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As a company, when it’s good to have more than one activity?

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As a company, when it’s good to have more than one activity?

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As a company, when it’s good to have more than one activity?

Many companies believe, that as long as they can do something, they why not do it! If they have some kind of experience in a specific field, then why we don’t add that to our set of activities?

Unfortunately, some of these moves are not strategic and therefore, they destroy the value you want to create for your company and its image, rather than boosting it.

But why?

One of the main factors that boosts a company’s growth is the accumulated experience it gains from working in a specific field, industry, dealing with a specific market on daily basis, when diversifying into different unrelated fields, you lose focus and some of this needed experience, as it can lead to a devaluation of your skills and expertise.

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Second, your brand and your company’s image, gets blurred and becomes vague, whether to customers especially if your providing a product or a service that requires expertise and projecting the image of a specialized entity in that field to gain more trust in the market, or whether to investors, if you are after funding, investors and analysts will find it difficult to assess your company and evaluate it correctly as most of them tend to be specialized by specific industries or sectors.
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So, what if I want to add more activities to my company, how can I know that this diversification will add to my company’s value or detract from it?

In business, the only justifiable reason to diversify is to take advantage of synergies!

Synergies are the resources available to your company that will allow you to carry out more than one activity simultaneously more effectively.

If you have an input being used for your current business, a specific skill or capability, a certain system, distribution channels that can be used as a common resource to do multiple activities in different sectors/industries and doing them together will increase the value of your company/ product/service in the perspective of customers or stake holders, then, go for it!

One of the main reason for the growth of the giant E-retailer Amazon, was by exploiting its synergies (its common storing areas and logistics systems) that allowed it to diversify into other retail categories including electronics, clothes, sports equipment, kitchen supplies etc . So, the move from specializing in only online bookstore activities to other retail categories was a good diversification.

But be careful!

Not because that you have a common skill or input that you use for your current activity, that it is good to use to diversify and expand the scope of your business!

As many companies overestimate this specific input and think that using it to add another product or service, will inevitably increase its value as a company and accordingly, they will be able to charge higher prices, but that is not always true, as more times than not, products or services that are sold in bundles are sold with a discount rather than any premium prices.

This usually happens when a company un- strategically complement its offer with a product or a service to make it look complete and more attractive in the eyes of customers, but if it was not done correctly, it can lead to detracting from the value of your product/service, instead of boosting it.

For example: A transport company say that our customers are mainly travelers, so we can complement our offer by creating an accommodation partnership, so we offer our customers a complete offer that will ease their trip. But not because the accommodations facilities have the same main customers as the transportation company, that this partnership is a good idea!

Because customers will only find this offer attractive and will buy two different products/service from the same company, if they saw a benefit or a pain point was removed from their journey as customers.
In the previous example, most customers will only stay in an accommodation provided by their transportation company, if they got a big discount, otherwise, they can find a more suitable accommodation for their stay.

An important point when thinking if I should diversify using that common skills or input that I have, if you won’t need to put extra efforts or resources to modify this specific input to make it suitable for the new activity, when that happens, the whole point of synergies is vanished.

To conclude, diversification is only recommended if there are common inputs that can easily be used to carry out several activities at the same time, more efficiently and effectively. But you will need to evaluate this common input carefully and realistically to make sure that you are actually creating value for your company rather than destroying it.

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Creating a business plan for a potential investor? Then you need to read this!

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Creating a business plan for a potential investor? Then you need to read this!

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You have a business idea that you are very passionate about, you are very positive that it will be a success once it seas the light, it could be the seed of a very profitable project, but also an ethical one which can generates more than just money, it could be environment friendly for example? Maybe you want it to serve others and the community you operate in, that it has strong social corporate responsibility sense behind it?

You may also looking for investors to fund your project, and you are planning to emphasize on all those great green ethical qualities into your business plan to potential investors or funding entities, it could really support your proposal , right? WRONG!

When you prepare your project plan for potential investors, you need to prove, at least theoretically, that your project is going to perform successfully, but how performance should be measured here? Based on customer’s satisfaction? The company’s survival? Sales?

Whatever the way you choose to measure performance, one fact is UN-disputable, which is: Companies which need funding, a certain capital to operate, from private investors/individuals or public/private funding entities, those investors seek to fund certain projects , put capital into them, and expect an adequate return relative to the risk they may face (The company’s conditions, sector and business environment etc).

