Diversifying Your Business

Diversification Offense & Defense

Michael Holigan dug ditches to support himself during college, but today the 35-year-old is master of his diverse domain as president of Holigan Family Holdings Ltd., a $15 million Dallas powerhouse-with emphasis on "house." Holigan is the host of Michael Holigan's Your New House, a syndicated television show on the Discovery Channel. Through his eponymous Web site, consumers can find contractors, realtors and mortgages; they can also buy everything from air compressors to water heaters. Holigan doesn't manufacture any of those products, of course-he's partnered with a number of companies-but the more services he can provide, the more customers will think of him when they buy or remodel a house.

Holigan admits there have been mistakes along the way. "I tried to get into the magazine business," says Holigan. "That wasn't bright. Terrible industry." (Hey, thanks a lot!)

Franchising was also an error, but one with a happy ending. "We [started] selling home-building franchises in the summer of 1999," says Holigan. "We probably had 60 franchises later that fall, and we noticed it was taking way too long to build the houses. Superintendents were spending more time doing paperwork than house-building." This led to the natural conclusion that what the world needed wasn't a franchised home-building company but a technology that would help all those beleaguered construction superintendents. That was the beginning of MH2 Technologies, which provides systems that allow construction superintendents to do time-intensive tasks such as scheduling crews, booking inspections, and ordering supplies from the job site and not the office. The technology has become the universal standard in the industry.

According to Holigan, the first thing any entrepreneur should do before plunging into new territory is "sit down with a piece of paper and figure out your upside and downside. Come up with worst-case and best-case scenarios. It's extremely likely that you can go under in any new business, and you really need to go in understanding the risk factor and how much liability you can afford to take. It's kind of like playing craps at Vegas. It can all be gone quickly."

The magazine attempt was foolish, says Holigan, if for no other reason than if the television component of his income had vanished, the magazine-a direct tie-in to the show-would have likely died as well.

"I think the main thing is to watch your customer base," Holigan adds. "Can you diversify with your existing customer base?" Holigan has turned down lucrative construction projects that had nothing to do with houses. "My customers either build homes, work for the builder, or they're buying them. I want to come up with products that support those people, so I know there are certain things I can do and other things I should never get into."

Diversification Defense
Tending to multiple revenue streams isn't just a strategy to help you grow; you should also use it to avoid shrinking.

In 1994, Mary Westheimer, now 47, founded BookZone Inc., an Internet portal that has survived the emergence of Amazon.com. The 15-employee Scottsdale, Arizona, company hosts, designs, develops and promotes Web sites for some 3,500 publishers and authors around the world. It sells books through its online catalogs and works with strategic partners to do things like print projects on demand and sell software to businesses. The company offers a dizzying array of choices for the publishing industry, and each brings in significant income: Hosting Web sites, for example, is 18 percent of the company's annual revenue, while strategic partnering generates 12 percent. "Diversification allows us to grow-and survive," says Westheimer.

The publishing industry is a difficult one-as Holigan knows-so Westheimer has had to continually consider what her company can do to bring in new revenue. Less than a year ago, she hired a new CEO, Bryan Pelligrini, who quickly linked up with five strategic partners. Pelligrini has an interesting way to think about diversification.

"You remember Dr. Scholl's foot pads?" asks Pelligrini, sounding amused. "Twenty years ago, they probably had 10 or 12 different products for feet. Now, they have something like over 100. They took the same materials, chopped 'em up, put 'em in different colors. We're essentially a software company who provides services to publishers, but we're finding more ways to deliver great services through the same vehicle and the same channel."

Breaking Out
If you don't diversify and expand your company's horizons, in a sense, you're creating your own little prison.

That's the logic offered by Vicki Sanderford-O'Connor, professional speaker, business coach, owner of a catering business, and president and founder of ClariQuest Consulting, a Fair Oaks, California, firm that specializes in helping companies through everything from workplace violence to managing change. She also spent 16 years in the California Department of Corrections working in a variety of jobs, from administrator to parole officer.

"It's the barriers that keep you from trying anything new," says O'Connor. "Most people blame external things, but you have to look within to discover what's holding you back. That's the key to unlocking anything."

Barriers holding you back, says O'Connor, might be:

  • the fear that you can't manage diversification
  • the fear that the diversification may not fit into the philosophy of the company
  • the fear that the risk of failing is too great to move forward
  • the fear of stretching your resources too thin and shortchanging current customers

"A lot of these are common-sense concerns," acknowledges O'Connor, who isn't advocating ignoring your worries. "But you have to ask yourself 'Is it that I can't really provide the service? Or am I just running scared?'"

Geoff Williams has written for numerous publications, including Entrepreneur, Consumer Reports, LIFE and Entertainment Weekly. He also is the author of Living Well with Bad Credit.

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This article was originally published in the February 2003 print edition of Entrepreneur with the headline: It's Really Something Else.

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