Worth a Try

When Neil Franklin began offering round-the-clock telephone customer service in 1998, customers loved it. The offering fit the strategic direction Franklin had in mind for Dataworkforce, his Dallas-based telecommunications- engineer staffing agency, so he invested in a phone system to route after-hours calls to his 10 employees' home and mobile phones.

Today, Franklin, 38, has nearly 50 employees and continues to explore ways to improve Dataworkforce's service. Twenty-four-hour phone service has stayed, but other trials have not. One failure was developing individual Web sites for each customer. "We took it too far and spent $30,000, then abandoned it," Franklin recalls. A try at globally extending the brand by advertising in major world cities was also dropped. "It worked pretty well," Franklin says, "until you added up the cost."

Franklin's efforts are similar to an approach called "portfolio of initiatives" strategy. The idea, according to Lowell Bryan, a principal in McKinsey & Co., the New York City consulting firm that developed it, is to always have a number of efforts underway to offer new products and services, attack new markets or otherwise implement strategies, and to actively manage these experiments so you don't miss an opportunity or overcommit to an unproven idea.

The portfolio of initiatives approach addresses a weakness of conventional business plans--that they make assumptions about uncertain future developments, such as market and technological trends, customer responses, sales and competitor reactions. Bryan compares the portfolio of initiatives strategy to the ship convoys used in World War II to get supplies across oceans. By assembling groups of military and transport vessels and sending them in a mutually supportive group, planners could rely on at least some reaching their destination. In the same way, entrepreneurs with a portfolio of initiatives can expect some of them to pan out.

Making a Plan
Three steps define the portfolio of initiatives approach. First, you search for initiatives in which you have or can readily acquire a familiarity advantage--meaning you know more than competitors about a business. You can gain familiarity advantage using low-cost pilot programs and experiments, or by partnering with more knowledgeable allies. Avoid businesses in which you can't acquire a familiarity advantage, Bryan says.

After you identify familiarity-advantaged initiatives, begin investing in them using a disciplined, dynamic management approach. Pay attention to how initiatives relate to each other. They should be diverse enough that the failure of one won't endanger the others, but should also all fit into your overall strategic direction. Investments, represented by product development efforts, pilot programs, market tests and the like, should start small and increase only as they prove themselves. Avoid overinvesting before initiatives have proved themselves. The third step is to pull the plug on initiatives that aren't working out, and step up investment in others.

A portfolio of initiatives will work in any size company. Franklin pursues 20 to 30 at any time, knowing 90 percent won't pan out. "The main idea is to keep those initiatives running," he says. "If you don't, you're slowing down."

Austin, Texas, writer Mark Henricks has covered business and technology for leading publications since 1981.

This story appears in the February 2003 issue of Entrepreneur. Subscribe »