Exiting Poorly Fitting New Lines of Business

It’s encouraging to see companies eventually realize that they should halt their efforts to diversify far beyond their core business.  This realization is important because businesses succeed by building on their strengths. So, exiting new lines of business in areas where the company lacks strength is a step in the right direction. Yet, it is often a painful step, since pursuit of ill-fitting lines tends to occur with devastating financial losses. Nonetheless, reversing the decision to pursue poorly fitting new lines is what a company must do to get back on a success track.

We currently see a good example of this in the November 29, 2023 Wall Street Journal article “Apple to Exit Goldman Deal, Ending Bank’s Consumer Push” by AnnaMaria Andriotis. The article tells of the final shutdown of efforts by Goldman Sachs, long a prestigious organization in investment banking, to diversify into consumer banking, an area that is not a Goldman strength. Goldman’s consumer banking efforts had entailed a partnership with Apple to offer credit cards and that deal between Goldman and Apple is now being terminated.

The article explains, “The retreat began around the end of last year after Goldman lost billions of dollars trying to build out a full service consumer operation.” As someone who has been researching business success and failure patterns for 25+ years, I find that Goldman’s experience is typical of what happens when companies set out to expand into areas insufficiently related to their strengths. Such diversification efforts are initially thought promising, but incur huge losses as the company tries to do business in an area where it lacks sufficient strengths. I wrote about Goldman’s weak diversification situation in my newsletter earlier this year.

The Wall Street Journal article about the situation says, “For Goldman, the partnership was a big part of its failed bid to diversify beyond businesses serving big corporate and investor clients and the ultrarich, and its demise is the final big step back from the failed experiment. Goldman is now turning back to focusing on those core clients.” As I see it, returning the focus to the core, where the company has strengths, is an excellent business move.  After all, business success comes from building on strengths.

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