I often ask, “what business should I start”? I always answer with a question; what skills and experience do you have? The answer is essential because it gives an idea of things someone can do better than the average person, well enough to demand payment for it, with profit. When it comes to people who have succeeded with one business and are contemplating starting a second business, the answer is the same but different; let me explain.
We often see people trying to start a second business too soon. How do we know it’s too soon? Usually, people find this out when the first business starts starving of resources that have been poured into the second business. As a rule of thumb, start the second business when the first can no longer grow. That said, there are different approaches to starting a new business. While perhaps all of them work in the right circumstances, there are some things you should consider before reaching for a second business.
Strategic capability is a highly complex way of saying skills and experience. When you start a small business, you will likely operate on the operational, tactical and strategic levels. In simple terms, you will be the floor worker, the manager and the leader. As the business grows, you will ideally put in place systems to handle operational and tactical matters and stick to the strategic or leadership role in the business. Strategic capability means how well you understand an industry or market. This, you can imagine, dramatically affects how well the new business will do.
Shared resources or capacity
The second thing you should rightly look at is the possibility of shared resources or capacity between the two businesses. People will often start a new business vertically along the supply chain because they want to utilise the capacity of the existing business to boost the new business. Say you keep chickens and want to start a feed-mixing business based on your experience with chickens. An example of shared capacity would be a chicken farmer looking at other poultry, such as turkeys, to utilise the unused capacity of their facilities. The advantage here is that you are using the same equipment and processes, so there isn’t a big learning curve. You can use the same staff and other resources. This doesn’t mean you won’t have to pay extra but you will certainly pay less than if you venture into something that requires new capacity.
One of my favourite definitions of a business is a system of processes that deliver a product to a customer at a profit. Let’s focus on the system of processes part of this. All businesses, no matter how small, are organised processes. Whether you bring in stock to resell, buy hair extensions to put in a client’s head or cook up meals and sell them. There are processes organised into a system. How well that system of processes is organised determines the success of a business, so when a business’s second business utilises a system similar to the first business, your chances of success are greatly improved.
This may be the most complex to grasp of all the things we will look at here. It seems simple to say that if your second business idea shares customers with your first business, you have the upper hand. The trouble is identifying if customers are actually shared. It stands to reason that people who drive cars are likely the same people who buy tyres. It also stands to reason that people who drive cars buy chicken. The difference between the two relationships is causality. People who drive buy tyres because of driving. People who drive buy chicken for reasons unrelated to driving, so while it’s easy to identify shared customers, it’s the causal relationship that matters most. Shared customers with a causal relationship will reduce customer acquisition costs because you can leverage existing relationships and behaviours.
So there you have it. If you’re considering starting a second (or third) business in 2023, that is the smart way to do it. Look for the things mentioned here and lean into them.