outlier in the company’s portfolio is a Christmas decor business that helps give some employees needed work during a traditionally slow period for pest control.

“That’s the one that breaks the rule,” Cowley said. “We have a rule that we’re not going to get into anything that’s not related to pest control. Well, I’ve been trying for 15 years to figure out a way to connect Christmas lighting to pest control. It’s the only thing we do that’s completely unrelated to pest control or any other service that we do, but it fills a need for us, that five-month gap in the winter when we have cash flow issues. It fits perfectly as an off-season business for us, and it helps keep us busy all year. That’s the reason we got into it.” The work involved with adding new related services should not be underestimated, even if some components overlap, Cowley said. For instance, Cowleys Pest Services’ expansion into wildlife meant separate trucks and specialized technicians who do not do any pest control work. The contracting work tied to crawl spaces, attics, mold and gutters is a separate division with employees who focus on those areas and use different equipment.

Before opening a new line of business, Cowley recommends finding operators outside of your market who have taken a similar step and interviewing them about their experiences.

“Get a lot of information before you leap into anything,” Cowley said. “Do your homework, do your due diligence, talk to people who are in that business so you can make an educated decision rather than just leaping into something. The people who do that tend to be successful in their new venture.”

The appropriateness of diversification will always depend on the individual operator and the many variables that surround their business.

“There are guys that do nothing but residential pest control and guys that do nothing but commercial pest control—they don’t do anything else—and they build incredible businesses,” Cowley said. “And then there are guys that diversify into five different things and have incredible businesses. There are a million different ways to do this.”

Ultimately, Cowley said diversification should be embraced when it is a good fit for your business—as long as you take the proper steps to make sure you do it the right way and for the right reasons.

“It can be done,” Cowley said. “If you really think it through and are really smart about it, it can be done and it can help grow your business and make your business more profitable. That’s really what it’s all about. That’s why we’re in business.”