I advise all of my clients to stay focussed. That’s just common sense, right? Well, you might be surprised just how hard businesses find that; no matter how big or small they are, it really doesn’t come naturally. Business owners can get themselves into a terrible muddle because they seem to think that because they are smart, successful, and energetic business folk they can turn their hands to most anything and it will work out, or that brand loyalty will bring their customers along for the ride. By way of example: if you are a successful printer then perhaps opening a bookshop is a bit of a leap into the unknown. It certainly comes with many risks and it is more likely to be very costly than it is to make you rich, particularly in this day and age with bookshops fast becoming extinct. If you are a printer under pressure to diversify selling a higher value service, like the production of bespoke training manuals, that require printing, might be a much better idea. I know people who have tried both these things with the results implied in my comments.
Occasionally, you will find someone who has made a great success of running vastly different businesses: Richard Branson springs to mind. He is one of the relatively few exceptions that proves the rule that you shouldn’t try this at home unless you really understand what he did and can then convince yourself that you have the credentials to do it too. He created a highly personal brand with attributes that were transferable on a scale and to the extent that his “challenger” (there has always been an element of challenging the status quo in his most successful businesses, either directly, or implied in the branding) positioning eventually became acceptable in less fashionable segments than he started in: that’s how he ended up running a railway. Fashion? I hear you say. Just what has fashion got to do with it?
Fashion is a form of innovation: it creates demand, in a similar way to technological change, but with one major difference – it is based on belief, rather than hard facts: it’s a sort of soft social religion. Fashion has lower barriers to entry and short lifecycles so it is a major engine of demand in consumer markets. Pop music is all about fashion and it makes a great business for that very reason. Railways aren’t quite so fashionable and the barriers to entry are much higher so it is, to my mind at least, something of a work of genius to be able to leverage a fundamentally fashion-based brand into such unfashionable territory.
Brand Loyalty.
Beats Electronics, founded in 2006 by Jimmy Iovine and Dr. Dre, the hip-hop star, has built a great brand around its studio-quality headphones and related products. They are über fashionable and I covet a pair, albeit I’m probably somewhat out of its target demographic. Although it originally outsourced manufacturing it brought this in-house in 2012 and now, on the back of purchasing online music services business MOG, also in 2012, it has announced that it has raised some funding from a whole gaggle of notables to start its own music subscription service; a bit like Spotify, that, as it happens, I am listening to as I write this. All this is some way away from its business entry point, selling high quality and cool headphones, so I wonder how well all this is likely to work out? Is this a diversification too far, for them?
Unlike a traditional bookstore demand is likely to grow strongly in the next few years for these services and clearly “Dr. Dre” knows the industry pretty well, so the idea is at least understandable in this case, but will Dr. Dre ever run a railway, as Richard does? Is this ambition to diversify into different although related business territory likely to work? Has this relatively new brand got legs? Well, it’s hard to see being “cool” as that transferable benefit outside of the fashionable music market, but its quality angle may hint at a wider scope but I doubt it. So, my simple answer is no, Dr. Dre is probably never going to run a railway, but he has at least half a chance of diversifying the brand into music services, as he has managed to attract $60M to fund this adventure into vertical integration, but there are many challenges and unknowns to be overcome. Speaking as someone who once raised $80M to start a rather fashionable business, with equal or greater challenges to overcome (which was then closed two years later when speculator fashion changed) whether this turns out to be a good investment is another story altogether.