Should a Small Business Diversify?

Name: Quality Business Plan by Dr. Paul Borosky
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The Definition

What Exactly Is Growing From Your Core Business?

Short Answer

Your core business is the part that brings in most of the profit and that you are best at. Growing out from the core means selling more of what you already do well to the customers you already serve, or to customers just like them. Going sideways means opening a nearby venture that seems similar but demands new buyers, new skills, and a big share of the owner’s time.

Grow from the core: same strength, more customers. Grow sideways: new strength, new customers, start from zero.

Doctor Owl, in Plain English

“A shine stand is not a barbershop. It only stands next to one. Draw a circle around what you do best, and grow from its edge.”

How This Guide Works

Need the answer fast? Read the Short Answer above and the numbered steps. Want the full picture? Follow Steve, a monkey with a barbershop from Dr. Paul’s Fabled Forest Business School Series, as he opens a shine stand at the ferry dock and his barber chair sits empty. His story shows up in a few short gold notes along the way. The math sits in one section, clearly marked.

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From Dr. Paul’s Fabled Forest

Meet Steve: A Monkey Who Grew Sideways

Some lessons stick better as a story. Dr. Paul’s Fabled Forest Business School Series teaches business through a forest full of small business owners. Doctor Owl, a dry-witted consultant who lives in the Lone Oak, helps them fix the same problems real owners face.

Today he passes a small painted stand at the ferry dock, with a new sign: Swing Shift Shine. Startup Steve, a monkey whose barbershop on the square is called Swing Shift, waves at him with a polishing brush. The shine stand was on a list of ideas Steve had saved for later. Later came in May.

Why It Matters

Why Is Diversifying Riskier Than It Looks?

Related businesses feel like an easy step. Same customers, a similar skill, a location you already know. But a sideways move usually needs its own customers, its own know-how, its own costs, and most of all, the owner’s time.

That time comes from the core business. The original slips while the new one struggles to get going, and the owner ends up with two weaker businesses instead of one strong one. A clear core is the best defense.

In the Fabled Forest

The shine stand took in about 30 coins a month and cost 36 to run: rent on the dock, polish, and a young otter to mind it. Meanwhile Swing Shift’s profit fell from about 50 a month to 30 in May. Steve was at the dock three afternoons a week, and his own chair stood empty.

Know Your Core

How Do You Find Your Core Business?

Find what earns most of the profit. Not most of the sales, most of the profit.
Find what you do best. The thing customers come back for and recommend you for.
Find where those overlap. That overlap is your core. Draw a circle around it.
Test new ideas against the circle. Does the idea sell more of the core, or start something outside it? Compare with a product line extension that fits.

In the Fabled Forest

Steve had a list of twelve ideas he had saved for later, back in winter, when Doctor Owl made him write his goals. A juice cart, a shine stand, and ten more. None of them was trims.

Growing From the Edge

What Does Growing Out From the Core Look Like?

Add capacity, hours, or reach to what you already do best. Serve the customers you turn away. Open the extra hours your regulars keep asking for. Reach more customers just like your best ones. Each move uses strengths you already have.

If a sideways idea still tempts you, test it small, with its own numbers, and without taking the owner away from the core. Most of the time, the core has more room to grow than the owner thinks.

In the Fabled Forest

Steve shut the shine stand within the week. Clementine, his second barber, added two more hours of Saturday cuts, and the weekend wait started shrinking.

The Numbers

What Did Growing Sideways Cost the Core?

This is the math section. Skip it if you only want the steps.

Here is Steve’s month with the shine stand, and after he closed it.

	Monthly coins
Shine stand: money in	About 30
Shine stand: rent, polish, helper	36
Shine stand: result	−6
Barbershop before the stand	About 50
Barbershop in May, with Steve away	30
Barbershop after, with Saturday hours	On pace for about 86

Monthly coins

Shine stand: money in

About 30

Shine stand: rent, polish, helper

Shine stand: result

−6

Barbershop before the stand

About 50

Barbershop in May, with Steve away

Barbershop after, with Saturday hours

On pace for about 86

Step 1: The new business. 30 in − 36 out = −6 a month.

Step 2: The hidden cost. The core dropped from about 50 to 30: −20 a month. Total cost of growing sideways: about 26 a month.

Step 3: The core, grown from its edge. 50 as before + 36 from extra Saturday hours = about 86 a month, with no new business to run.

Illustrative numbers in forest coins, from the book. Use your own core and side business numbers.

Step by Step

How Do You Decide Whether to Diversify?

Four steps before you start something next door.

Draw a circle around your core.
What earns most of your profit and what you do best.
Test each idea against the circle.
Does it sell more of the core, or start something new outside it?
Count the owner’s time.
Where will the hours come from, and what happens to the core while you are away?
Grow from the edge first.
Add hours, capacity, or reach to the core before anything sideways.

In the Fabled Forest

Doctor Owl’s scroll for Steve had a circle drawn on it with one word inside, Trims, and a line underneath telling him to grow from the edge, not from across the dock.

Steve’s Full Story

What Did Steve Do With His List of Twelve?

This page gives you the short version. The book gives you the whole story: the painted stand by the gangplank, the list headed Later, an empty barber chair three afternoons a week, a free trim for the young otter, and two late reports arriving at a desk above the chandlery.

Every chapter of Growth for Small Businesses works the same way. One owner, one problem, one real idea you can use on Monday, plus a one-page worksheet to do it.

A Business Consultant’s View

What Do Business Consultants Look For Before an Owner Diversifies?

Dr. Paul Borosky, DBA, MBA · Business Consultant

Before an owner diversifies, Dr. Paul asks for two numbers: what the core business earned in the three months before the new idea started, and what it earned in the three months after. The new venture’s own results are usually less important than what happened to the core while the owner was distracted. Most owners are surprised by how much the original slipped. Then he looks for the growth hiding in the core itself: customers being turned away, hours regulars keep asking for, and services one step from what the business already does well. That growth uses strengths the business already has, which makes it cheaper and faster than starting over next door.