Keeping Focused

This week's topic for the America's Most Promising Companies project from Forbes was submitted by one of my fellow AMPC bloggers.

How do I balance a need for strategic focus versus diversification and expansion of my products/services?

This question gets at the heart of a classic entrepreneurial challenge. 

On one hand, it is essential to adjust the business to meet the changing needs of the market.  This may take the form of expanding or altering the positioning of the business to meet these changes in the market.  This may require expanding or even fundamentally changing what we offer to our customer base.  It may also lead us to change how we define who are customers need to be going forward.  Certainly, entrepreneurs should never allow themselves to become paralyzed within their original business model if the market is telling them that they need to evolve their concept to fit the reality of a dynamic market.

On the other hand, I see many entrepreneurs who suffer from what I call Entrepreneurial A.D.D.  For these entrepreneurs I find myself saying one word over and over:  Focus! 

So why do entrepreneurs lose their focus?  It has to do with opportunity.  While opportunity in the market is what launches entrepreneurs into business, it can just as quickly become their undoing.

What happens is this -- once the entrepreneur enters the market they start to observe many other opportunities that exist in the marketplace.   Entrepreneurs, especially less experienced ones, start to see new business opportunities everywhere.  They feel compelled to pursue those opportunities even if it is not wise to do so.  They feel a desire, even a compulsion, to start additional new businesses even while their first one is still in the start-up phase.

Sometimes the opportunity relates to expanding into new markets.  The entrepreneur sees opportunities to move into additional markets that are not part of their current business operations.  The problem arises when the business and/or the entrepreneur are not yet prepared for this expansion.

For example, a former student of mine had started a franchised business that provides in-home care for the elderly.  During his first year in business, and even before his business had positive cash flow, he was approached about buying a distressed franchise operation of the same business in a nearby town.  When he asked my opinion, I urged him keep his attention focused on the first business he had started - he did not need two businesses that were operating at a loss!

But, he could not resist what he perceived as an opportunity worth a risk and bought the second franchise.  About a year later he called and admitted that it was a huge mistake.  He managed to get both businesses on the road to profitability, but was working 80-100 hour weeks and going much further into debt than he had ever intended.

Even more disruptive is when entrepreneurs pursue opportunities in entirely new businesses before their initial start-up venture is profitable.  I recently met with one entrepreneur who had five distinct businesses operating.  But, not a single one of them had reached profitability.  Luckily, we were able to develop a plan to shut down most of them so he could focus his efforts on his initial start-up business and build it to the point of positive cash flow.

The best way to avoid pursuing too many opportunities too quickly is to write down a clear mission statement and always remember one word:  focus.  If truth be told I believe that mission statements are most important as a tool to keep the entrepreneur on track than as a means to communicate to our team and to the outside world about what we offer. 

Given a choice between strategic focus and diversification for small and medium ventures, I will choose to push for more focus almost every time.