Businesses often think about ways to expand their products and services, but sometimes, their offerings get so complex and disjointed that they cannot deliver on everything well.
How does this happen? Well, sometimes mismatched lines of business or products occur because of an acquisition: Company A purchases Company B to acquire some aspect of Company B that is synergistic, but along the way, some other, less desirable aspects came along with the deal. This could also happen when a person inside a given company has a disparate vision or new idea that is misaligned, but regardless, utilizes company resources to develop it within the business anyway.
Here are some test questions to ask either before adding a new line of business, or to determine whether a certain aspect should be kept or culled.
- Does it fit our mission?
- Does it fit our core client base?
- Does it lead to developing more of our core business?
- Does it diversify the company in such a way as to stabilize our revenue?
- Do our core clients appreciate it?
- Can we get sufficient control of it to make it great?
- Does it add to our bottom line?
- Are we actually good at this area, or could we easily become good at it?
- Do the leaders in the company thoroughly understand it?
Affirmative answers, of course, mean a particular offering is worth keeping and the converse is also true.
Here are some interesting real-case examples of culling service offerings that we have addressed over our years in business.
Example 1: Ophthalmic Supply & Service Company
An ophthalmic supply and service had a problem. Their #1 manufacturer was no longer respecting their agreed territory boundaries – and was allowing other dealers to sell into their designated territory. This was done in a clandestine manner, and while a legal battle could certainly have been initiated, the owner of the company decided to use this opportunity to take stock on his strategic direction.
As it happened, his new equipment sales revenue volume far exceeded the revenue on maintenance, but the profit margin on maintenance was far more lucrative. In addition, the equipment sales side necessitated carrying deep credit lines and storage of equipment. Seeing the potential of focusing only on maintenance, what happened next was interesting. It enabled the dealer to do something he probably enjoyed a little too much: He told his key manufacturer to take a hike! And, we worked together on developing new, preventative maintenance programs.
Further to this, and within a couple of months, he got out of selling equipment altogether. When his good relationships with doctors gave him an opportunity to sell equipment, he referred business, for an easy-to-collect finders’ fee. No more huge credit lines and financing to worry about.
This had great alignment with his mission: To help eye doctors with their equipment needs through personal service. Did he need to actually resell equipment to achieve this mission?
As it turned out, no he did not. Reselling the equipment was something over which he had little control, i.e. tight margins and long waits to be paid. He could refer the sale of the equipment to a colleague’s company or let the manufacturer sell it directly. But he did continue to have an influence on equipment purchase decisions, perhaps even more so, because the doctors saw him as an objective resource to all brands. There was one added bonus: He and his wife were very happy to get back all the space in their garage!
Example 2: Global Risk Management Company’s Mis-Acquisition
A very large fortune 100 insurance company looked at the oil and gas market in Western Canada and saw potential. The company offered insurance, reinsurance, and risk management for corporations around the globe. In theory, any large company that had multiple global offices might make a good client for them. Since many of the oil and gas companies in Calgary had global offices, they looked like attractive targets.
To get a toehold in the industry, they purchased a local business that offered a specialized but related medical service in the oil and gas fields around Western Canada. This company, of course, had a distinct brand of its own, however, the new parent company changed this branding, blending it in with their own and hoping to work this into a more diversified brand.
Instead, the result was a lot of confused customers. We were brought in to develop a marketing strategy for the Canadian market. Upon doing research and developing the plan, it was clear that there would be problems:
- The leadership of the parent company did not fully understand the services of the firm they had just acquired, and the newly acquired company kept being juggled, trying to report to ever-changing bosses in different countries.
- The overall branding was also being controlled by an overseas marketing firm, who could not successfully tailor it to the local market.
- The only way to create a clear understanding of the acquired company was to keep it separate. The parent company simply had too many services and the newly acquired company’s messaging was literally buried under a vast behemoth of all-encompassment.
Eventually, the company decided to divest itself of the purchase and shut down the company it acquired. (It was a sad waste of some entrepreneur’s life’s work, for sure.) If they’d realized their error sooner, and acquired something they better understood, they might have saved the money they spent to purchase the business, or perhaps they would have been better prepared to support it.
While not a chosen “culling” of an offering, this shows that if you expand into something you’re not well-informed about or set-up to do, the culling of the offering may happen whether you like it or not.
Example 3: Consultants Doing What?
A partnership of consultants had experience helping companies to define their internal processes and save money, but the two partners had quite diverse experience. One was decidedly a process-definition and efficiency expert. He could facilitate his way through huge departments and carefully map out all the people and equipment doing every aspect of a company’s operation, finding redundancies and fixing problems. The other partner had two areas of expertise. One was in writing Requests for Proposals for major software procurements. The other was in facilitating strategic planning, mainly through offering strategy retreats.
When attempting to put all the services together, it created a mixed message. Was their service about reducing costs through clear process definition (thinking about the now) or thinking about where the company could go in the future (thinking about the future)? The contact people within a given prospective company would be from entirely different departments, as would the selling messages. Contacts for process definition would be on the operations or IT side, while strategic planning would involve business development or marketing-focused executives. Now, in smaller firms, this might be one and the same person, but our consultants wanted to focus on large utility companies, so there were certainly different contacts handling these.
The most natural flow came from keeping two areas of expertise and dropping the third. Defining processes was a natural precursor to procuring software, because software would be used to support those processes. Just these two areas were a large undertaking, and would often yield a consulting engagement of more than a year. The service aspect that did not belong was the strategic planning retreats. Companies would not see the technical RFP writer as also being a big-picture thinker who could pull off a free-thinking strategy retreat, and the reverse could also be true. Thus, the strategy retreat service was culled out, and the company moved forward with its process definition and software procurement role. Strategic planning retreats could certainly be marketed well under an entirely different corporation in the future if there was a desire to do so. A clear example of a smart culling decision – made in advance.
Although culling down part of your offering can feel like admitting a mistake, it is better to notice it, address it, and free up resources to concentrate on what your company does best. In fact, selling off the mismatched aspect could give you valuable resources to expand what you are good at. The examples taken from our own experience show that there are many good questions you can ask when determining whether or not a service fits your business model. With a clear mission and vision in place, culling down what does and does not fit is certainly a do-able strategic exercise that can vault your company forward, or cut ties with past mistakes.