Salt Lake City—If you want to keep your business healthy and thriving, diversify. Diversification allows your business to balance risk and reward, to enter into new markets, and to keep strong if its original market or product ever falters.

“Diversification can insulate you against volatility,” said Colby Wright, associate chair of the Associate Chair of the Department of Finance at Brigham Young University’s Marriot School of Business, at the 11^th annual Economic Summit hosted by Governor Gary R. Herbert. Speaking as the moderator of a panel of four, Wright stressed that smart diversification is what keeps strong businesses like Disney—which owns its theme parks, ABC, A&E, ESPN, Marvel, and various strong local channels across the country—strong, whereas poor diversification, like the failed AOL-Time Warner merger, can lead to disaster.

But a fear of failure shouldn’t keep you from trying to diversify. Diversifying in an organic way can create great opportunities for your company—and ‘failing up’ can teach you valuable lessons about how to continue pursuing opportunities for your company.

Clark Whitworth, CEO of the Larry H. Miller Group of Companies (LHM), talked about the organic way that LHM diversified—Larry Miller bought his first dealerships, and the selling of cars diversified into managing an attached service and parts business. Then, that grew into a real estate arm to help construct the facilities for the dealerships, and a finance company to help with vehicle transactions. From there, Miller was able to diversify even further, into the entertainment industry, with the purchase of the Utah Jazz and the creation of the LHM theatres.

But, says Whitworth, that growth was not always smooth. When diversifying from selling new cars fresh from a manufacturer (and used cars that people would trade in) to trying to open a dealership specifically for used cars, the first attempt “failed miserably.”

“We had some really big lessons learned. I mean significant losses,” says Whitworth. But the pendulum began to swing in the other direction when the company looked at the initial failure and drew lessons from it. First, they hired a good general manager to tie into the operation. Then, they realized they needed to seek out good used cars to sell in their lots. Then, they began to offer the ability for the customer to get their used car serviced in their locations. And lastly, they realized they needed to scale their operation.

“That model works extremely well,” said Whitworth. “That was very organic and close to what we had expertise in… If you don’t have some expertise in that specific area [you’re trying to enter], then you’ll have some painful lessons.”

“I just want to highlight smart failure. You took risks, it didn’t work out, and instead of taking your tools and leaving the sandbox, you asked ‘why isn’t this working?’ and kept at it,” added Wright. “You also have to have scale and diversification in order to do the experiments you were doing. That’s part of the fun of being in business. You don’t want to just sit on a cash cow. Part of the fun of business is we want to do something challenging. We want to grow and try new things, but that’s an experiment, and the only way you can do that is if you have that diversification that provides cash flow.”

When diversifying, keep your ear to the ground. Craig Thatcher of the Thatcher Group—a company about to celebrate its 50^th anniversary—says that opportunities for diversification have come through continual learning.

“Some of the things we do today that are important, I didn’t even know about 6 months ago,” he said. “I think diversification needs to be handled carefully. Find synergies across your product lines. We are very proud of what we’ve accomplished, but we’re still very humble. We know we don’t know much. We don’t mind embracing change. Don’t be a passenger, be a team member.”

Continual learning, said Wright, should be combined with a culture of “valuing trickle-up innovation” in order to diversify in a healthy way. Listen to the market, listen to your research and development teams, and be patient. That’s especially valuable when diversifying through acquiring another company, like when Amer Sports America acquired Salomon footwear.

“They developed some tremendous footwear—essentially a trail-running shoe, very European in design with bright colors. We developed that year after year and put it in an incubator. It ended up being one of the most profitable parts of the company,” said Ryan Bateman of Amer Sports America. “You have to pay attention to those ideas, especially with the products and R&D team, because it isn’t immediate. It took us almost 20 years with footwear to get where we are today.”

“We want to be at the top of the organization as the kinds and queens and hope we can see the whole landscape,” Wright said. “But really, the boots on the ground have great insights—but you have to have a culture that facilitates that trickle up innovation.”