The importance of diversified business in micro and small firms

The aim of this dissertation is to highlight the importance of business diversification in micro and small size firms. The central part of this study takes Portuguese micro firm Perfect Fit Services, where the consulting project took place. According to financial information gathered in the firm, was tested hypothesis that micro firm pursues unrelated diversification due to poor financial performance. This hypothesis was accepted with an investigation of relatedness of business lines and reasons for diversification. Initially, it was proved that Perfect Fit Services has unrelated diversification in its business. Two business lines with different activities: one in the textile and another one in the hardware baby products industry. Consequently were discovered motives for diversification in a micro firm. The knowledge of industry and rich background of business co-owner lead to a decision to launch the second business line. The financial aspect was also highly important reason and taken into consideration during the decision-making process to diversify. Finally, in order to test a hypothesis, was investigated the relation between firm size and diversification. This relation considered as a positive base on micro firm’s financial performance