Human beings seem to be simultaneously hardwired to both fear change and become bored without it. While we must remember that “the only constant in business is change,” such changes must be addressed in a systematic way. Change for the sake of change or for a sense of excitement can destroy just about any venture you take on. We must be diligent to avoid the dreaded “shiny object syndrome.”
And no matter how much success an entrepreneur has, there will always be temptations to try something new. In fact, such temptations increase with success. You may listen to a podcast with a great new business idea or come across a Facebook post on why you need to put your money and energy into cryptocurrencies or currency trading or real estate in Las Vegas or a friend tells you about a hot stock tip or new business idea or whatever. We live in a world of abundant opportunities, but also abundant distractions. And in this world of abundant distractions and constant course changes, the individual or company that stays the course has a distinct advantage.
When everyone else zigs, you should zag. Or in this case, you should stay the course.
In Jim Collins’ book, Good to Great, he looked at 11 companies that performed at or below the market average for 15 years before taking off to beat the market by at least a factor of three for 15 consecutive years. He then compared those companies to 11 similar firms that made no such transition. One of the key points he found was what he phrased “The Hedgehog Concept.” The term comes from Isaiah Berlin’s essay, “The Hedgehog and the Fox.” As Collins puts it,
“The fox knows many things, but the hedgehog knows one big thing… Berlin extrapolated from this little parable to divide people into two basic groups: foxes and hedgehogs. Foxes pursue many ends at the same time and see the world in all its complexity. They are ‘scattered or diffuse, moving on many levels…’ never integrating their thinking into one overall concept or unifying vision. Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything.”
The 11 companies that went from “good to great” implemented The Hedgehog Concept, whereas the comparison companies acted like foxes. One Hedgehog example Collins describes is Walgreens. They stayed the course with the goal of creating convenient drugstores and nothing but convenient drugstores. Walgreens went as far as to close stores in good locations and then reopen a new one “if a great corner location would open up just half a block away.” This is because corner stores allowed customers to enter and exit from multiple directions and are therefore more convenient. (Indeed, Walgreens seems to be so good at this that CVS has, at least from what I can tell, just copied them and put a store across the street at almost every one of Walgreens’ locations.)
The comparison company for Walgreens that Collins used was Eckerd, who by contrast, “…compulsively leaped at opportunities to acquire clumps of stores – forty-two units here, thirty-six there, in hodgepodge fashion with no obvious unifying theme.” Eckerd also jumped many other industries, such as the home video market.
While Eckerd jumped around from thing to thing, Walgreens jumped ahead.
Another great example of such focus is General Electric after Jack Welch took over in 1981. As John Maxwell notes in The 21 Irrefutable Laws of Leadership, Jack Welch came on board to a company that was doing a little bit of everything, and not doing anything great.
Welch then took the following approach,
To the hundreds of businesses and product lines that made up the company, we applied a single criterion: can they be number 1 or number 2 at whatever they do in the world marketplace? Of the 348 businesses or product lines that could not, we closed some and divested others. Their sale brought in almost $10 billion. We invested $18 billion in the ones that remained and further strengthened them with $17 billion worth of acquisitions. – The 21 Irrefutable Laws of Leadership
By 1989, GE had cut its holdings down to “14 world-class businesses… each one either first or second in the world market in which it participates.”
By trade, I am a real estate investor. And while it sounds simple enough, it’s amazing how many different niches there are. To give you just a short list; buy and hold, fix and flip, wholesaling, lease options, contracts for deed, marketing to motivated sellers, foreclosure auctions, tax auctions, tax liens, property management, condo conversions, buying mortgage notes, buying mortgage notes in second position, syndications, hard money lending, etc.
And then there’s residential, multifamily, office, retail and industrial as well as urban, suburban and rural as well as in-state and out-of-state, etc.
What all those things mean exactly is immaterial. What’s most important is that you can make money in each one. I’ve been at quite a few seminars or presentations where an expert in that niche will be promoting it and quite frankly, it’s very tempting to jump in. But at the same time, you are not going to make money in each one. Selecting one, or just a few, is a far better approach. There’s a learning curve with each new niche and it’s often steep. It usually takes quite a bit of time and energy to make it any a new endeavor. All the while, that energy could have gone into your core business and grown it all the more. Jacks of all trades rarely build great companies.
Business growth often follows an exponential growth curve. Thus, it would make sense to pour most of your energy into your core business. Each new venture starts you over at square one. And one exponential growth curve is much better than multiple linear growth curves or, more often, aborted growth curves.
So where should you put your energy? If it’s not already obvious, Jim Collins notes there are three key components to a “Hedgehog Concept.”
- What you are deeply passionate about,
- What you can be the best in the world at, and
- What drives your economic engine (Good to Great, pg. 96).
Where those three things meet is the area you should put your energy into. It doesn’t mean that you can never add a new niche, product or business. It also doesn’t mean that you can’t change your business altogether. But such changes should be a careful and deliberate process. The reward must be large and the reasons to switch compelling.
If it’s just another shiny object on the road to success, put it down, and continue in the direction you were already going.