The Balance Between Focus and Diversification

focus vs diversificationI constantly struggle with focus regarding my businesses.  I am already working on quite a few businesses and looking at numerous other deals that divert my focus.  With that being said I don’t necessarily think having a diverted focus is a bad thing, it comes down to balance in most cases and there are always trade offs.

I don’t have a definitive answer on how to handle this dilemma.  I think it is different for everyone’s situation and personality.

Certain people for instance are laser focused types.  A typical example would be the artisan who spends their whole life perfecting and polishing their craft.

On the other end of the spectrum is the serial entrepreneur or the investor who has ownership in many businesses or is the founder of many businesses.  Warren Buffet, though he is focused on perfecting his craft of investing in businesses he has never focused on one particular business.  He relies on his managers for this.

My problem is that I constantly see opportunities.  Once I identify these opportunities I get excited about the prospect of starting something in that space.  I see the vision in my mind and how it would work.  I build the entire business in my mind and then want to start building it into a reality.

The problem is I am trying to run and grow many businesses already.  I have a lending company, an ATM company, an online business, and an electronic payments company.  I am also looking at various investment opportunities.  On top of that, we are building the REB media platform as well.  Not to mention all the little side projects we have started.

The question then becomes, how much is too much?  Have I taken on too many different things?  What are the tradeoffs with focusing vs diversifying your focus?

Seth Godin had a short piece, titled The number 1 reason to focus,,that really resonated with me.  The gist is that when something gets hard it is easy to divert your focus, but the hard part is what will help you succeed and so you need to focus on that particular business.

This is absolutely true! I know this is the case because it really is why we abandoned one of our business ventures.  We ran into obstacles that were surmountable but the reality is things were going more smoothly in our other businesses so it became easy for us to just work on those.

I also encountered a lot of issues shifting my brain to focus on this other business (a babysitting service) away from our other businesses.  It was too alien to our other ventures.  The market was completely different along with the product and business model.  It was a good model but it became very difficult for me to shift gears when working on it.

If you are going to be diversified I also believe it is important to find ventures that do not require large amounts of focus for the day-to-day operation of the business.  This is a no brainer but I think should be mentioned.

The businesses we chose have a lot of upfront effort in putting the deals together and marketing the business but once the deals are done you do not have a ton of ongoing residual effort to maintain (hopefully).

Other types of synergistic relationships are to have companies that when you grow one you in turn grow another.  If you are a homebuilder it makes sense to have a title company.  If you are a commercial real estate investor it is good to have a property management company.  If you have a sand & gravel company, backing real estate developers (intelligently) can be a good strategy to grow your core business.

Now, when I have studied long-term successful companies referred to as Hidden Champions these are all focused companies.  They specialize in their niches and attribute this to one of the reasons for their long-term success.  They many times have to innovate and stay relevant; otherwise they will go out of business because they have nothing else to fall back on.

This is why I go back and forth on this subject.  There does come a point when focus can be bad and all the innovation in the world can’t save you.  If you were a typewriter producer or a horse drawn buggy factory it does not matter how well you innovate those products, you went out of business.

Like many things in life, there is no clear-cut answer on the best way to do things.  For me it comes down to trial and error.  I am constantly refining my focus.  I look at new ideas and new products/services and decide whether to integrate them or not.  Some I set aside for some indefinite future.  Others it does make sense to integrate with our current business strategy.

What I do know is just has to keep evolving as the environment evolves, as I learn more and as I change in my interests and specific situation.

 

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