Branching Out — Does It Make Sense?

tree-gear-0516Things change; that’s a message we repeat on a regular basis in the trade media. Disruption, commoditization, price erosion, there are a whole host of factors play into changing the business landscape. Sometimes the evolution of a business is gradual and easy, other times it can be a little rocky. At some point or other every business faces a crossroads: Do we have to try something new?

Getting into new categories or verticals isn’t always easy, and almost always involves having to leave your comfort zone. That said, you need to think hard about new ventures and apply some objective analysis. Remember: A business makes money, a hobby costs money.

When trying to decide how to branch out into a new business ask yourself three questions to help you determine whether or not it’s a good idea.

First, ask yourself what the marketplace is asking for. Is this something that’s in demand? These are remedial business school questions to ask. Think about the SWOT: Strengths, Weaknesses, Opportunities and Threats.

Consider the risks and figure out how much money it’s going to cost you to add a new category to your business. “You have to spend money to make money” is a phrase that I typically associate with people who have squandered their fortunes and ended up with nothing. That’s not to say that you don’t have to make a serious investment in time, money, and labor in order to have a decent chance of making it work. But don’t cash out your existing assets and put everything on “red” either.

Lastly, do a realistic assessment and ask yourself if this is really going to make a difference. Is this a well-thought out exploration into new territory, or are you taking a Hail Mary pass to save a doomed enterprise?

In some instances I’ve witnessed I got the distinct impression that the business owners were just slapping on another business on top of their existing one as if it were a handful of Playdoh. One AV integration company I knew had been in business for almost ten years, and got hit hard by the economic downturn. Caught flat-footed, and pretty much making it up as they went along, they decided to expand their retail storefront and add 12v car audio. The only thing that choice managed to do was drain their cash and credit even faster, leading them to bail on their lease in the middle of the night. On the bright side their demise was a profitable opportunity for other local AV Pros to pick up the clients they abandoned and get paid handsomely to complete their half-finished jobs.

Every scenario has an upside and a downside; you just don’t want to be the one who’s having the downside.

I don’t mean to discourage readers. Not all attempts at changing your business are doomed. I can think of just as many successful examples as unsuccessful ones. One of my friends capitalized on his AV company’s expertise to create a division that specializes in custom designed and installed wine cellars that has been very successful.

Another long-time AV friend has shifted gears several times in a thirty year career. What began as a specialty HiFi shop morphed into an AV integrator, while also branching out into the sales and installation of C-band satellite dishes (remember those?) in the late ’80s. His satellite division eventually morphed into sales and install of digital dishes, and eventually out of satellite altogether as AV grew larger and more complex. He’s still prospering today, and his business now looks nothing like it did even ten years ago.

So by all means, explore new opportunities, just be sure to ask yourself the right questions and think hard about the answers.