I just visited amazon.com to search for a book. Instead of the simple book site that I first started visiting, what I found was a site so filled with options that it ceased to be helpful. Instead of a simple one-click to get to a search tool that let me search for books in various ways, I had a pull down that gave me options to search for toys and all manner of other things including books.
Up till now, Jeff Bezos has managed to avoid the temptation to become all things to all people, but that seems to be changing. And, if it does, I think the history of business tells us that Bezos and his stockholders are in for a rough ride.
This is a fairly common business story, actually. What happens is that someone starts a business that serves a particular need. It does well because it serves that need quickly and effectively. Then, there's the need to increase revenue and the desire to get bigger and, one supposes, better. That's where the trouble begins to happen.
It's tempting to believe that because you're good at one thing you will be good at many things. It's tempting to believe that the brand name you've developed selling books, for example, will translate easily and effectively to selling, well, toys. But it usually doesn't work that way.
What makes most successful businesses successful, among a variety of other things, is sharply pointed identity and offerings. It's very often possible to offer lots of different things, the mistake is thinking that the brand draws people together.
In the Online world, the most egregious example of that was the Time-Warner Pathfinder site. That was the site that was going to bring all of their publications together in one place so that people who were looking for Time-Warner publication would find them easily.
The fallacy lies in the fact that people don't look for Time-Warner publications. They look for People Magazine. They look for Time Magazine. They look for all manner of specific magazines, but they don't look for the Time-Warner Magazines.
It turns out that only the Time-Warner executives care about Time-Warner as a brand name. Again, that doesn't mean that you can't sell lots of different things in lots of different markets. If you want an example of that, just look at General Electric.
Jack Welch's avowed strategy is to be number one or number two in every market they serve or else to get out of that market. GE is the old-fashioned type of conglomerate. They sell lots of stuff in lots of different markets.
What GE does different than amazon is doing or Time-Warner did is create specific brand identities within those specific markets. In many ways, the GE label is superfluous, it's something that matters to corporate managers and to shareholders but not much to the people who are buying jet engines, or locomotives, or medical equipment.
The reason that successful start-ups fall prey to this expand-to-conquer-the-world fallacy is that they make a mistake that Nolan Bushnell identified for me some years ago.
We were engaged with a couple of other folks in a discussion of successful start-ups, especially high-tech start-ups. Bushnell is the guy who invented the game Pong and founded Atari. It was a wonderful, wild ride for him.
The game was wildly popular, and the company was wildly successful. No one made a ton of money.
After cashing out and leaving Atari, Bushnell decided to fund another business. The one he chose was Chuck-E-Cheese -- a pizza parlor and entertainment emporium whose symbol was a giant rat. It stank big time.
That company's since been bought out of bankruptcy by other folks and gone on to make a profit, but for Nolan Bushnell, the lesson was pretty simple. He said: "Don't confuse good luck with good management."
In a world when new technologies are emerging and gigantic possibilities abound, as they do today, luck is almost always a factor. Folks who get in early at the beginning can reap astounding profit and be astoundingly successful, not because they're good, but because they're lucky and luck brought them timing.
There are two lessons here for start-ups.
The first one is that it's probably not a good idea to start strutting and expanding until you've got more than a couple of years of a track record. The businesses that are most impressive are those that have been around for 50 or more years and profitable most of the time. None of our Net start-ups can lay claim to anything like that kind of a track record.
If anything, one of the key lessons of business history is that the first folks into the market often disappear beneath the waves. Think about the Stanley Steamer for automobiles, the Dumont television set. Even if they don't disappear altogether, they often wind up as part of other, more effective companies. Think about REO or the original cars made by a guy named Chevrolet.
The other big lesson is that trying to do too much too broadly is a bad idea. Hand in hand with that is the idea that over-estimating the power of your brand's name to work magic is probably a bad idea too.
The recipe for business success seems to be pretty straightforward. You find a want or a need and you fill it effectively and profitably. Once you've got things going, you can expand in lots of ways, but the best expansions are generally in small steps. The further you get from your initial core business, the more important it is to develop separate brand identities for what you do.
Created: May 2000
Reviewed: 2/15/03
Jeff Bezos may have been right on this one. Where I was looking at the idea of adding different kinds of products as brand extension, Jeff saw it as creating a kind of department store or mall. One reason folks shop at a department store or mall is the convenience. That convenience has sure been a draw in the last holiday shopping season, drawing lots of folks to Amazon for more than books.
I talk about this a bit in one of my Monday Memos. The feature was called What Would Mom Think of Today's Holiday Shopping?
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