This article first appeared on March 28th, 2011.
I’ve started up an online retail business and have spotted another area I could move into. However, I would probably need to set up a separate business.
Should I branch out to exploit this opportunity or stick to what I know?
We’re regularly torn on this issue ourselves and debate it frequently internally. Speaking to people who have successfully run start-ups before, the most common advice we get is to not to diversify too early and to focus on what you’re doing.
If you are to diversify, stick with a product that you sell to your existing customer base and that can fit within your brand.
That said, there are also examples in the market like the Virgin brand, which has diversified well beyond its record label roots (though this hasn’t always worked out well for them).
Spending a lot of time in the online retail space, and also in China, we constantly see great online retail opportunities in Australia, much of the time in product categories unrelated to our business, Shoes of Prey.
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Some of these we get really excited about, to the point where we’ll take a few weeks to work out the supply chain in China, then spend time researching the market in Australia.
The question we keep coming back to is, do we focus 100% on Shoes of Prey, or do we take up one or more of these other opportunities? You should weigh up the respective pros and cons arguments for your own business, for example:
Arguments for staying as you are:
- To build a new business from scratch to a decent size takes a lot of investment in both time and money. To double the size of Shoes of Prey, for example, isn’t a simple task but it is probably much easier.
- There’s a saying that “retail is detail”. Working on a second online retail business might mean we miss the details on both so we fail or only achieve moderate success on two businesses instead of strong success on one.
- What is your competitive advantage? Ours probably lies in our brand and the relationship we have with our customers. We wouldn’t be utilising that advantage in starting a new business outside the Shoes of Prey brand and customer base, so why not focus on maximising the value from our existing competitive advantage?
- When we’ve spoken to any potential external investors or anyone with experience in starting and running a business, they say focus is definitely better than starting a second business.
- What are your hours like? We already work an incredible number of hours each week on Shoes of Prey, to start a second business we’d have to either hire more people or forgo some of the projects we’re working on for Shoes of Prey.
Arguments for starting a second business:
- Diversification. The majority of the Shoes of Prey co-founders’ savings and years of our work are tied up in one investment. If something happens to Shoes of Prey then we’re not diversified at all. The same could happen to you, too.
- We’re entrepreneurs at heart, we love working on Shoes of Prey and it almost entirely consumes us. But we also love starting new businesses. While I had thought it would be impossible for me to enjoy something more than working on Shoes of Prey, the thought of starting something entirely new has an additional spark to it.
- While we’re passionate about the business and our parts in it, Mike (one of my co-founders) and I aren’t passionate about the Shoes of Prey end product – women’s shoes.
That’s not a major issue for us, I love the customer service, marketing and operations side of our business which I focus my time on and Mike loves the technology and operations parts of the business that he works on.
But for Mike and I there would be an additional spark of excitement if we could work on a product we loved. Maybe you have that similar kind of passion.
- In comparison to starting Shoes of Prey it would be so much easier for us to start a new online retail business.
We now understand sourcing and shipping from China and we have an office and a team based in China.
We have relationships with PayPal and NAB for online credit card processing. We’ve learnt an enormous amount about online marketing.
Developing a brand, pricing and a product range are all things we understand a lot more than we did two years ago. Doing the programming for another online store would be a breeze. There would be significant economies of scale in running another online retail operation together with Shoes of Prey.
That is something for you to bear in mind. While it might seem like hard work to start up another business, the actual set-up should be easier the second time around for you.
I’d love to hear your thoughts. Have you had experience starting two separate or only semi related businesses at the same time and how did that work out for you?