Startup School – Why diversification is a four-letter word: Lessons learned
Should you really care about what brings revenues into the company? Why is diversification a four-letter word? Because diversification comes in many distracting forms – none of which add any value and all of which solve a short term logistical problem called cash flow. From owners doing freelance consulting on the side to pay bills, to vendors getting into ancillary services to close contracts, new ventures get into areas that take them farther from the path they were expected to follow. As Geoffrey Moore puts it, to succeed you must first understand the difference between core and context and then focus on the core.
Models that work are those that start with products and stay on track until they hit sustainable growth.
Product ?Revenue ?Profits ? Growth ?Sustainable Growth. When diversification is used to generate revenues earlier, the model distorts to Revenue ?Growth ?Product ?Profits ?Sustainable Growth or other variations that push the product further down the road. The game is not just about revenues. It is about succeeding in the line of business you have chosen and making a viable venture out of it. To do that you have to get to Product and Profitability before you run out of capital. Diversification leads you away from that mission.