An improved Switch is the most reasonable option.
Price wise, if the improved version is more expensive, then, by comparison, the Switch OG model would look cheaper. And with time, with lowering price you'd eventually reach another audience without the need to compromise your future.
An improved version would, in theory, allow for more multiplats and ports to arrive to the system.
A mini version that makes it a handheld is the same as rejecting what make the Switch a success, it would also make it seem like an inferior product. Why should people opt for a mini version when they can't get the best experience on the original Switch? The potential of a such a model would be limited by default.
Not to mention how certain games would be affected by the fact you wouldn't be able to detach the controllers.
One of the main reasons that made Wii U fail was poor comunication.
Having the communicate that you have two devices that do not work the same would sound messy and awkward. Not the best thing when you want to market multiple products.