Selling anything, to anyone, anytime is one of the greatest temptations that a business must resist, writes Arthur Dzaghgouni of Berman Fisher.
When I was growing up, I was always surrounded by owner/operators and entrepreneurs who wanted to build great businesses. There were not many who wanted to work for others. One thing I noticed, however, is that many of the businesses these entrepreneurs started tended to follow a similar life cycle. The business would begin with a great idea, a specific need not being met by anyone else. This idea would become an obsession for the new business owner. He would spend his days and nights thinking and talking about his business. His passion would become contagious. Soon customers would flock to his premises and he would be the talk of the town. “Have you tried that new place on….?”, “Have you been to….?”, “He is making a killing!”. Indeed, it would seem that the owner had hit the jackpot and was sitting on a gold mine.
Then, the dreaded day would come. It would arise either from the owner having a new “bright idea” or, more likely, from a customer who would walk in and ask to buy something that was completely outside the business’ scope or owner’s circle of competence. The owner would then be faced with a dilemma; do you focus on what you do best or do you try to please everyone? The customer is always right, right? Not necessarily. In most cases, after getting a few such requests, the owner would succumb (either from greed or pressure) and start selling what was being requested. The end result would be a business which is transformed into a “bazaar” and sells everything under the sun.
I remember one such owner who opened a gelato place. It was the best gelato in town. I still remember my favourite flavour – Pistachio. It quickly became the place to go. The main challenge the owner faced was keeping up with the foot traffic and ensuring there was enough gelato on hand. It had a diverse clientele and was loved by all, from the kids in town to the adults. What could go wrong?
I’m not sure how it happened, but after a little less than a year, the gelato shop also started selling alcohol. My guess is the suggestion was made to the owner that alcohol was a high margin business and that, with all this foot traffic, he should capitalise by selling a high margin product to his existing customers. Doesn’t sound like a bad idea! Isn’t it every businessperson’s goal to sell high margin items? Without a lie, within three years the place was making sandwiches and had also become a smoking lounge and was selling tobacco. And today, well the business is no longer operating.
It was not until business school that I learned the above scenario actually has an acronym given to it by business consultants. It’s called the three As and should be shunned at all costs. The three As are one of the greatest temptations for any business: selling Anything, to Anyone, Anytime. Over the years all businesses suffer from this to some degree, as product lines and offerings tend to accumulate over time. Businesses end up in a similar predicament faced by any homeowner with a garage. Things tend to pile up. Now and then however, just like garages, businesses need to go through a cleansing process – a garage sale so to speak – in order to rid them of products and service lines which are clearly outside their area of expertise. Jack Welch, the renowned former CEO of General Electric, followed this strategy when he took over the helm of GE, by insisting that GE products be either number one or number two in their markets or be sold or closed.
Without such discipline most businesses, over time, find they have diversified into all sorts of areas. In the business world this tendency has been termed “diworsification”. A classic example is when, in the early ‘70s, Coca-Cola was also involved in the shrimp farming business. It’s hard to believe, looking back, how someone could have thought that synergies existed between soft drinks and shrimp farming, but somehow it happened. It took another legendary CEO, Roberto Goizueta, to make the sensible decision to get Coca-Cola out of that business.
The harsh reality is that no business can be good at everything, not even Coca-Cola. Businesses need to focus on what they do best. This does not mean businesses should not evolve. Indeed, businesses that are stuck in the status quo are doomed in the long run as customer needs change and new competitors enter the market and shake things up. Businesses need to continually adapt to these changes. There is a difference, however, in evolution versus revolution. Evolution is described as the gradual development and refinement of something over time, whereas revolution is a sudden, radical or absolute change in products and/or services.