There are many reasons why one might feel like starting a second business. Perhaps the current one is doing well and there is an opportunity that they believe they can take care of. Perhaps the existing business has just about reached its limit in its present state and the requirements to grow it further such as registration and regulation would mean it ceases to be viable. And there are many more I’m sure. So here are things to consider if you are toying with the idea of starting a second business.
This had to come first with me of course. How you plan to fund the new business is going to be important. Funding for a business is much like luck. The presence of adequate funding doesn’t guarantee you any success but the lack of it can guarantee your failure. It’s your money and I would never tell you what to do with it however I would suggest you avoid the idea of funding the new business with money from the existing one.
I, unfortunately, have no empirical study to back this up but you’re more likely to find success in a new business that shares some capabilities with your existing business. While successful people do diversify there is a tendency for their successes to cluster around certain strategic capabilities. A successful bread Baker may find it easy to find success with biscuits and cakes as opposed to spare parts for automobiles.
A lot depends on how the businesses are set up but it’s highly likely that one, if not both of them will require your time. The problem, however, is that we don’t get to pick and choose when that will happen. Therefore it’s not uncommon for the businesses to demand your attention at the same time and when it is not convenient. This is where strategic capability fit comes in because related businesses tend to face similar concerns, constraints and decision making processes.
Rate of return
Without going too deep into financial comparisons the expected rate of return of the second business is something that also needs to be considered, makes sense right? There is however a hidden issue here that skip the attention of many. As you specialise in ant field or endeavour you become better at it and similarly in business specializing or going deeper into a business will bring a greater rate of return than the business currently makes. Meanwhile, a new business may offer a good rate of return in theory but this may not be easily attainable because a degree of specialisation is required to achieve those rates of return. A Jack of all trades is a master of none as the saying goes. The time, money and effort poured into the new business could be invested in the existing to improve it.
Hopefully, your goal in starting a new business is to create a good one, not just another one. One of the factors that you need to consider is if operating the two (or more) is sustainable for you in the long run as well as the sustainability of each business on its own. Ultimately nobody knows the future but taking an honest look at things may help you here. Is the current one sustainable to the extent that it can survive with minimal attention? Are you able to give both the attention they need? If so, for how long? What would happen if the workload in one tripled or quadrupled? How sustainable is this?
There are a lot of things to consider, the less the existing business(es) rely on your time and input the more likely you are to succeed at starting a second business. As mentioned before there are other considerations. So have a good think through your reasons and make an informed decision.