Stratrix
  1. 1 What does the new business share with what you run today?
  2. 2 What is the main reason for the move?
  3. 3 How will you enter?
  4. 4 What condition is your core business in?
  5. 5 How large is the move for your company?

5 questions to go. Your result appears here.

What the record shows

Three questions the record says matter most: what the new business shares with the one you run, why you are moving now, and how much of the company rides on it.

A business that shares nothing with yours is the riskiest move: six of seven went wrong

Of 71 moves into a new line of business with a known outcome, 27 were later sold, spun off or closed, or kept with a write-down or a large loss. Where the new business shared nothing material with the core, six of seven ended that way: Kodak–Sterling Drug, PepsiCo–Tropicana, eBay–Skype, AT&T–Time Warner, Richemont–Yoox Net-a-Porter and McDonald's–Dynamic Yield. Where it shared customers, technology, channels, a brand or skills, 16 of 52 did.

The sources describe the gap in plain words. eBay spent two years integrating "a product that had nothing to do with the marketplace". At McDonald's, "owning a software business is a different job than running more than 40,000 restaurants."

It is not a rule. One unrelated move paid off as intended: Mars–Chappell Brothers Ltd. And sharing something is no guarantee: 16 related moves also went wrong, among them Sears–Dean Witter & Coldwell Banker, Google–Motorola Mobility, GameStop–Spring Mobile, Verizon–AOL & Yahoo and 12 more.

Moving because the core is slowing went wrong in eight of twelve cases

Where the stated reason was to find growth or spread risk because the core business was slowing or under threat, eight of twelve moves went wrong: GameStop–Spring Mobile, AT&T–Time Warner, Richemont–Yoox Net-a-Porter, Walgreens–VillageMD, AOL–Time Warner, Microsoft–Nokia and 2 more. Where the reason was to use something the company already had, a capability, a brand, customers or assets, ten of 32 did.

The condition of the core points the same way. Companies whose core was slowing or under threat when they moved went wrong in nine of 20 cases; companies with a healthy core, in four of 17.

Escaping can work. Three moves made to escape a slowing core paid off as intended: SAP–SuccessFactors/Ariba/Concur, IBM–Red Hat and PMI–Swedish Match.

The larger the bet, the more often it went wrong

Where the move was a large bet, the company's largest deal or investment or one described as company-changing, 20 of 43 went wrong. Where it was small for the company, four of 14 did.

Seven of the ten moves kept with a write-down or a large loss were large bets.

What did not separate outcomes: buying or building

Moves made by buying a company went wrong in 19 of 51 cases; moves the company built itself, in six of 18. How a company enters a new business mattered far less than what the business was and why it moved.

Warning signs, in the sources' words

  • Nobody can say what your business brings to it. “The real loss was the two years of corporate attention spent integrating a product that had nothing to do with the marketplace” (eBay–Skype (2005))
  • The case rests on getting away from a slowing core. “Diversifying away from a slow-growing, capital-hungry utility business into high-margin advertising wasn't stupid; it was the consensus play.” (Verizon–AOL & Yahoo (2015))
  • Its economics are unlike anything you run. “chilled orange juice is its own beast: it lives in a refrigerated case, spoils fast, and depends on a frozen-cold supply chain” (PepsiCo–Tropicana (1998))
  • Running it is a different job from running yours. “Owning a software business is a different job than running more than 40,000 restaurants.” (McDonald's–Dynamic Yield (2019))

Questions for the board before it decides

  1. Name the customers, technology, channels or skills this business shares with ours. If the list is empty, why are we the right owner?

    Of seven moves into a business that shared nothing with the core, six were later sold, closed or written down.

  2. If our core were growing, would we still make this move?

    Eight of 12 moves made because the core was slowing went wrong, against ten of 32 made to use something the company already had.

  3. What do we already have that makes us better at running this business than the people who run it today?

    Moves made to use an existing capability, brand, customer base or asset paid off as intended in 17 of 32 cases.

  4. Could we start smaller and prove it before we commit the full amount?

    Large bets went wrong in 20 of 43 cases; moves that were small for the company, in four of 14.

  5. Who on our team has run a business with these economics: its margins, its cycle, its customers?

    PepsiCo found that "chilled orange juice is its own beast". It later sold Tropicana.

What it is not

A forecast. The record holds 87 moves into a new line of business, researched from published sources: company filings and statements, and reporting. Of those, 71 have a known outcome and 16 are too recent to call. Moves that only bought scale in the same business, or took the same business to a new country, are not counted. Well-documented moves lean toward the famous ones, and only 7 of them are moves into a business that shared nothing with the core, so read that finding as a pattern in named cases, not as odds. Where the sources do not say, that case is left out of that question rather than guessed.