Entrepreneurs who start their own businesses are generally full of energy and dedication, have a strong drive to succeed, and many have the ability to ” multi-task”. As a business consultant, I find that most business faces one common situation, that is, their business or direction is too “dispersed”. The bosses always want to outreach to different kind of businesses, to serve all segments of customers, and they are dare to take any order.

There are many reasons for business owners to diversify their business, including unclear direction and strategy in the early stage of entrepreneurship, so they tend to grasp every opportunity they encounter. In addition, most entrepreneurs have strong curiosity and a wide range of interests, and they tend to “like the new and loathe the old”. The most common thing is that when the product is not yet mature, the boss is too eager to build an online platform. Their top priority should be ensuring the high quality of their products.

Some people advocate spreading risks and diversifying business. For example, the Virgin Group operates a wide range of businesses such as aviation, finance, telecommunications and music. In this way, Virgin Group can survive through economic ups and downs, and avoid the life cycle of a single industry that brings a fatal blow to the enterprise.

On the other hand, some people advocate focusing on one thing, aiming to achieve excellence and be competitive. For example, BMW only deals in cars, and focuses on the luxury car market.

Diversification or concentration, which one should we follow?

Saying “no” to opportunities that come up in wrong timing vs. Never missing any opportunity

Warren Buffett once said: “Truly successful people say ‘no’ to almost everything. The reason is that they know that their time, energy or investment can only be used in a certain field, otherwise they will lose focus and make mistakes. Especially for startups if their business was too scattered in the early stage, with the fact that having limited funds, nothing could be done well nor could be sustained. The business ended in failure eventually.

When talking with business owners, I will ask, what is your core business exactly? Many bosses are not even sure what their “core business” is.

The “Business Model Canvas” invented by Alexander Osterwalder simplifies complex business content into a clear and easy-to-understand model. I think every boss should think carefully about the company’s value proposition, clearly and simply state how the company’s products or services meet market demands. The value proposition should be the core business of the company.

Personally, I tend to focus on the core business first, and then gradually consider businesses that can be leveraged and mutually beneficial after I have established a firm foothold. When expanding other businesses, there are few key considerations:

• Is the new business line having a strong relationship or even complementary effect to the core business?
• If that’s the case, how much synergy the owner can actually gain from expanding to another line of business (in other words, 1+1 must >2 in order to proceed).
• If that is a totally unrelated business, then what is the strategic consideration behind?

Summary

Business owners must know their own “core competencies”, “core competitiveness”, as their “core business”. Even adapting the diversified strategy, they still need to be clear about their core business, and then develop “related diversification” around the “core competitiveness” of their “core business”.

Entrepreneurship is challenging, and success is not easy. Successful enterprises are definitely not based on luck. Concentrating on one’s own business, coupled with a diversified business strategy, is the only way for an enterprise to survive.