Want to Grow Your Business?
As I write this, our economy is doing really well and many companies are growing. However, those of us who have been around a while know that things will change. We will once again face the pressures of a down economy, and many businesses will struggle to achieve healthy growth.
When faced with this pressure, the lever that many business owners will reach for is diversification. I’ll go so far as to say that 90% of the time, it’s the wrong answer. When the core business is not working, you have to fix the core business. Adding something new must be done correctly or it could make things much worse.
I highly recommend the book Beyond the Core by Chris Zook. He does a great job of explaining the concept of repeatability and what healthy growth should look like. One of the fundamental principles of healthy growth is that you must reduce the number of variables in a new venture as much as possible- preferably all the way to one.
There are lots of examples of disciplined, repeatable growth strategies. Here are two to illustrate the point.
If your business grows by geographic expansions, find a way to create a system so that when you open a new location, everyone knows exactly what to do because everything is the same except the street address.
If you grow by introducing new products, define your process to such a degree that with every new product, the whole team knows exactly what to do. The roll out process is the same. It’s just a different product this time.
If you are facing pressure and having a hard time achieving profitable growth, the answer very likely lies along the path of repeatability which requires focus and discipline. It’s almost impossible to solve poor performance in your core business by branching out through diversification. I promise, I’ve tried it.
Let’s say for example that you own a well-established distribution business. Your margins are shrinking, and you are struggling to grow revenue. A path that many owners might consider would be to add installation service for the products you distribute. In some cases this might work. However most of the time, it’s really asking for trouble because installation and distribution are two entirely different businesses.
The move to begin installing the same widgets that you also distribute means that instead of having only one variable in your new venture, you have only one constant – the widget. That’s the complete opposite of what you need.
If you have the capital required to hire a whole additional team, with deep experience in the installation business, that could be a good plan and ultimately deliver some synergies. That’s not growth, it’s a startup. If you acquire a successful installation company with an experienced team, that could work too (if the acquisition is planned, executed, and integrated well – an entirely different topic). That’s an acquisition – it’s not the kind of growth that means you have solved the problems in your core business.
Think of the core business as the foundation. In the proper context, all of these approaches are perfectly legitimate. However, to build successfully, you must start with a strong foundation in place.
Some may say this article is not well-times because the economy is strong and companies are growing. I beg to differ. Good economic conditions allow us to become complacent. Summer is the time to make preparations for Winter. Use the momentum we’re enjoying now to build discipline and focus in your organization. Create good, repeatable processes so that when a downturn comes, you will be growing when everyone else is floundering.