You have a well-established business. You understand what makes it tick. The business is growing well. Issues, if any, are being resolved by someone you trust. You feel the need to start another business. This is driven by your yearning for the thrill of another start-up. Or your vision to diversify the risk of your business holdings. Or this might be another step in your dream of having a diversified conglomerate. You want to start a business in an adjacent field to your current business or in a completely different field.
So, you start the new business, right? Not that simple. A healthy proportion of family business owners we meet want to start another new business. Yet, most of them get stuck at the first hurdle- what new business should I start? This post gives you 4 essential steps to figure out the answer to the ‘which new business’ question.
Step 1: Identify your critical capabilities.
Ask yourself the question” what are my capabilities?” “what are my core strengths?”. These can be capabilities you have developed through running your existing business. This includes skill sets such as sales & marketing expertise and managing the regulatory environment or could be Industry specific skills. Also consider differentiators such as access to a resource in short supply e.g. scarce industrial land.
Don’t forget to include capabilities developed through things you are passionate about. Regardless of you having started a business around them. For family businesses, it’s important to consider the passions and capabilities of the next generation. The next generation may be more clued into new trends and opportunities. Often, they may have very different capabilities to the previous generation.
The best way to do Step 1 is a workshop with the top management of your existing business(es). It’s important to put a name to each of your capabilities. The more specific the capability name the better. For e.g. ‘Marketing construction products to B2B customers’ is better than ‘Sales & Marketing expertise’. Step 1 gives us the answers to our product / service differentiation and hence our competitive positioning. That makes it a critical step. Involve trusted third parties in the workshop to ensure an objective evaluation of capabilities. All of us tend to get carried away with assessing our own capabilities!
Step 2: Identify your critical constraints
Ask yourself “What are my current constraints?”. Constraints set the boundary conditions while evaluating a new business. This saves a lot of time. Constraints can include elements like capital investment, break-even point, risk tolerance, geographic coverage and availability of management bandwidth. It’s useful to put a number (or at least a range) to each element.
Step 3: Identify the universe of opportunities
Have another workshop with your top management! Include an objective third party for good measure. Brainstorm ideas for new businesses, regardless of how outlandish they seem. For each idea, the group checks for alignment with your capabilities (Step 1) and staying within your constraints (Step 2). This step will need work pre and post-workshop.
Try to be specific with naming the opportunities in the universe- for e.g. ‘Do-it-yourself furniture’ is better than ‘home decor’. That said, don’t try to force specificity beyond a point. If the opportunity drivers and the source of your competitive positioning is homogeneous, the specifics can wait.
At the end of Step 3, you should have a set of opportunities which seem worthy of a closer look. There should be no more than 10 and no less than 3 opportunities at the end of this step.
Step 4: Compare the opportunities
Compare the opportunities generated from the previous step. Do some homework and put them into something similar to a GE-McKinsey 9-box matrix. Opportunity attractiveness considers elements like size of the opportunity, competitive intensity, scalability and growth. The sync with your capability is the level to which the industry matches your abilities.
What next?
Do further analysis of the opportunities that ‘look good’ and those that you need to ‘evaluate further’. Stop once you are confident that a robust analysis is complete. And then trust your gut and take that final decision!
Caveats
This post is an oversimplified look at choosing your new business. Deciding on a new business takes significant effort and time. And can be nerve-wracking. Yet, it’s also a lot of fun and a worthy investment for the future.
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