Specialize first, then diversify as a startup founder

As a startup founder, it is natural for your enterprise to have an ambitious vision that extends beyond a single product or even a single domain. After all, startups are all about the opposite. Ambitious people are not the kind of people who are attracted to this kind of business.

The combination of specialization versus diversity is not new and has been the focus of much heated debate among economists over the past few decades. McGinson et al. (2004) conducted a study on business performance after consolidation which showed a positive relationship between performance and degree of focus. At the same time, there are obvious advantages in different offers like new market exposure and risk reduction.

That said, there is a big downside to trying to fulfill most of your ambitions from the initial startup stage. Diversifying too many domains too quickly can slow down your efforts and cause you to fail to get enough results from most of your initiatives. In fact, trying to apply to a very wide market is one of the most common startup marketing mistakes. There are two reasons why.

1. Limit your resources

The first problem with diversifying your efforts too early is that you need to carefully allocate your limited resources in order to be successful. Each new feature or product line costs extra time and money. This means that every new vertical that you invest deprives the core vertical of the business of these assets. This is bad because, at the initial startup stage, your main offer is to use the investment of all the resources it can get.

The smart thing for a startup founder in such a situation is to invest the available resources in gradually increasing the quality of the product instead of expanding the product range.

Many founders make the mistake of investing too quickly in diversification because they are trying to imitate established successful brands. However, what they fail to understand is that established brands are at a different developmental stage.

Henry Ford famously said that his customers would “get any (car) color until black.” He realized that his main competitive advantage was to build a cheap car, and he chose to pay close attention to it while leaving out other features of the product (even something as basic as different colors).

Later, when the Ford Motor Company established itself, it began to add more color. However, doing it right from the start can be a big mistake – the complexity of the initial stages of an enterprise is your enemy.

2. Diversity hinders the establishment of a brand identity

Nurture the growth of brand image is integral. Separating your offers from the established players in your market is one of the best ways to grow your startup brand. And the best way to differentiate yourself is to focus on what makes your brand offer unique.

By diversifying very quickly you can shift the focus away from your point of difference and you can inadvertently compete directly with established brands in the market. Naturally, this is not the right move because established players have the advantage of more resources and higher brand loyalty. In other words, they are more likely to win in direct confrontation.

To avoid direct competition, it is best for startups to focus on their unique sales offer. This may give the business a better chance to generate more interest from customers and a special opportunity to generate sales which it aims to be dissatisfied with the offer of the brand currently established in the market.

In short, the question is not Whether Rather When Bringing Diversity Bring diversity very quickly and you risk reducing your uniqueness as well as your limited resources, which is your main competitive advantage. Start by focusing on solving a problem exceptionally well than anyone else in the market. Specialize first, then diversify.

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