This is called ‘ Value creation’, so companies need to focus most of their projector business plans on how they will create value for those investors.

So, the measurement of the company’s performance should be based on this question: Is the company creating value for its investors or not?

Companies may think of buying a lot of fixed assets, buy certain raw materials and other inputs, outsource marketing through certain agencies, pay salaries if applicable, and many other expenses which the company needs to spend to operate effectively and be able to generates sales on which a return will be made.
But return on sales in itself, is not a priority for investors, because if a lot of sales can be generated with small investments, then they would be satisfied with a small return, while if a huge capital needed to generate small sales, then what they would expected is a huge return on sales to equal the funding they put in.

You can use this formula for calculations:

Return On Capital Employed (ROCE)= Operating margin/sales x Sales/Capital employed

So, what really matters to investors is the return on capital employed! Anything the company does, must be done with the following question on mind:

Would that certain decision/action we are about to make, will lead to the creation of return adequate to the capital employed by our investor(s)? Even the examples which mentioned earlier, regarding SCR or adapting a green approach, if its going to have a role in generating a return relative to capital employed, then why not?!

Overall, the strategy your company adapt must be aimed at maximizing the investors’ return on capital employed, this results from the margins(return on sales) the company creates, but also from the level of sales it can reach no matter the amount of capital.

In order to create a bigger sales’ margins, you need to adapt a strategy that allows you to widen the gap between your costs and willingness to pay you elicit in your customers/clients, because this will help you your company to sell more, and make bigger margins or return on sales.

Also you need adapt your strategy suitable to the capital available, and work within it to create an adequate return, for example, if the capital available is minimum then your goal should be to adapt a strategy that enable you to create a certain level on sales which will be suitable relative to the capital it was poured into the business.

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Is it because a company is successful in a certain industry/business, means that if I started a company in that business, I will be successful as well?

Sometimes, you can notice a successful restaurant, an award- winning transportation company, a very profitable construction consultancy agency, and you think to yourself, why shouldn’t I enter that industry as well and share some of that cake?

There are a lot of industries that look attractive from the outside but the reality that they are not! Some companies tend to take their decision based on a market research without including an industry analysis which is a big mistake because there is a big difference between : Market & Industry attractiveness, as the market maybe attractive when it comes to its high sales for example but the industry itself is not attractive for new entrants for strict government regulations, or for the fierce price based competition.
So how do you know if the industry is attractive to enter it or not?

You can start by asking yourself five questions:

How intense is the competition in that industry? Is it based on price? On the quality of the products/services?

How strong is the suppliers’ power in that industry? The greater their power, the more they can negatively affect your profits by raising their prices for their inputs.

How strong is the buyers’ power in that industry?
As it applies to suppliers, customers can have the upper hand in that business.
This is due to several reasons. If their power is high, then it means that they can pressure you to charge lower prices and thus affect your profits.

Any substitutes for your product or service? For example, cars are an substitutes for trains, even though they are not classified in the same industry, they perform the same function, which is to get from point A to point B.

How easy or difficult is entering that industry? The more difficult entering an industry, the better! But that is for existing companies not for the new entrants.
For example, if entering a market requires a certain capital, certain professional qualifications/ certificates, complicated authorizations/government permits with some complexity, etc. .

The harder it is to enter an industry, the better for the incumbents companies as that means that new competitors will not be able to enter that industry easily and thus increasing competition, but it will not be good news for new potential entrants.

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Worried about entering a market filled with existing player?

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Worried about entering a market filled with existing player?

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Are you thinking of entering a new business, propose a new service or a product, widen your market to include new customer segment, but you are not sure if you can actually have a profitable business in that new area while there are already established players dominating that new business /market/ area?

You should consider several issues to decide if its viable for your to do that move or not!

If entering and succeeding in that specific business or market requires capturing scarce resource that may not be easily available (if ever) to later entrants and those are already captured by the first movers, then it’s probably not a good idea to enter.

For example, the success of the activity requires having a prime location such at exits, city centers etc or if the small neighborhood you want to open your business in, already has an established player and two players would be a lot to operate in such an environment.

Or if the market segment you are targeting is already very small niche that can’t handle two operators in it, especially if the first mover was able to create a loyal customer base.

Speaking of customers, if the switching costs between companies is too high in a specific business, then you may want to reconsider entering a market where there are several established incumbents businesses or create an offer that would make customers willing to bear those high switching costs to benefit from your appealing value proposition.
Also, if you want to create an innovative offer, for example your own bio cosmetics brand and you are able to protect your innovation by copy rights initiatives such as patents, you can enjoy a long-lasting competitive advantage in your market, whether you were the first mover or a later entrant.

