Does this sound like your company?
Mohanbir Sawhney, a professor, author, and consultant to numerous tech companies, says he once worked with one company that claimed to be in six industries. Sixty percent of its revenues came from one industry, 30 percent of revenues came from the second industry. Then the company had six clients in four other industries.
That company wasn't really doing business in six industries, says Sawhney. They were doing business in two, and spending way too much time on four marginal opportunities that should have been dropped.
Sawhney says he's seen far more startups, like this one, "die of indigestion than starvation." It's not that startups lack for growth opportunities, he says. It's that they lack focus. They don't do a good job picking their battles. They pursue too many opportunities, in too many markets, on too many platforms. The problem is a lack of focus.
I recently spoke with Sawhney, the McCormick Foundation professor of technology at the Kellogg School of Management at Northwestern University and the co-author of Fewer Bigger Bolder: From Mindless Expansion to Focused Growth, about how to pick your battles, how to simplify everything, and why Virgin is more focused than it seems. The conversation below has been edited and condensed.
I understand that it's dangerous for startups to over-extend themselves. But don't they also need to be flexible?
Early on, you need to be extremely opportunistic. Any customer, any deal, any account--you need to chase it down. You’re desperate to establish a foothold.
I worked with an online services company that couldn't figure out if it wanted to be a B2B company, or sell to consumers, or pursue a private label model, or hire a sales force or sell online. They didn't know if their market was government or financial services or education.
So the lack of focus happens very early. Even before the company has a customer and a product, they can get unfocused.
How does an entrepreneur know when it's time to be a bit less opportunistic and to focus?
It's often the point at which you achieve some level of critical mass in some market or segment. Monitor your win/loss ratio. If you're attracting a disproportionate share of customers in a particular market, it's time to narrow.
If you are gaining good traction in one customer segment, doesn't that mean it's okay to tackle another one?
Yes, you can go after another one. But one. Not six or ten. If you're in banking, maybe you can expand into insurance.
Your book advises entrepreneurs to simply everything. How, exactly, do you do that?
First, understand that complexity doesn't happen overnight. It catches up with you slowly.
Then there is a list of diagnostic questions you need to ask.
Look at your span of control. How many people are reporting to you? How much time are you spending managing people instead of being in front of customers?
Then look at the complexity of the problems you've created. What does it take to sign up a new client? What about bringing on a new supplier? How complicated is the process of making agreements with customers? How many approvals are required in making certain decisions? Are you moving decisions away from where the market is? Are you not delegating enough?
Meetings can breed unnecessary complexity, too. Next time you're in a meeting, look around you and ask, "What is the action that each individual will take following this meeting?" You will quickly realize that 80 percent of the people there have no action item.
Similarly, how much time do you and your team spend analyzing and rehashing the past versus figuring out what the heck you need to do next?
Email is the same way. Ask yourself, "How many people have I cc'd on this email? For what purpose? What are they going to do with this?"
Can everyone in your organization find a clear path to how they add value to the customer? Either directly, or because they support someone who does? If not, they're fired.
Is complexity really a killer for all companies? Is it possible to be a small conglomerate?
It can be done. Alibaba is eBay, Yahoo and Amazon all rolled into one.
The key is to create a common infrastructure. If you have commonality across some of your operations--usually manufacturing, distribution, supply chain, IT infrastructure--but you're in different markets or selling to different customers, it can work.
Another way to think about it is, can you become a platform company? The key here is to have a good understanding of what the platform assets are, and the ability to leverage the commonality they can bring. Then you can be in seemingly unrelated businesses.
Virgin says they're a brand venture firm. The only asset that unifies them is the Virgin brand, and the idea that whatever business they go into they should be able to disrupt. And then they leave the companies completely independent in terms of operations. Virgin may look unfocused, but if you look at the company through the lens of the brand, which is their platform asset, they're actually quite focused.
What if you're in a very specialized market?
No market is too narrow if you go deep enough. Think of Docusign. They do electronic document signing. How narrow is that? You can see them thinking, we need to get into document storage and management. But it turns out there's a lot you can do with document signing, and they're doing just fine, thank you.
If you've got a good thing going, keep going deeper, and build an unassailable advantage so that no one can compete with you. The moment you spread yourself too thin, you invite competition from the flanks. If you want to broaden your revenues, narrow your markets.