Focus On Profit Before Growth- Part Two
By expanding your brand too quickly, you dilute it, but if you narrow your brand, focus on what you do well and do it better than anyone else, your brand, and your profits, will grow.
This is made crystal clear by looking at the story of Google and Alta Vista.
For those of you that don’t know what Alta Vista is, it was one of the original internet search engines. As we know today from Google, a company can make a lot of money by just providing a search engine. But Alta Vista wanted to do more. They expanded to email, forum boards and even online shopping.
Today, Alta Vista is a search engine that has little to no relevance and its other aspects are virtually worthless, but Google is one of the most profitable companies in the world. Alta Vista looked to expand and they lost sight of why people found them in the first place. They filled needs that people weren’t as interested in and they lost the opportunity to become the leader in a growth market if they’d just stayed focused on what they did best, search engines.
Google, meanwhile, focused on their search engine and made it the industry standard. In fact, the word Google is synonymous with an internet search so much that I tell someone on my team to “Google it” everyday.
After Google perfected its search engine it moved on to other aspects of its business, including email, but their brand wasn’t diluted because they mastered what they did best before moving onto the next thing.
There are literally thousands of examples of businesses struggling after expanding, including two well known restaurant franchises, Baja Fresh and Krispy Kreme.
In 2003, Wendy’s bought Baja Fresh when it was steadily growing in 2002 for a reported $275 million. They began to expand quickly and a little over a year later, same store sales numbers began to drop.
They suffered a 4.6% drop in 2003 followed by a 6.4% drop in 2004. Wendy’s eventually sold Baja Fresh to private investors for only $31 million in 2006, losing hundreds of millions of dollars in the process. Baja Fresh is only now beginning to recover, albeit slowly.
Krispy Kreme was one of the hottest brands in the United States a few years ago but once the company went public, they began to expand very quickly. The company diluted its cult status by opening dozens of locations and licensing donuts to grocery stores and gas stations.
Within just a few years many of the franchised units were forced to close as the company’s profits drastically declined. The brand still hasn’t reached the same level it enjoyed before expansion.
What do these examples tell us?
If a business does something, it should do it well, but expanding too quickly means the business will have to deal with issues it probably isn’t prepared for.
Consistency suffers, and valued customers don’t have the same experience they did before the expansion, leading to a less profitable business and more challenges to overcome.
So how can you avoid this pitfall?
If you are running a profitable business don’t bite off more than you can chew. Stick with what you do and do it as well as anyone. Then provide outstanding service to your customers and make sure they know you are the source in your industry.
When you decide to expand, whether it’s selling different lines, opening new stores or anything in between, you must be sure you understand the possible challenges you will face and have plans for how to deal with them, just as you did when you opened your original business.
When you understand the pitfalls your business may face when you expand, you’ll be better prepared to deal with them. The leaders at Alta Vista, Baja Fresh, Krispy Kreme and thousands of other businesses didn’t understand this and their brands suffered. Don’t let it happen to you.
Tags: ActionCOACH, business challenges, grow your business, Jodie Shaw, profits, small business advice, small business help
ActionCoaching | Jodie Shaw | 
June 2, 2011 9:14 pm | 
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