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Starting Multiple Businesses

May 24, 2019 Comments Off on Starting Multiple Businesses

A few years ago I was reading through a book called Growing a Business by Paul Hawken. This book was one of the first influences that started me thinking about going into business. It’s a good read, and one concept in particular that has stayed with me has been to start only one business at a time.

Multiple businesses

Entrepreneurs have to find an idea that they can do better than the existing competition. They will often look to existing companies and try to offer something better, or perhaps combine services to offer something unique. As a result, fresh startup ideas often incorporate multiple businesses in their pitch. The entrepreneurs often don’t even realize that that’s what they’re doing, but when it happens the result is very difficult to get off the ground.

The example that Growing a Business used was that of a farmer who wanted to slaughter his animals himself to save money and sell the meat at a stand by the road. This is actually opening three businesses at once: A farm, an abattoir and a retail butcher shop. All of these businesses require very different skills and capabilities and could easily overwhelm the farmer. I’ve seen my own examples too, including:

Authors who self-publish their book
Coffee shops that also sell crafts on consignment
Restaurants that also do catering

Just recently I met someone on the Internet who had programmed a database with details on old computer games. He wanted to make a business that offered access to this database, a portal that allowed people to access multiple online communities to discuss the games, and an auction function like eBay but with a different auction feedback system. Talk about biting off too much at once!

Why is starting multiple businesses a problem?

Running a business is about matching resources and capabilities that a business has to customer needs in the marketplace. When a business starts up, it has zero capabilities and very limited resources. The entrepreneur has to develop everything from scratch and that takes a lot of effort. In addition, having multiple businesses start at one time increases the amount of competition the business faces.

To put this in perspective, imagine a startup magazine that wants to open their own magazine stands to sell directly to customers. The idea is that they don’t have to pay a distributor and can get a higher percentage of the profits. The capabilities required to produce a magazine include:

Stories and journalism
Photography and graphics
Layout and typesetting
Administration
Marketing
Printing
Distribution

But to open retail stands requires very different capabilities including:

Finding locations
Hiring vendors (HR)
Constructing kiosks
Supply chain management
Processing payments

And this list is not exhaustive. This is a mountain of work that would take dump trucks full of money to get going. In addition, now instead of competing with other magazines for sales, the company is also competing with other magazine sellers as well, all of whom are more established than the magazine startup. A venture like this would likely not last very long at all.

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