By now many rental business operators have grown weary from the severe stress and uncertainties caused by the coronavirus. In addition to caring about the health of loved ones, associates and the thousands of people around the globe, business operators need to take care of business. There is an almost daily roller coaster of emotions as one day there are hopeful signs that the economy might truly open up again sooner than expected and the next day there are more troubling reports that things might get even uglier.
I’ve been asked to write about the topic of whether diversification of product lines by rental companies should be considered. I feel that now is a prime time to brainstorm all of the possibilities to increase income and to position the company for the future in an increasingly uncertain world. As you may know, the brainstorming process begins with listing all possibilities without being selective as far as the feasibility and likelihood of favorable results. Later on in the process, the most feasible and most likely to succeed options are highlighted for possible implementation. (Sometimes the brainstormed options that at first blush seemed unthinkable later show considerable promise.) However, there is a big difference between the initial brainstorming process and actually “pulling the trigger.”
When brainstorming options, it is important to have select team members also involved in this exercise. Brainstorming is not effective if performed by just the CEO. Also, have an outside, experienced facilitator leading the brainstorming exercise if possible.
Be Wary of Unfamiliar Equipment and Unintended Consequences
In particular, I was asked about going from a party and event-only rental company and adding some tools and construction equipment to diversify the offering and bring in some badly needed income. Every rental company is different and their market, competition (and opportunities) are radically different. However, in general and especially with this example, I feel it is not wise to dabble with a totally different and totally new type of inventory from what you carry now. (Many party rental companies may not have the proper processes, procedures, training or facilities to handle the new equipment additions.)
Also, the unintended consequences might become more than an annoyance as some customers may soon expect a broader selection of tools and equipment than you want to stock. With a few exceptions, I have found that either a company is really in the business or they probably shouldn’t be in it at all. Especially in the short term for immediate cash generation, adding some tools and equipment without the proper due diligence could tend to be an unwise investment. In these treacherous financial times, capital is a precious commodity that must be used sparingly.
Another thought is that if product line diversification puts a company into the “essential” classification from currently being in a non-essential one, perhaps it makes more sense to consider it. But if small businesses (like rental companies) are allowed to reopen or partially reopen in a couple of months, this would make this option far less attractive. Small businesses of all types are trying many things just to stay afloat. But again, be careful not to make any leap too impulsively. Make sure that options are very well thought out.
Customer Diversification
Another form of diversification involves the possible expansion of the types of customers you typically target. Using a fishing analogy, some rental companies might consider casting a larger net. (An obvious example might be local hospitals and other healthcare organizations that were not on your radar before the coronavirus pandemic.)
However, for now it might be wise to brainstorm the “who, what, where, when and how” of new customer type acquisition. (Remember to have a structured plan for what you decide makes the most sense – and follow through.) Once the country starts to “open up” for business from the current business “lockdown”, re-focusing on your traditional customer type can be renewed, though some of the new non-traditional customers may become significant revenue generators long after the threat has ended.
I feel strongly that well-managed independent rental companies that have had the financial strength to weather the worst U.S. economic storm in almost 100 years are well-positioned for a return to growth and even greater prosperity. In my opinion, there will be plenty of pent-up demand for rental equipment and the great service you provide.
Also read:
The Importance of Focusing on Efficiency in Your Rental Business
