Diversifying, pivoting, or just opening a lot of businesses to see what works, there’s a line between being a conglomerate and an unfocused business manager.
In this edition of the Tough Things First podcast, Ray Zinn defines the differences and how to stay on track.
Rob Artigo: Welcome to this edition of the Tough Things First podcast. I’m your guest host, Rob Artigo. Hi, Ray.
Ray Zinn: Hey, Rob. So good to be with you again today.
Rob Artigo: And it’s good to be back. So you probably heard the saying, and I think this is more about a pasta analogy but, “I’m throwing everything at the wall to see what sticks.” And I figure there are people out there who start small businesses and before it really gets any traction, they’re off to start another business, because they’re not doing enough with that business. And they end up diverting their attention to another business and maybe even a third business. And they’ve got three businesses going at one time. And I think of also the old saying, “Jack of all trades, master of none,” where you end up doing several different things and not really focusing on one. In your mind, and in your experience, is that ill-advised.
Ray Zinn: Well, it depends. For example, if you’re a holding company, you might have many, many business which are totally different. I had a podcast with a fellow just the other day. He’s a holding company. His family, they have about, I don’t know, 300 or so employees. But they have an insurance company, a real estate company, a restaurant and a couple of others. I can’t remember those off the top of my head but… And so, there they are running all these different companies with totally different skill sets required. But yet, they have them, and they refer to themselves as a holding company.
And so, people who are not holding companies but who go from this little project, that little project and as you said, the jack of all trades, master of none. It depends upon what kind of success they’re having with their company. If they’re jumping from one thing to another, it’s usually because they’re not being successful in the operations they started.
Now, there’s companies, like the holding one, that do insurance and restaurants and real estate, but those aren’t companies that pivot. So, if you’re talking about pivoting, let’s say you’re a pet store or a pet grooming center. And because of the COVID virus you can’t have them come into your facility, because it’s not allowed, then you go to their homes. And so, that’s pivoting. That’s going from where the customer comes into your shop versus where you go out to their place. Or if you have a restaurant and you stop indoor dining, and you start using takeout. That’s pivoting. So that means you’re in a similar business, but you’re just changing the structure or the operation of your business. So are we talking about pivoting, or are we talking about a holding company?
Rob Artigo: [inaudible 00:04:12] the more specific here is smaller companies… And I think you mentioned the dog grooming, which is small, but I’m thinking say you start a carpet cleaning business, and you got the equipment for that, or you’re doing some of that stuff. And then you go off and you start something completely unrelated to get some work, and then you’re cutting down trees. I don’t know, that’s not necessarily completely unrelated, because it might be the same kind of home improvement project that you might be involved in. But something unrelated as opposed to related, because I think that if you’re a small business operator, you got your business license, you got your fictitious business name statement, you’ve got the structure of a business set up.
And then, while you’re advertising and doing that, you get bored or distracted, or you feel like it’s going to fail. So, you start something else at the same time that’s unrelated. As opposed to something that’s related where you have something that maybe they’re separate entities, they’re separate companies, but they complement each other, and they actually can work together in certain ways. You know what I mean? If you’re a fencing company and you do fences, and then you also do landscaping, so you could cut down trees and other things. So you’ve got a landscaping business, and you’ve got the fencing company. And you put those things together, and they’re separate entities, but they can work together.
Ray Zinn: Well, I can speak from experience, because before I started Micrel, I started four other businesses. And the reason I did was because, they weren’t working. And they were totally unrelated. When I finally started Micrel, I had to shut down at least two of the other businesses in order to focus on Micrel. So five companies I started before I actually… Well, the fifth being Micrel. But I started four before that that were okay but not doing that well, and I ultimately shut them all down.
Rob Artigo: Any number of those simultaneous?
Ray Zinn: No, no, no. They’re weren’t simultaneous.
Rob Artigo: Okay.
Ray Zinn: They were sequential. I tried this thing, then I tried that thing. Again, when I started on my own, it was in 1976, when my boss my told me I shouldn’t work for anybody else, I should work for myself. That’s what I did. I went home and told my wife. I said, “I’m not going to work for anybody ever again.” So then you say, “Well then, what do I do?” Well, I tried something. I tried this thing, and then that didn’t work, and I tried another thing, and that didn’t work. And so I had one company that I started before Micrel that I could have made a success, but I chose to abandon it, because I didn’t want to defocus my efforts on Micrel, which looked like it was going to do better than the other business.
