Premature Diversification

December 12th, 2012 by Rich Christiansen

Rich Christiansen The past several weeks I’ve been preparing for a trip where we will represent several up-and-coming, exciting brands for one of my companies. Through the course of these activities I’ve been exposed to several very creative and very innovative ideas and concepts.

There’s one company in particular that has received an extreme amount of attention. They were featured on the television show Shark Tank and were indeed one of the winners. They won again at a statewide entrepreneurial conference and have received an excessive amount of media and exposure. As I met with these young entrepreneurs I was exhilarated but also dismayed in our very short meeting. Their high-energy level, exuberance of entrepreneurship, and the zeal for which they were attacking opportunity was exhilarating. However I was dismayed as I saw what they were doing. Indeed they had come up with a very novel creative market concept that had been broadly embraced and was getting them a lot of attention. What did they do with it? Rather than dig deeply, rather than fully explore all the channels, rather than totally take advantage and captivate this corner of the market they’ve instantly started to branch out and add all sorts of diverse products. For instance they were scheduled to fly down to meet with a celebrity’s daughter the following day to start a new line of handbags. They’re developing cell phone technologies, literally exploiting the small channel that they’d developed on ancillary things that haven’t yet proven success.

Indeed my one of the entrepreneurs that I really respect is David Norton who will often make the statement that the reason for failure in small businesses is premature diversification. I personally think that the number one reason is cash flow, but I agree with David that the second reason is premature diversification. If I were to wind the clock forward several years I would suspect that these young entrepreneurs would learn this lesson (hopefully not too much the hard way).

In the early stages of our business we need to find something that works and do more of it efficiently and effectively and fully develop the channels and make sure you have adequate conversion before you diversify. It’s not to say that diversification is not appropriate, it’s just doing it at the right time.

Go forward, prosper, and win in your business.

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