Thanks to all of you who e-mailed me about my post yesterday on focus versus diversification. Several folks asked me when diversification does make sense for smaller businesses.
If the core business you have going is stable and mature, it can be a time to consider spreading your wings into new deals. It is not always a wise thing to do, but this is the point when shifting your attention to something new makes the most sense.
If you do branch out into new deals, the best approach is to think incremental. Choose deals that build off of what you know and what you are already doing.
However, remember that your ability to spot a good deal and even to execute the start-up has very little to do with your ability to manage an increasingly complex set of operations. That is what too many people fail to realize.
Starting yet another deal is like getting a new puppy when you already have a dog. (I am sitting on the back porch this morning with our two dogs AND our daughter and son-in-law’s two dogs, one of which is a lab puppy — so I guess we know where this metaphor is coming from).
Your old dog has kind of gotten on cruise control in the family. He is just kind of there — a great pal, but not much fun and excitement any more.
The thought of a new puppy is exciting. After all, it will good for your older dog to get a playmate. And what fun a new puppy is to have around the house. We do like to rationalize, now don’t we?
So you buy that new puppy. Now you have to deal with all of the challenges of a puppy in the house that you kind of glossed over or shoved into the back of your mind when considering this decision — the messes, the chewed up shoes and furniture, the middle of night trips into the yard.
On top of that, now your older dog is getting kind of put out. He needs more attention than he did when he had the house to himself. He starts to act up — maybe forgets his house breaking manners or starts to misbehave in other ways just like that new puppy. So now you are dealing with the demands of the puppy and the renewed demands your older dog has now created for you!
I have to be honest with you at this point. We have gotten that second dog several times in our lives. And I have
started that next deal several times. But, every time it has ended up being
more work and more stress than I had planned for.
I don’t tell you all of this to say never start a second or third or fourth deal while still operating your first deal.
I say this to make sure that you remember that just because you can start another business does not always mean you should.