From the book called Billion Dollar Lessons by Paul Carroll and Chunka Mui, Portfolio Books, 2008. The book is subtitled What Can You Learn for the Most Inexcusable Business Failures of the last 25 Years.

Deadly Strategy Number 5 is adjacent market strategies means an attempt to build on core strengths to expand while taking few risks. It sounds good, but most of the time, the efforts fail.The reason successful companies build on core strengths, and over time learn what is repeatable. Adjacent markets are hard to pull off and are risky.

An example is Oglebay Norton for 150 years its freighters moved iron ore to the steel mills. It decided to leave the steady but slow growth industry and go to limestone which was projected to have higher growth potential. It sounded logical, but problems began to surface. To move into the limestone industry debt was taken on. The company through acquisitions became number 5 in limestone, but not big enough to carry weight. The steel companies went into a downturn and prices went down. As well, limestone needed to travel on rivers, Oglebay’s fleet was for the lakes, their boats were too big for rivers – no advantage here.The company was eventually sold for a fraction of its previous price.

Other examples – Xerox and financial services; Avon Products and Health Care business including retirement homes; American Standard and laser medical technologies; Laidlaw – school buses and ambulances; Florida Light and Power buys Colonial Penn Life Insurance. Montana Power and Touch America; Blue Circle Cement company buys a lawn mower company,(the theory the loyal customers who owned the home that used Blue Circle (although most homeowners would not know who Blue Circle was) would buy a lawn mower from the same company).

To ask when it sounds good – how do the sales channels differ? how do the customers differ? how do the products differ? what about the regulatory environment? has the business plan a significant margin for error? what happens if the economy goes south? what assets do you lack in the adjacent market? what are the problems of the market? with your customers follow you?

There are always more questions than answers, till next time – to raising questions