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Focus vs. Chaos

How many times have you heard someone say, or said yourself, “Focus, focus, you’ve got to focus!” How do you do that in a society that values time-share condos, multi-tasking just about everything, flipping between channels, and on-demand viewing? Should you focus on delivering one product or service and doing it very well or should you offer a one-stop shop to your customer for all their needs? The answer, of course, is it depends. But, on what does it depend?

Startup companies have little choice but to focus their efforts on one or two premier accounts that can get them notoriety and testimonials that can help them grow and get more customers. It may take months or years to move from being dependent on a few large customers to having many customers with no one having a share of sales that is too risky.

“Focus” must have a different definition for the most valuable companies in the world. As of last month, Apple, Alphabet (still better known as Google), Amazon, Microsoft, Tencent, and Facebook have the highest market value. In the early days of Apple, they certainly did one thing and did it well. The same can generally be said for the other companies as well. Today they are behemoths with some of the problems of size and bureaucracy of much older companies. Microsoft and Apple are probably the “oldest” of the six companies at just 42 years. Google is 19, Amazon is 23, Tencent is 19, Facebook is 14—teenagers and young adults just out of college.

These companies are doing everything from revolutionizing industries, causing great disruptions in business models to hardware, software, systems, autonomous vehicles and more. Are they focused on one thing or are they focused on diversification? Are they focused on growth? Are they focused on customer experience? It cannot be that they are succumbing to the effects of entropy and moving from focus to chaos. They are spending massive amounts of money and energy to avoid that and remain focused.

We might find some answers in their culture, mission, and vision. At the very bottom of the web page, long after the apple stylized pictures of products, is a small list of values: Accessibility, Education, Environment, Inclusion and Diversity, Privacy, Supplier Responsibility. Another perspective on Apple, or any public company, is often found in its annual report or 10-K filing. Apple says in the Business Strategy section,

“The Company is committed to bringing the best user experience to its customers through its innovative hardware, software and services. The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers products and solutions with innovative design, superior ease-of-use and seamless integration. As part of its strategy, the Company continues to expand its platform for the discovery and delivery of digital content and applications through its Digital Content and Services, which allows customers to discover and download digital content, iOS, Mac, Apple Watch and Apple TV applications, and books through either a Mac or Windows personal computer or through iPhone, iPad and iPod touch® devices (“iOS devices”), Apple TV and Apple Watch. The Company also supports a community for the development of third-party software and hardware products and digital content that complement the Company’s offerings. The Company believes a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services greatly enhances its ability to attract and retain customers. Therefore, the Company’s strategy also includes building and expanding its own retail and online stores and its third-party distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience.The Company believes ongoing investment in research and development (“R&D”), marketing and advertising is critical to the development and sale of innovative products, services and technologies.”

That’s almost an inspiring statement, even though it is buried in a highly technical document for the government filled with somewhat boring text and lots of numbers. It’s not a single focus, but a focus on a few things.

I bring up the question of focus because it has an outsized effect on the value of businesses in the $100K to $1B level. The value of a company is in the pocketbook of the buyer. Buyers of companies are looking for evidence of superior products, market and profit growth opportunities, and reduced risk. It is possible to significantly increase the multiple of earnings a buyer will pay if your company is really good at doing one or a few things for a lot of people than doing something “run of the mill” for a few people. If your choice is to sell more stuff to parents or be the best nanny service for upscale parents in Manhattan where both work outside the home, choose the latter.

That’s just one driver of value for small and medium-sized businesses. We’ll discuss more in future articles.

Even the largest of companies can run into trouble with too much of their output invested in a few, large, important customers. Recall above that Apple publicly states their focus to “design and develop its own . . . hardware . . .” Guess what the headlines were yesterday, “Apple Plans to Use Its Own Chips in Macs From 2020, Replacing Intel.”

Yes, as you grow, you will need to diversify. I think one answer is to diversify in such a way that you keep focus your energy on a few things to avoid entropy taking over and forcing you toward chaos.