Think Before You Grow

Virtually every organization wants to grow and get stronger. And a business should strive to grow in a controlled, profitable manner. But, what happens when a business tries to grow outside its core business or core "competency" or grow beyond its ability to manage the organization?

If a business is fundamentally sound and well managed, the opportunity for growth outside of its core business is better than if there are significant problems. Companies often attempt to grow by diversifying into marginally related or unrelated businesses and then end up divesting themselves of those business units after a short period of time. But why? It can be for a variety of reasons, but most often the reason stems from simply not understanding the new line of business. What made the company successful in its core business was probably a good understanding of the products or services, the market(s), the competition and the nuances of the industry. Transferring that knowledge into a marginally related or unrelated business is not very often an advantage. In fact, it can be a decided disadvantage because the tendency is to do business a lot like it has always been done. In the new business unit, it's likely that things are accomplished in a different manner.

And the mere fact that resources are being drawn toward the new business and away from the core business can have a negative impact on the core business unit. This is particularly true if management personnel are expected to divide their attention among several different businesses. The focus and discipline that is so important to being successful in a single business is compromised by adding the new line of business.

The other scenario that we often witness is the company that is poorly managed or that has some other significant fundamental problem(s), but tries to grow its way out of trouble either through diversification or through expansion of its existing business. In this scenario the business is already struggling to some extent due to poor fundamental management. Then the company adds fuel to the fire by stretching resources beyond their capacity and capability. If a management team is struggling with managing the existing business in its current state, why would management or ownership want to take on more? Unless the company is a dinosaur operating in a dinosaur industry, this is an excellent question.

What makes more sense is to closely analyze what the company does well and what it does poorly. Then address those things the company does poorly and develop a plan for strengthening them. Until the core business unit works through the fundamental management issues, it rarely makes any sense to try to grow either through expansion of the existing business or especially through diversification.

Before making a conscious effort to expand, ask yourself if you and the rest of the company are ready for it. Be objective and take your ego out of the assessment. Your ego will tend to drive you to wanting to expand so it is important to be honest with yourself about the motives for wanting to take on any sort of expansion. Once ego is neutralized, inventory those problem areas and prioritize them in terms of what needs to be addressed first. Then develop a plan for attacking each of the issues or problem areas and start the plan in motion. Until the fundamental problems are corrected, think twice about expanding or diversifying.