Thinking of making an investment in a business? If so, it’s wise to consider what products and/or lines of service the business maintains. Do these lines fit well with its core competency (what it does/knows best)? When you find that the answer is “no”, then a yellow or red flag should pop-up in your mind.
A business that ventures into other products or services that do not sync-up with their main line of business can be a dangerous distraction. With limited resources in materials, money and time, a business must have a clear justification for delving into an area that they aren’t experts in.
In the video example, the dairy has a revenue stream from natural gas production. This is not something their business is built to do, but it turns out that their footprint (physical location) is on accessible natural gas reserves. In their case, a 3rd party has done the development and is responsible for the distribution of gas. Therefore, they’re collecting money, but not having not worry about operations. This is a case where an unreleased business venture is a clear positive for the future profitability of this business.
Many other businesses that venture into areas that are outside their core competnency are not as lucky as the dairy in our example above. Often you will see companies lose sight of their main purpose and goal. Through other business ideas they become distracted and use precious resources on an area they aren’t fit to succeed in and often weaken their position where they do have an advantage.
It pays to have good management/ownership that has a strong sense of purpose and mission. Without this necessary focus, it’s not very difficult for a good business to lose its way and compromise itself in an environment where competitors are lurking around every corner.