Stick to your strengths, then build on them

When a business does well, the temptation to diversify is strong. A factory opens a restaurant; a trading company buys a hotel; a family firm invests in property because a friend did. Sometimes this works. Often it spreads money, management attention and energy too thin.

The quiet world leaders

The German economist Hermann Simon spent years studying what he called 'hidden champions': medium-sized companies that are among the top three in the world in their market, yet hardly known to the public. He counted around three thousand of them worldwide, and Germany has by far the most. They make things such as industrial labels, dental equipment or specialised valves. Few people have heard of them; their customers cannot do without them.

What they have in common is focus. They choose a narrow field and go deep, rather than wide. They know their customers extremely well, invest steadily in improvement, and keep their people for a long time. Simon found that staff turnover at these firms averaged 2.7 per cent a year, against 7.3 per cent for Germany as a whole, and that their chief executives stayed in post for around twenty years.

Simon's book has been published in Vietnamese as 'Các nhà vô địch ẩn danh của thế kỷ XXI'. It is worth reading.

Growth from a strong core

Research by Bain & Company points the same way. In a study of large companies in the G7 countries, only about one in eight achieved sustained, profitable growth over ten years. Most of those that did so grew by strengthening a clear core business first, and then stepping carefully into neighbouring areas where their existing strengths still counted.

This is not an argument against change. It is an argument for choosing change deliberately. A strong core gives you the cash, the reputation and the confidence to try new things. A weak core makes every new venture a gamble.

What this means in practice

In our work we often begin by asking a simple question: what is this company genuinely good at, and do its customers know it? The answer is sometimes surprising. A firm that thinks of itself as a manufacturer may really be valued for its speed of delivery. A distributor may be valued for its advice more than its prices. Once you know your true strength, decisions about investment, technology and new markets become much clearer.

Modernisation then becomes a way of making your strength stronger, rather than a goal in itself.