8 November 2009

I recently blogged on the topic, do you diversify or remain specialised? I forgot a fundamental principal which we now adopt before venturing into the unknown.

The 3 circles. You may have come across Jim Collins a lecturer at Stamford University, he is an authority on the study of successful businesses. He predicted and charted the growth of some of Americas biggest businesses and when challenged as a young lecturer by a student not much older than himself on the success of Apple (a then unknown) he decided to put his formula down on paper and test it amongst other great fortune 500 businesses.

One of the things he found with his research is that all of the businesses which grew at a faster rate than everyone else, did some things in common. One of these was called the 3 circles principal, adopted by the likes of Walmart, Sony, Apple, Microsoft.

The 3 circles are:

Can you be the best at something?
What are you passionate about?
What drives your economic engine?

If you answer YES to all of these when venturing into new unchartered territory you cant go far wrong.

Can you be the best at something?

There is no point setting up a business if you cant genuinely create a better company that those which already dominate an industry. It make years of trying, but ultimately you have to aim high and keep focussed on the end game, to provide a consistently better service or product offering than already exists. But just believing it isn’t enough, you have to have a scientific plan and competitive edge which separates you and existing competitors.

Ask yourself, what things have I already which help enable us to be the best?

What are you passionate about? Is this new business going to make you incredibly satisfied? If it is purely a vehicle to make you money, I guarantee it will not work. You have to have enjoyment first, which comes from passion and determination, long before the success and the financial gains.

Mohammed Ali said, “I run on the road, long before I dance under the lights.”  Although he became incredibly successful and rich through his boxing, he focussed on his training and the outcome of each fight, never on the purse.
What drives the economic engine? Is it sensible to make this investment? Do we have a competitive advantage with cost savings if we enter a particular industry?

For example, UKFast entering the world of Cloud Hosting makes perfect sense. Although the investment of £500,000 seems on the steep side, we already have the technical know how and infrastructure in place to run this type of business. It therefore becomes very easy to bolt on this sort of new venture.

Data centre space is another good one. We already have the expertise to be the best at it. We are incredibly passionate about the thought of improving resilience and customer care and does it make financial sense? Absolutely, we will save £1.5m to £2m each year as a direct result.

Do we venture into data centres? Already have done is the answer.

Using the same principal, on ideas that have not gone so well. The mobile phone division of UKFast.

Can you be the best at it? Yes absolutely and we were.
Are you passionate about it? Not really, driven by the fact that we were making money.
Was it financially the best thing to do? Although it made good sense to go into this venture at the time, on hind sight, yes we had a competitive advantage writing the software that made this company immensely successful, the business model was too far removed from UKFast’s hosting model.

Business to consumer vs. business to business. This one fundamental difference made it impossible to be financially viable. Our entire existing infrastructure was designed to manage the business to business relationship. We underestimated the amount of work involved in the change management.

The same applies to UKFast’s entry into the broadband arena.

Can we be the best? Yes and we were undoubtedly. We were too good and the strain this put on the existing support team was not sustainable.

Was it financially viable? NO! It was a disaster. BT had designed a business model from hell. The only winner was BT, the customer, the supplier, everyone lost out.

Were we passionate about it? No, we love hosting and we love the fact that people appreciate what we do. Supplying broadband which was effectively turned into a commodity by the telco’s (BT, Pipex, AOL) was not fun and we were too small to roll out a business model that was incredibly niche.

The result: Doomed! Luckily we were able to foresee this and we sold off our connections to a small business who specialised in this area. We were very careful not just to “ditch” customers as they also had hosting with us and they were incredibly important.

So the 3 circles principal is key to tackling the unknown. And if it is good enough for the businesses like Gillette, Nike and the others I mentioned earlier, it is a good enough litmus test for me too. Try it with your business ventures past, present and of course the import ones, the future ones!

Go have fun.

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