Company TBD

One of the bad habits you pick up when you spend too much time in meetings as opposed to doing work is speaking management jargon. Have you ever found yourself saying ‘Core competencies’ or ’synergies’?

Management gurus constantly tell us to focus on our core competencies and outsource the rest. While I think this certainly has merit, as with anything, there are plenty of data points to support the other argument. E.g. Apple has been very successful controlling all aspects of their design and manufacturing process. They also famously shut down their outsourcing center in India and brought those functions in house.

But there is a valid question here – which business are you really in? Is Starbucks in the coffee business or in the retail music business? Incidentally, they recently stopped selling music in their stores to focus on coffee and service.

I’ve been thinking about this question ever since I’ve been going to this barber shop in Manhattan’s East Village. Let me explain. Take a look at this picture…

Watch battery or haircut?

Are they in the hair cutting business? Or the watch battery business?

One one hand, I can imagine the management gurus saying – You have to diversify your revenue stream! Innovate new products! Other gurus will say – focus on your core competency!

Its also not hard to understand the rationale of the owner of a small business – I have this skill, why not provide this extra service? Even if I change one battery a week, that’s extra revenue I didn’t have before. What do I have to lose?

To me, this is the critical question. I would argue that there IS something to lose – namely, new customers. I’ve been getting my haircut here for over 2 years and love the service. Its quick, decent quality and costs $10. But I remember thinking during my first visit – these guys can’t be that great if they have to sell watch batteries to supplement their hair cutting business. I decided to take a leap of faith and am happy I did. But how many potential customers walk by, look at the above sign and decide to pass? Since in 2 years I have never seen anyone bring their watch here to change their battery, I’m willing to guess they are losing more potential hair cutting customers [because of the sign] than gaining new watch battery customers. So, there is in fact something to lose!

If you think about it, we are constantly hedging our decisions. We get a double major because we don’t want to choose one over another. We buy a printer that prints, scans and faxes just in case we want to do all three. Making tradeoffs are difficult because it forces us to give up the potential value from the other option…even though we may seldom exercise the other option.

So, I think the lessons for entrepreneurs and all businesses are:
- Focus on selling products services that will make you world class in that space
- Providing multiple differentiated products/services may negatively impact your brand. If new products are sufficiently different from your core business, think about creating a new brand (and the cost of creating a new brand should be part of the business case)
- We all have a finite amount of time, and thus are limited to how wide we can spread our efforts

So, to my friend who owns the barber shop I recommend getting out of the watch battery business. At the very least, remove it from the main sign. And focus on cutting hair. By the way, get some new magazines too!