Stay with the business that you know
The seminal management book in ‘Search of Excellence’, by Tom Peters and Robert Waterman, was published in 1982 and is one of the biggest selling business books of all time. Peters and Waterman found eight common themes which were responsible for the success of the chosen corporations, which have become pointers for managers ever since. Number six was stick to the knitting – stay with the business that you know.
Stick to the knitting, also known as single business strategy, has been defined as businesses in which 95% or more of sales come from one business.
The advantages of a single business strategy include:
- A single business offers less risk than trying to expand into new businesses. Sadly, new businesses have an 80% failure rate over a five-year period.
- Better economies of scale – Costs per unit of production fall as volumes rise, so single businesses with high volume businesses have a cost advantage over their competitors.
- Brand Protection – Having only one main product or service sends a message to the marketplace that you are an expert in that area and gives you an advantage over competitors who make that product as a sideline.
- Less resources required – Expanding from one to two businesses involves two budgets, two business plans, two marketing departments, two production processes, etc.
- Singular Focus – With only one business management and staff can focus 100% on knowing everything about their industry, competitors, innovations, and new products.
A recent Thomson Reuters study (Single- vs. Multi-Line Businesses: Which Support the Better Bottom Line?) demonstrates that concentrated business firms provided superior top- and bottom-line growth compared to the diversified business firms. In addition, the shares of concentrated businesses outperformed their diversified peers.