So I wasn’t trying to do all four or five at the same time. I just sequentially went from one thing to another. As you see you tried this and it didn’t work, you tried that, didn’t work. And so… Well, two of them were successful, but one was more successful than the other. That was Micrel. That’s when I dropped the other business. I was trying to sell it, but it end up I couldn’t sell it for what I could get out of it when I needed to. And so, I just closed it up. But I did do four companies before I started Micrel. So again, they were sequential. They weren’t simultaneous.
Rob Artigo: Well, so going back to my intro, when I was talking about somebody saying that they’re starting a second and third business. I was thinking of situations where they’re trying to run businesses simultaneously. Particularly, if they’re not experts at running businesses, and they’re not a holding company. But like you said, you’re not having the success you want, so you close one and you open another. In this case, we’re talking about those people who decide to diversify so much that their attention is not focused on one project. They’re doing several and not necessarily able to have success at any one of the three.
Ray Zinn: Well, Intel is a classic example. They start of making micro-processors. Then they added a business to make watches, called Microma. This is digital watches back in the early eighties. And then they start a bubble memory business, and they tried several different kinds of businesses all under the name of Intel. In other words, this is Intel Corporation, but they tried several things. They actually started even doing memory. Many companies stay in the same general business, but their product lines they drop… And I can name thousands of companies… I can’t name thousands, but there are thousands of companies, and I could probably name at least a half a dozen, that all of us know that… Like Hewlett Packard. Hewlett Packard started out as an instrumentation company, and it ended up making computers and then making printers and all these different kinds of products. And then they tried to sell off one thing and another and… Same with Intel.
There are a lot of companies that are shedding operations that aren’t as successful, because they either aren’t good at running them, or they took too much of a departure from what their core business is. So we’re always shedding things. It’s like getting a haircut, where our hair gets too long and shaggy, and we get it trimmed. And that’s what people do. People…. But it’s the same company. It’s just that they try to go in to many different directions under the same umbrella and find out that they’re, as you said, a jack of all trades but a master of none, rather than focus on their core capability, their core competency.
Rob Artigo: Yeah, you’re mentioning Intel and also HP, and you have those different product lines that they come up and the efforts they go out to. And I think digital watches is funny at this point, because digital watches were probably very marketable back when Intel decided they wanted to do it. But now you just sort of chuckle because digital watches… People like to have nice timepieces, or they want a smartwatch nowadays. And it was like the buggy whip, digital watches. It cost you probably 75 cents to make a digital watch these days. So then you sell them for a buck 50 and there you go. That’s your profit margin.
Intel is one of those examples where they were able to start and stop, start and… in those where they, I’m sure, lost some money in some situations. But if I’ve got a small business, and I’m trying to do the same thing, I may not have the luxury of being able to throw something at the wall and see what sticks without really putting some effort into the original best chance idea for having some success. And maybe it’s not the fact that I have to diversify and start other businesses. Maybe I have to figure out what’s wrong with the way I’m operating the business that I started in the first place.
Ray Zinn: Well, you’ve got companies like Amazon, where all they were was a distribution company, but now they make their own products. Lab126 is an example of Amazon now building their own products. You’ve got Apple… I mean, holy mackerel, look at the diversification of Apple’s business. I mean, they make everything from soup to nuts. And Google is another one. Even Facebook. They all try to add to their corporate structure in order to continue to grow their business.
So, they acquire companies that they shouldn’t acquire, and then they acquire companies that they really should have acquired. And so, when I ran Micrel, there was a few business that I acquired that didn’t do well. And then there were some that I acquired that did extremely well. I can’t think of a company, whether it be an IBM or a clothing store or whatever, that hasn’t tried to branch out and go into something outside their core competency. Sometimes they’re successful. Sometimes they’re not.
Rob Artigo: Yeah, Amazon is ubiquitous around the area where I live. I mean, you see the vans out all time now, and they’ve got whole distribution channels and they had everything. They’re really a top to bottom, bottom to top, really synchronized company. It’s really interesting.
Ray Zinn: Well, even grocery. They’re going into the grocery business with that food store. I mean, they’re doing everything. Then maybe they’ll go into restaurants. I don’t know what… I mean, these guys branch out into the craziest different directions.
Rob Artigo: As always, you can reach out to Ray Zinn with your question at toughthingsfirst.com. You can continue your education and the conversation with all the podcasts, blogs and links to information about Ray’s books, Tough Things First to The Zen of Zinn, which is a collection of writings on inter-related topics of entrepreneurship, leadership and management. Essentially daily affirmations and thing to look at life. When you wake up in the morning, you can read a little of The Zen of Zinn and get something out of it, and put some things into action as you go throughout the day. Thank you, Ray.
Ray Zinn: Thanks, Rob. As usual, good to talk to you.