Scenario: Your small business is doing well, but you know there are additional opportunities out there if you can just add another product or service to your company’s portfolio. But what should you add? Maybe you have a great idea for a new product or service, but you have no expertise or background in that area. You’re willing to take some risk, but then again you don’t want to ruin the steady revenue and great reputation you’ve worked so hard to obtain.
Where to start. Where do you start to explore new ideas for your company? You’ve tried brainstorming with your business partners, but you never seem to come up with something that makes sense and fits with your current business. As General Douglas MacArthur once said, your last thoughts should be of The Core, The Core, The Core (sorry, General…).
3 Steps to the Core
Step 1. First, define your Core. When exploring opportunities for expansion, we’ll look at the three layers of your core capability. Every company has a central capability - a primary product or service - and yes, some established companies may have more than one. For our example, let’s use a service company that provides system engineering support. “System Engineering” is their core. Now, grab a large sheet of paper, or a whiteboard, draw a circle in the middle and label it “System Engineering”. That’s the core from which everything else is built. Now that you have determined your company’s “core capability,” you can explore ways to expand your business while still supporting and maintaining your original core. This is important because you don’t want to lose what you’ve worked so hard to achieve. Your business model is built on that core product or service - don’t lose sight of what you know best.
Step 2. Draw a larger circle outside the core circle. In this second circle, add products or services in which you are not currently involved, but which relate directly to your core. Think about your core product, and then think about what is directly related to it. For our example, related services to systems engineering could be computer engineering, computer design, computer systems administration or software design. Write each of these related competencies in the second “core” of your drawing.
“Don’t lose sight of what you know best.”
This second layer now contains business areas that most closely relate and support your current core capability. These areas are natural choices for company expansion - they are first cousins of your core and will fit your “family” well. They should be easily assimilated by your company and not only provide a new business area, but also expand opportunities for your core business.
Step 3. OK, on to level three. Draw an even larger circle around your second core - this becomes your third level of core capability. Add business services that directly support or relate to services listed in level two. For example, for software design you could add related services such as commercial software development, gaming software design and wireless applications development.
Keep in mind, that for this example we are following only a single level two “string” of business opportunities related to the core, but in reality you will fill both the second and third levels with additional related products or services.
When to Stop. Stop now. A good rule of thumb is not to go beyond level three when looking to expand your business. If you have a great idea that is clearly outside of level three from your core, you’re probably better off starting a whole new company or business unit to address that new product or service, otherwise you may lose focus on what made you successful, as well as confuse your customers, shareholders and employees alike.
Hopes Gone Bad. A great example of a company that didn’t stay within its core was a large western power company that lost sight of what it did best. For 90 years it owned and operated dams and power plants, providing cheap power to the citizens of its state. The company paid a steady dividend to shareholders, who consisted of a great majority of the citizens along with many retirement plans, 401(k)s and institutional investors.
Then in the late 90s at the height of the .com bubble the leadership decided the future was in telecommunications, specifically cell phones and fiber optic cable. The company sold its power generating assets with the vision of laying fiber optic cable all over the west. Their new business eventually filed bankruptcy and the stockholders lost virtually everything.
Employees that had been with the company their entire adult lives found that their retirement plans, mainly invested in company stock, were now almost worthless. This was one company that definitely lost sight of its core competency and thus, its demise. A great example of why it’s essential to keep your expansion plans within your core!
“If your idea is too far from your core, consider starting a new company.”
Doing it right. Using the core technique you’ll be able to determine many areas for possible business expansion. And remember, this is only the first step in the process. Next comes intense research into the selected product or service, performing market analysis, exploring funding availability and requirements.
But you’ve taken a great first step as you plan your expansion - one which is a logical fit for your existing business operations.
Author: Dave Everhart is the Deputy Director for the Nevada District of the US Small Business Administration, and formally an award-winning small business owner and entrepreneur.