Keep in mind, that all of the previous, is if you decided to follow the regular competition existing rules, but if you want to make the competition irrelevant where all of the previously mentioned won’t have an impact or a decisive influence on your decision to enter a certain market or business or your business strategy, that is a different story and a different topic!

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Many start-ups, small & medium sized companies think that Corporate Social Responsibility is only for big multinational corporations, while in fact, any company, no matter how small its size is, can take part in benefiting the society it operates in and its development, while at the same time, it benefits both the society and your business!

You just need to strategically create a CSR program that is successful and aligned with what the society needs and with your business objectives.

First of all, Corporate Social Responsibility are businesses’ charitable, activities, contributions and initiatives which aims at helping and developing the community it operates in.
When you create a CSR program, you can choose one (or more) of the following three options:

Charity:

As a business who have a social responsibility, you can support the community you operate in by helping the disadvantaged and people in need, you can help your business’s image as well by directing your charitable effort towards the person or group of people who reflects what your company represents and the ones whom are mostly cared for by your customers and/or niche market.

Business initiatives & Partnerships:

Choosing a charity association that supports a cause related to your core business and to what the mass of your customers support and partner with it to provide free of charges services/help, can very much benefit both parties, the society and your company as it project your brand as a social responsible company which customers would appreciate more and will entice the sense of loyalty in them.

Society investment:
For example, monthly free service to a local public school can help in enhancing the educative process and hence, the development of the community overall, and at the same time, will enhance your business reputation, specially if you work in small cities or if your customers are public/governmental institution, this will be much appreciated by them.

CSR initiatives can vary from legal, environmental, economic, social or ethical, you can choose the one(s) that fits best with your core business, its mission and its resources, examples:

Cruelty free initiatives
Charitable giving
GoGreen
Volunteering efforts – one day a month of free service, certain number of free products.
Made in France – choose a local supplier(s) to support, this is especially needed at the time of the pandemic.

What is the CSR’ s benefits for your business?

Overall, adapting a Corporate Social Responsibility initiative, will help your company, will help you promote your business, build visibility, and improve your brand’s reputation in an increasingly socially aware society.

Will also help you understand and act upon the context in which your company operates in.

CSR is a strategy that can be beneficial to all parties involved, your company, your stakeholders (employees, investors etc) and the society, so it is win win situation for all!

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The main reason why some companies fail in France!

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The main reason why some companies fail in France!

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Do you know that according to INSEE (Statistics bureau of France), around 45% of failed companies in France, fail due to the lack of having an efficient business Strategy for their companies?⁣
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But what is business strategy mean? And is it important for your company to have a business strategy?⁣
If you are wondering why some companies are more successful than others, in simple words: It is due to their business strategies!⁣
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Some companies out-compete their rivals, despite similar conditions and even though they are operating in the same industry/market?⁣
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Strategy is all about your company’s direction, the big picture!⁣
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You take strategic decisions on daily basis, decisions that affect the performance and the future of your company. So, your company has a strategy, even if you didn't set one intentionally.⁣
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You as a business owner is like a chess player, in order to win the game, you have to think thoroughly before making a move, , and you need to keep in mind that your competitor may react to it, that is why your move has to be strategic!⁣
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"Strategy renders choices about what NOT TO DO as important as choices about what TO DO" ⁣
Michael Porter⁣
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Strategy is about a road map, an action plan that put you on the correct road to realize and achieve your goals and objectives.⁣
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You must keep two things in mind when you formulate your company’s strategy:⁣
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1: External analysis: Analyse the external business environment your company operates in, look at the macro environment and examine the external factors which could have an influence on your business.⁣
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For example:⁣
Government regulations can have a positive or negative impact on your company’s operations or costs!⁣
Economic indicators such as the exchange rates, inflation rate, even unemployment rate could have a big impact on your business.⁣
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2: Internal analysis, which means looking at your company from the inside, analysing it, and evaluating its resources, skills, activities chain, capabilities, technology used, strengths and weaknesses.⁣
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By conducting both external and internal analysis, you can have a complete grasp of what it is going on around you in your business environment and the current internal status of your company, by then and only then, you can go ahead and formulate your business strategy that is suitable to your company’s specific situation which is aligned to the changes in your business macro environment.