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  • Avoid the Classic Mistake So Many Companies Make When the Going Gets Tough
  • Most companies face challenging times at some point in their history. During tough times, so many companies react by making a common, but serious, mistake. Instead of doing what can help overcome the challenges, too many companies embark upon what many think will bring improvement, but what typically makes things far worse, and possibly even disastrous.

    During times of struggle, a company’s core business often is no longer performing as well as it once did. Too many companies see this as a signal that they must diversify into new lines of business to make up for the existing downturn. They often pursue several new lines of business. But, the results are disappointing, since the new lines of business typically perform even more poorly than the original struggling business. I call what these companies are doing a new products/new ventures phase. It’s a phase when companies make the mistake of going into too many new lines of business, and it ends when companies shut down those new lines of business after discovering that these new areas are losing the company huge sums of money.

    Instead of diversifying into a new products/new ventures phase, companies facing struggle would be far better off focusing upon areas where they have some prior strengths. It may take time before the struggling company gets back on a fully successful track. However, by concentrating on areas where the company has strengths, the company is more likely to eventually get back to thriving.

    A recent example of a company dealing with these issues is Disney. Disney is still recovering from the downturn related to the pandemic. Disney also faced financial difficulties encountered as a result of its entry into the streaming business. To deal with these challenges, Disney brought back its former CEO and is still working on revitalizing the company.

    The September 20, 2023 Wall Street Journal had two articles about Disney’s revitalization efforts. The two articles are “Disney to Invest in Theme Parks, Cruises” by Robbie Whelan and Alyssa Lukpat, and “Magic Kingdom Needs Wider Spell” from the paper’s “Heard on the Street” section.

    According to the first article, ‘Disney plans to spend about $60 billion to expand its theme parks, cruise lines, and resorts over the next decade, almost doubling its investment in a division that that provides its primary source of profits.” The article says, “The announcement underscores a dramatic ongoing shift in Disney’s business model, which for years relied primarily on income from its traditional cable television business to subsidize costly and risky bets like the 2019 launch of the Disney+ streaming service. As more cable television customers cut the cord, Disney’s TV networks are starting to generate less profit, forcing the company to rely on its theme parks as its primary financial engine. ”

    The second article comments on Disney’s shift in strategy. This article is subtitled “Disney’s plans to double theme park investment makes sense but can’t fully offset media struggles.” According to this article, “Disney’s present reality is such that even a strong theme park business doesn’t fully offset the more existential challenges faced in the company’s much larger media side.” The article points out that the media side of Disney incurred huge losses and “some of Disney’s latest high profile (movie theatre) releases fell flat”.

    Based on my 25+ years researching business success and failure patterns, I agree with the commentary article’s view that Disney’s plans make sense, yet Disney still has immense challenges. However, it is worth elaborating on why Disney’s plan makes sense. Disney is doing something very right because, right now, it appears to be avoiding the number one serious error made by many companies that face challenges. Disney’s revitalization efforts seem to focus on areas of Disney’s strengths, rather than making the classic error of chasing all sorts of new, but unrelated areas, hoping that the new will somehow magically outperform the company’s struggling core businesses. So many companies make this major mistake when faced with challenging circumstances like what Disney is now encountering.

    There are no details about how Disney will implement its plans. So, it’s still possible that they will look for aspects of theme parks, cruises and resorts that are wildly different from what Disney does now. If so, they can end up vulnerable to the classic mistake struggling companies make by expanding in areas where they lack strength and are likely to fail. But, in general, theme parks, cruises, and resorts are areas where Disney does have strengths. Thus, there is good potential for Disney to do things right.

    So, in summary, companies that face challenging times need to focus on their strengths. They need to avoid the most common serious mistakes that companies tend to make during times of struggle. They shouldn’t focus on the new and wildly different. Instead they should pursue areas they understand, areas where they can compete successfully and thrive.

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