by Ron Ashkenas
Unless you follow tech companies, you might have missed the startling announcement by collaboration and communications software maker 37signals that it has decided to refocus the entire company on a single core product.
“Refocusing” might be an understatement. 37signals has developed a dozen different products and services since its founding in 1999. They will now be a “one product company” focused on Basecamp, its popular project management software. To emphasize the point, the company is also changing its name to Basecamp. So instead of following the conventional wisdom about growth through diversification, CEO and founder Jason Fried is doubling down on one successful area and putting all of his resources in one basket.
Basecamp is a small company. Even with more than 15 million users, it still has less than 50 people on its payroll. So it’s somewhat audacious strategy might not be a model for everyone. But regardless of your company’s size, there’s a lot to be said for the power of pruning and the importance of maintaining focus. For many companies, in fact, the strategy of “less is more” has been a powerful driver of success. For example, one of the secrets to Trader Joe’s profitability (which is one of the highest in its industry) is that they only carry 4,000 stock keeping units (SKU’s) per store vs. the typical 50,000 at other grocery chains. They also open a limited number of stores each year, trading off rapid growth for insuring the quality of their brand. Similarly, Apple has maintained the dominance of the iPhone partly by resisting the urge to create multiple product variations with different functions and features, in stark contrast to their competitors.
Keeping a business focused on a limited number of products, customers, or capabilities is not a new idea. In the 1950’s, Peter Drucker emphasized that business strategy needs to include “purposeful abandonment,” i.e. deciding what not to do. Similarly, Peters and Waterman’s 1982 classic, In Search of Excellence, reported that successful companies were those that could “stick to their knitting” and not get sidetracked.
Despite all of this advice, the kind of radical focus exhibited by 37signals (now Basecamp) is difficult for managers who often act like kids in a candy store. Instead of focusing on doing a few things well, they try to go after too many customer segments, too many adjacencies, and too many new technologies. Witness the struggles of financial services firms that become too big to control effectively; or large pharmaceutical companies that place bets on so many therapeutic areas that they don’t end up winning in any of them.
It’s a natural human tendency to want to do more. Most of us have trouble walking away from tempting opportunities, whether it’s at the dinner table, or at work. So we end up with indigestion at home and overload at work. That’s why it takes a great deal of discipline, and even courage, to slim down, both physically and strategically.
A case in point is Google’s recent sale of Motorola Mobility to Lenovo. The original purchase was probably a tempting opportunity that was viewed as too good to miss; but when it became clear that the telecommunications hardware business was not in their sweet spot, Google’s senior executives made the tough decision to sell, despite the financial consequences. And in the long run, avoiding distraction and dilution of focus will probably be worth the cost.
Most of us of course are not in the position to buy and sell companies or even rationalize our product lines. As managers however, we can make sure that our teams stay focused on the few critical strategies and projects that will make the most difference. We also can ask Drucker’s question about what we should stop doing; and we can push back on others when we’re asked to do things that might be distractions from the core mission of our group. None of this is easy in the midst of day-to-day pressures. But in the long run, it’s very likely that we’ll reap higher rewards by doing less.