How to identify new revenue streams and successful ventures for your business

• Entertainment, travel, and hospitality industries, among others, took a hit as businesses and cities shut down across the nation.
• Finance experts and business owners shared tips with Business Insider on diversifying sources of revenue to make it through a tough economic downturn.
• Start by evaluating how your customers are reacting to the crisis, they said. From there, determine which costs are worth keeping or cutting as needs change.
• Stay close to what you're familiar with. If you try to add too many new revenue streams, you'll end up "not doing any one thing particularly well."
• Leverage technology and a diverse workforce to stay agile, adaptable, and scalable even when needs and preferences evolve.

In early March, CAD Management, a music and entertainment consulting agency based in New York, had more than 75 concerts booked across the country. Then suddenly cities and states began shutting down and issuing stay-at-home orders because of COVID-19. Concert ticket sales fell, and venue owners and promoters started rescheduling shows for later in the year.

"My team and I felt in our guts that this wasn't going to be a month-long issue, that this could be a long-term problem that could completely shut down the global touring business for a significant amount of time," CAD Management CEO Clayton Durant told Business Insider.

So the company came up with two new ways to generate revenue: It launched an executive representation practice to represent entertainment company CEOs and manage their media relations and social media and it created a digital touring service as an extension of their physical touring business.

"We became much more hyper-focused on being digital experts as it pertains to live streaming and digital marketing," Durant said. The new ventures, he said, have helped CAD recover 75% of the revenue lost from canceled shows, and Durant expects the new products will help the company break even this year.

Businesses in the entertainment, travel, and hospitality sectors have been hardest hit by the pandemic and economic crisis. But, as Durant's story illustrates, there's more than one way for a company to generate revenue, and now's the time for businesses to explore new revenue streams if they hope to endure.

Start by evaluating the market and cutting costs

Stepping back and evaluating the market and how customer needs are shifting is always a good idea for businesses, but it's especially useful during times of economic distress, Michael Sury, a finance lecturer at the University of Texas at Austin McCombs School of Business, said.

"This year's pandemic has been a catalyst for a number of changes in consumer behavior, including in how we shop, how we work, how we entertain ourselves, and even how we communicate," he said. "It has led to a massive acceleration and adoption of digitization and online activity. As trends shift, small businesses must re-evaluate what they're doing and confirm that they are still offering value for their customers that they cannot get elsewhere."

A McKinsey and Company report from June estimates that disruption during the first four months of COVID-19 could force 25% to 36% of small businesses to close permanently. Finding new relevant revenue streams is essential for survival, but doesn't guarantee it, Sury said.

Cutting costs is equally important, said Pratim Datta, professor of information systems at the Kent State University College of Business. "Whatever revenue stream they choose to monetize during these changing times has to be where their idea is to provide the best service, yet be able to stringently curtail internal operating costs," he said.

One of the first expenses CAD Management cut was its office space, Durant said. The savings went toward overhauling the company's website and building a flexible, remote workforce.

Stay true to your core business as much as possible to remain competitive

Businesses shouldn't stray too far from their core competencies, Sury said. The focus should always be on what they do well, how they add value to customers' lives, and how they differ from their competitors.

"History is littered with companies that over-diversified and ended up not doing any one thing particularly well," Sury said. "The best way to develop new business is to look for areas that are within your core competencies or adjacent to them."

A couple of approaches for adding revenue streams that align with a current business include vertical integration or expanding into areas already in the company's supply chain, such as insourcing product delivery or administrative tasks, Sury said. Horizontal integration expands the scope of the business, like selling related products. He used the example of a toothpaste maker starting to sell toothbrushes.

This is the route travel brand iFLY took when the pandemic led to travel bans and canceled trips. Luggage and travel accessories made up about 90% of the company's business, but that core business dropped by more than 80% from March to May, said David Rapps, CEO of iFLY and president of its parent company Calego.

iFLY decided to build on an idea they first developed in 2017: "smart kits" for travelers, a take on a travel kit that included antiseptic wipes, a disposable face mask, headrest cover, antibacterial hand gel, and other items. Rapps said the kits launched in one retailer in 2019 but "initial sales were a letdown."

Realizing that COVID-19 would put health at the top of consumers' minds, iFLY relaunched their health and wellness kits, which are FDA and EPA compliant, and face mask packs under the iFLYSmart brand. The company also developed B2B products like face masks, gloves, and a face mask dispenser, which is patent pending.

"All of this was a big departure from our core business," Rapps said. By April, he said, iFLY had commitments from major retailers like Walmart, Walgreens, 7-Eleven, and others to sell smart kits, and added organizations, including the New York Mets, Dollar General, and major healthcare and food and beverage companies, as B2B customers. Rapps said iFLY finished its financial year, which ended May 31, with higher sales year over year.

Invest in digital transformation and a diverse team

Technology can help companies shift from a traditional business model to one that's quickly adaptable, scalable, and able to meet customers' evolving needs and generate revenue, Datta said. "The monetization pivot is being driven by digital transformation," he added.

Digital touring was something CAD Management had its eye on for a while, but Durant said traditional shows were more lucrative. With in-person shows likely canceled for the next year or more, he said the company quickly learned about live-streaming production qualities and how to monetize digital tours.

"Our work in digital touring is allowing us to be more of a digital strategy agency than I had ever anticipated," Durant said.

Along with taking digital steps, investing in a diverse workforce is the most valuable move companies can make, he said. Those who put people first will thrive post-pandemic and have the advantage of tapping into different perspectives, which could lead to the next winning idea.

"If you keep your business flexible, allow your employees to be heard, and keep an ear to the market, you will have the best chance at finding new revenue streams, even amidst a pandemic," Durant said.