When a business is initially successful, it is generally in one type of business. That success often leads owners and managers to begin thinking they can make any business successful. They start thinking about diversifying into other types of businesses. The reverse of this is when a business is struggling and the owner or manager believes that the only way to achieve success is to diversify.
In both cases, the core business probably represents an opportunity for additional success if properly managed. But there seems to be something about human nature that draws people away from what they do best and toward something that appears to be more glamorous or more intriguing.
We believe it is important to pay special attention to the core business...what it is you do best...and grow that business to higher levels of success. Business newspapers and journals are full of stories about companies that get outside their core business and fail miserably. And in many cases the core business suffers because resources are drawn away from it.
We think that too many decisions to diversify outside of the core business or strategic outgrowth of the core business are ego-driven. Making diversification decisions to feed someone's ego is simply irresponsible.
Before thinking about moving beyond the core business, ask yourself why you are even considering such a move. Can you grow your core business in a profitable, significant manner? Are you doing a good job with your core business in terms of operating efficiency, customer service, margins, promotion and quality of personnel? If there is room for improvement, concentrate and focus on making those improvements. Your objective should be to maximize the value of the business. Making the core business strong in terms of operations and customer satisfaction and loyalty will enhance value significantly. If you divert resources away from the core business by buying another business or diversifying through product or service development, the core business will not get the attention needed to enhance its value.
In short, focus on doing what you do best. And then try to do it better. However, none of this is to say that diversification is necessarily bad. It can be a very positive step for a business. But the point of this brief is to point out that the core business, assuming it has adequate potential, must have a lot of attention paid to it. A new venture can be undertaken as long as adequate resources and expertise are available for both the core business and the new one.
