Diversification or Distraction? When Your Business Should Expand

Should you diversify your business or concentrate harder on the thing you already do best?

Diversification can open new markets, create additional revenue streams and reduce dependence on one product or customer group. It can also consume cash, distract the team and introduce complexity the business is not equipped to manage.

In this solo episode, recorded in Dubai, Peter Boolkah explores the difference between strategic diversification and expansion for its own sake.

Using the UAE and Apple as contrasting examples, Peter examines how diversification can support long-term resilience when it is aligned with a clear strategy and the organisation’s core strengths.

He also considers what happened when companies including Blockbuster and Peloton were forced to respond to changing customer behaviour and market conditions.

You’ll discover:

• Why diversification is not simply about launching more products
• How additional revenue streams can reduce commercial risk
• Why diversification must align with the company’s core strengths
• What Apple’s failed products teach us about unfocused expansion
• Why Steve Jobs reduced Apple’s complexity before expanding again
• How market changes can invalidate a previously successful strategy
• Why founders must consider operational capacity before adding complexity
• The questions to ask before entering a new market
• How the Seven Strata framework can help clarify your strategy

Diversification can make a strong business more resilient. But if the company already lacks focus, leadership capacity or reliable systems, it can deepen founder dependency and create an even more demanding Hamster Wheel.

Archive note: This episode was recorded in 2023. References to UAE economic figures, government initiatives and Peloton describe the position at that time.

CONNECT WITH PETER BOOLKAH

Website: https://www.boolkah.com
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ABOUT PETER BOOLKAH

Peter Boolkah is a business coach, author and speaker who has spent more than 20 years helping business owners build stronger, more valuable businesses that do not depend on them for everything.

He is the creator of The Hamster Wheel Trap® and author of Your Business Sucks: Build a Business That Works Without Destroying Your Life.

Peter works with founders and leadership teams on the issues that ultimately determine whether a business creates freedom or becomes another job: leadership, founder dependency, people, profit, execution, scaling, exit readiness and enterprise value.

His approach is direct, practical and built around one simple question:

Do you own the business, or does the business own you?

Learn more at https://www.boolkah.com

Transcript

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PETER BOOLKAH — 00:11

Hi, Peter Boolkah here, and welcome to today’s edition of The Transition Guy.

Today’s episode is going to be slightly different. I’m currently out in Dubai, and I’ve been pleasantly surprised by the region.

Contrary to a lot of what people say about the region in the press, the diversification policy across the UAE is fascinating. Since I’ve been here, I’ve been amazed by what they’re trying to achieve.

Talk about a country that has been highly progressive. Think about it: 50 years ago, what you see behind me was desert—apart, obviously, from the Persian Gulf. But it was pure desert.

In theory, nothing should be here. Nothing should be able to live here.

But look at it now. The development over the last couple of decades has been unbelievable. Everywhere you go within the city, there’s development, and they’re continuously looking to expand.

Their plan for the future is unbelievable.

When you look at businesses, countries are not really that different. Take Apple. Apple’s ability to diversify allowed it to grow as a business, survive and evolve.

With Dubai and the wider UAE, it’s no different.

At the time of recording, the UAE has a GDP of approximately $421 billion. It is the fourth-largest economy in West Asia and the second-largest economy in the Gulf Cooperation Council.

Think about that for a moment. It’s the second-largest economy in the Gulf Cooperation Council and the fourth-largest economy in West Asia, despite many other countries in the region being far more established.

Although the country’s economic growth has been driven largely by oil since its discovery in 1962, the UAE has focused heavily on diversifying its economy in recent years.

People from approximately 200 different nationalities work in the UAE across services, financial sectors and almost every other sector you can name. This helps the country reduce its dependence on oil.

You wouldn’t necessarily associate the region with agriculture, but there is considerable agricultural activity.

The infrastructure is first-class. Construction is significant, and the services are remarkable. So many people are coming here to work that it’s slowly becoming the next Singapore.

You have tourism. In 2022, Dubai had an extremely strong year for tourism. You also have aviation, telecommunications, aluminium production and numerous other sectors.

The Abu Dhabi Economic Vision 2030, Dubai Strategic Plan 2015 and UAE Vision 2021 have all played roles in implementing diversification policies across the region.

The UAE has also taken several measures to attract foreign investment and foster business growth.

What have they done?

They’ve allowed 100% foreign ownership within certain sectors. They’ve introduced the ten-year Golden Visa, the Green Visa and a freelance visa.

