I may get many opposing views to this post. But I simply cannot write it in any other way. Concentrate your business rather than diversify it. I am a firm believer in this principle. As the world grows and more and more people attempt to jump into various sideline businesses, many smaller businesses believe they need to be all things to all people. I was one of them. But I am not in that category any longer. It is tiring and simply unrewarding to attempt to keep this stature. Few businesses do it well and survive. The ones that do generally started in one area of commerce and as they grew they stomped out any competition and entered new areas. Wal-Mart is the perfect example of that model. The perfect model for concentration over diversification is a burger joint called In-N-Out Burger.

In-N-Out Burger is a west coast burger joint that I visited as a teenager in California. Their menu consisted of a hamburger, cheeseburger, and a double-double (double cheeseburger). They has fresh cut fries as a side and they offered a few variations of it: plain, chili on top, cheese on top, and chili cheese. Throw in a few shakes and the normal soda offerings and that is it. Let’s go back to their main course – only 3 items. If you went by any In-N-Out during meal time, there were long lines that generally backed out of the drive, out the parking lot and into the street. They were packed! Fast forward to today. I recently visited Tucson and ran across an In-N-Out Burger. You know how many main course items they had on their menu – only 3. They had the same offering for the fries as well. And to make the scene complete, they had long lines and a packed house inside and out. So how much time has passed between the days of my teenage visits and today? 20 years! That’s right. 20 years of selling a hamburger, cheeseburger and double-double with fresh cut fries.

True testament to committing to a few things and doing them very well. There are many other businesses that follow these principles but few demonstrate the shear simplicity in example form as In-N-Out Burger. Many years ago I started a computer retail business. We started out building computers, fixing computers, selling parts retail, networking and home service calls. Before my company was acquired by NorthStar Global, Inc ( a company for which I am an officer and shareholder), we were hired to put furniture together, set VCR clocks and fix TVs. I was afraid of turning away business and ultimately losing revenue. So I continued to add more and more services and products to my lineup. I even became a mobile phone reseller at one point. I was running ragged trying to keep up with all of my various and diversified product line plus all the supporting services. If this sounds like you, keep reading.

Finally, I said enough. As CEO of NorthStar Global, Inc. I vowed that this company would not repeat the same mistakes. Diversification was a mistake and the fear I had of losing revenue was unfounded. When I narrowed our offering down and specialized we actually made more money. In the same town and same physical location, NorthStar Global had twice the revenue in the first year as my previous company had in its 6th. We continue to tighten our focus on concentrate on more specialized segments of industry. As we do, our revenue continues to increase.

Let me make one disclaimer. Your product and/or service either has to have a pre-existing need or you need to be able to create one like Proctor and Gamble did in China. The Chinese did not have a problem with dandruff. P&G marketed Head and Shoulders in such a manner that it was projected that you would be socially unacceptable if you acquired dandruff. Head and Shoulders sells well in China because P&G created the need. You normally can not just pick something to specialize in and expect revenues to flow. Or I would specialize in spending time with mu family while the riches poured in. In general though, specialize in a needed segment or create the need in a specialized segment and the concentration factor will work for you as long as you work it.

This same principle also paid off in the stock market. I researched various stocks as though I was considering purchasing the whole company. I read their financials and any document I could get my hands on. I even visited the main office of one of the companies. When you buy stock, you are purchasing a part of that company. So do your due diligence as you would if you were buying a company outright. My research and focus paid off. I invested in one stock out of all the companies I researched and tripled my money in less than 6 months. As I researched the company, I learned what affected the company positively and negatively. So I was able to make better, more informed decisions.

You can make money by trying to be all things to all people and you can generate returns on your stock investments by diversifying. I am not arguing either point. I am simply stating that you will make more money with less effort by concentrating your focus rather than diversifying. Although I am invested in multiple entities, each entity has a narrow concentration of products and/or services offered. I know it may seem scary to take the plunge. But once you do, you will wonder why you didn’t focus your company’s energy sooner.

This entry was posted on Tuesday, August 5th, 2008 at 5:13 am and is filed under Entrepreneurship. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.