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  • It's Tempting, But Beware of the New Products/New Ventures Phase
  • A new products/new ventures phase is a tempting, but serious business mistake. Companies are lured by its seeming, but artificial, promises of glory. So, it's an easy mistake to make. And, it can have devastating consequences.

    That's why businesses need to understand what a new products/new ventures phase is and be able to recognize its dangers before it causes damage. The damage is preventable since there are much better ways to deal with the challenges that a new products/new ventures phase usually intends to address.

    A new products/new ventures phase is a temporary period when a company moves into many new areas, typically in response to a business slowdown. Perhaps the business flattens, markets mature or become saturated, or conditions become much tougher. Or, perhaps technology changes. But, regardless of what triggers the onset, a new products/ new ventures phase generally happens when the existing business no longer seems to offer the opportunities it once did, so new ones are sought. A version of a new products/new ventures phase can also occur when deregulated companies pursue newly permitted opportunities.

    In these situations, companies can feel pressured to generate new sources of revenue. And, although the company has strengths, expertise, and know how in the existing business, the company generally does not have a good grasp of what it takes to generate profitable revenue from entirely new areas. They seem to mistakenly believe that it is no more difficult to successfully launch several new businesses than it is to oversee day-to-day operations of the existing business. And, they embark upon a new products/new ventures phase to address their need for new revenue sources.

    This entails going into all sorts of new directions with many new products and new ventures that seem promising at the time, but generally are not a good fit for the business. The company pursues several of these new products or new ventures all at once. Some of the new pursuits might involve acquisitions. But, after eventually discovering that these new products and new ventures are not succeeding, the company goes back to its basic business, ending the new products/new ventures phase, hopefully before too much damage.

    Since a new products/new ventures phase may be associated with times of change, companies may think the best new revenue sources lie in out-of-the box areas far removed from, or at best tangentially related to, the current business. This is a mistake. It can take the company too far from the strengths that drive success and can actually intensify, rather than address, the challenges the company faces.

    The results of a new product/new ventures phase are highly predictable. Few, if any of the expected new revenue sources are actually successful. And, since the company put so much emphasis on the new areas, the basic business may be neglected, causing its further decline. Hopefully, the company stops the new products and new ventures before the basic business deteriorates too much and can still be turned around.

    An example of a new products/new ventures phase is what McDonald's started doing in the early 1990s. A great deal of McDonald's prior growth had come through opening new locations, and as the market had become increasingly saturated, opportunities for this kind of expansion were more limited. McDonald's responded by going into all sorts of new directions, ranging from acquisitions (Boston Market, Chipotle) to new product attempts (Arch Deluxe, exploring pizza and dinner offerings), all seeming to be centered upon breaking away from what McDonald's had previously done.

    Reporting on the many changes at McDonald's, Business Week's October 21, 1991 issue ran a cover story about how McDonald's was rethinking all the rules and doing many new things. At the time, I had already been researching business success and failure patterns long enough to see the dangers of a new products new ventures phase, a term that I had coined. So, I wrote Business Week a letter to the editor about the McDonald's cover story. My letter warned that McDonald's might be embarking upon a new products/new ventures phase. Business Week published my letter in its November 25, 1991 issue.

    Several years later, as is common when a company embarks upon a new products/new ventures phase, McDonald's needed a turnaround. So, McDonald's abandoned its new products/new ventures phase and went back to basics. Since then, the new products McDonald's introduced have been a much closer fit for the business. And, they have been very successful.

    A more recent example of an organization that may have to watch out for a potential new products/new ventures phase is the United States Postal Service. An October 21, 2011 Wall Street Journal article described all sorts of possible new revenue sources that the Post Office might consider as its traditional postal business slows. If the United States Postal Service pursues these new revenue sources without being adequately selective, it could easily turn into a classic example of a new products/new ventures phase.

    In summary, the classic new products/new ventures phase does not bring the kind of success anticipated for it. Companies can achieve much greater success by finding opportunities that fit with the basics of the business. This means being more selective about which opportunities to pursue. Going into all sorts of new directions with a products/new ventures phase is definitely not the solution.

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