They also organised Expo 2020, which was remarkable.

The country’s leadership has focused on advancing entrepreneurship and innovation, helping make the UAE a global economic player. Even cryptocurrency was playing a significant role in the UAE at the time of recording.

Dubai is proactively strategising for the future. Its leaders recognise the importance of not depending on a single source of income.

They know that the movement towards electrification and away from fossil fuels means relying heavily on oil may not be sustainable over the long term.

They clearly grasp the significance of diversification and are making an effort to pursue it.

Whether those diversification policies prove to be the right ones remains to be seen over the next ten or 15 years. But they’re doing something about it.

What factors should you consider when deciding whether to diversify a business? How can business owners determine whether diversification is the right strategy for their company?

I’ll give you a prime example of a company that has diversified successfully: Apple.

Apple has expanded its product offering and market reach significantly over time.

Apple was founded in 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne. Initially, it focused on personal computers with the launch of the Apple I.

The company achieved early success with the Apple II but soon faced challenges as competitors entered the market.

During the early 1990s, Apple struggled to compete against the growing popularity of Microsoft’s Windows operating system and IBM-compatible PCs.

To combat those challenges, Apple began diversifying its product range. It ventured into products such as printers, digital cameras and portable CD players.

Many of those products failed miserably to gain significant market share, and the company’s financial position continued to deteriorate. It was absolutely dire.

The turning point came when Steve Jobs returned to Apple in 1997 after a 12-year absence.

Jobs refocused Apple’s efforts on a small number of key products and initiated the development of the iMac, which helped revive the company’s fortunes.

What was interesting about Jobs was that he understood the importance of diversification, but he also recognised that it had to be strategic and aligned with the company’s core strengths.

During the early 2000s, Apple expanded into the digital-music market with the launch of iTunes and the iPod.

That was a complete game-changer for Apple. It created a new revenue stream and helped establish the company as a consumer-electronics powerhouse.

Apple continued this strategic diversification with the launch of the iPhone in 2007. The iPhone revolutionised the mobile-phone industry and became the company’s primary revenue driver.

Its success propelled Apple into becoming one of the world’s most valuable companies.

Apple’s strategic diversification played a crucial role in transforming the company from a struggling computer manufacturer into a global technology leader.

By focusing on innovation and identifying opportunities in new markets, Apple overcame its challenges and flourished within a constantly changing industry.

You can still see how rapidly that landscape changes.

When you’re considering diversification, what questions should you ask?

One of the first things to consider is what factors should determine whether you diversify the business. How do you know whether diversification is the right strategy for you?

You’re not always going to know.

Take Blockbuster. Blockbuster had an opportunity to acquire Netflix, but streaming wasn’t part of its strategy. By the time it decided to respond to the change, it was too late. Blockbuster was dead in the water, while Netflix continued growing.

Look at Peloton’s position at the time this episode was recorded.

During lockdown, Peloton’s strategy was solid. People were at home and didn’t know what to do with themselves. Exercise was popular, and people bought the bikes and subscribed to the online training.

Why? Because it was convenient, and people couldn’t get to the gym.

After lockdown, Peloton’s revenue fell sharply. People began selling their bikes, and the company lost subscribers.

It therefore had to consider a broader hardware strategy. That didn’t mean moving away from bikes and treadmills, but adding to the range.

It introduced a smart rowing machine and aimed to offer more of a complete gym-at-home experience.

If the customer has one subscription covering several different machines, perhaps the value proposition becomes stronger and more attractive.

These are examples of situations in which diversification and change may become necessary.

As entrepreneurs operating in a changing landscape, you have to ask: what should I be focusing on as a business? Where is the puck going, and how can I take advantage of that?

If you’re struggling and wondering where to begin, read Scaling Up by Verne Harnish.

It contains a framework called the Seven Strata of Strategy, which helps you focus on the company’s strategy. It’s a useful tool to explore.

The tool is available online, so you can download it and work through it.

Some people may find it overwhelming. If you want help understanding the framework and using the Seven Strata to ensure your strategy is solid, head over to Boolkah.com and get in touch.

I’d be happy to have a conversation with you about your business, the Seven Strata and how you can use them to build a diversification strategy capable of supporting sustainable growth over the next five years.

I hope you’ve enjoyed today’s episode. As I said, it has been slightly different.

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Share it with other people so they can benefit, and most importantly, subscribe so you don’t miss any future episodes.

Remember: failing to learn is learning to fail.

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