Product Portfolios

(Source Institute) #1

“Should entrepreneurs focus? At a principal level I agree, at a practical level that’s not how the world works.”
-Philip Walton, Co-founder of BRCK

Entrepreneurs, like most people, have probably been told to focus for most of their lives. It’s such a common response that some founders like Edmand Sharita didn’t even realize they were thinking this way until much later. But, as he and many others have discovered, sometimes focusing is exactly the wrong thing to do. Sometimes building a product portfolio is how you succeed.

##The Dangers of Focusing Too Soon

Sharita started off by focusing intently on his main product: a device to prevent the stealing of elecricity. However, this was a big project which wouldn’t be profitable until a prototype was created and it could be sold to Umeme Power, Uganda’s national elecricity company. The financial pressure of this business model led to intense team conflict and almost blew up the entire project.

Then his company, Kamata, was about to run out of money.

With a few weeks to spare, he and his team started on an answer they’d know all along. Kamata developed a hybrid switch to help homeowners use more solar power. It was comparatively quick to manufacture and was much faster to sell, since it was sold to consumers rather than large companies. In fact, the hybrid switch was something homeowners were already asking for.

While the anti-theft device had great long-term potential, the hybrid switch was a fast moneymaker. Only now did the team realize they could have created the switch early on and used the profits to finance the anti-theft device. This would have meant faster growth and less team conflict.

“After this we thought: what if we worked on it from the start, got money from the start?”
-Edmand Sharita, Founder of Kamata, Africa Prize shortlist

The entire team realized they had been focusing too much and neglecting the benefits of developing a product portfolio.

High-risk products

Chura, a company which allows users to transfer data, mobile money, and minutes between different telecoms in Kenya, also found that there have been huge benefits to creating a bigger product portfolio.

“Technical wise, they all revolve around mobile money. So, we came up with the infastructure and from there it’s easy to extend it to other platforms.”
-Samuel Njuguna, Co-founder of Chura

Chura contantly tries new exchange products, but they’re relatively cheap to build since their core infrastructure is designed for this. Once they obtained customers, it was very easy to market new products to them. As the cost of rolling out a new product declined, they realized they could try several products at once and see what worked best.

This lets them see what works and what doesn’t. It adds stability to their business since they’re not dependant on any one product. For example, when one of their most popular products suddenly stopped being profitable because Safaricom changed their reseller terms, Chura could still survive and grow.

“The whole business has different products but we see it as one ecosystem. It has multiple channels of services.”
-Samuel Njuguna, Co-founder of Chura

Product Bundling

Naresh Mehta, CEO of Powertechnics found the same benefit. He stressed not putting all of your eggs in one basket since competitors can copy products and push profits down. He bundles his products so his less profitable products can still gain market share and help build his overall brand. This process of bundling products and pushing volume is at the core of his company’s success.

“It’s a range of products combined. If one is doing well and another not, package them together so the not strong one in terms of market share will get into the market.”
-Naresh Mehta, CEO of Powertechnics

Don’t confuse product-focus with customer-focus

Philip Walton, on the other hand, takes a more moderate approach. He warns of ‘death by 1000 cuts,’ that spreading yourself too thin can kill your business. But at the same time, he recognizes that the reality is more complex and you have to let things develop organically. So, when it became clear there was a large market gap to build a rugged education-focused tablet alongside his company’s rugged portable wifi routers, the company decided to build a new product.

Like the case with Mehta, this may be a case of not focusing, but there were serious benefits. Bundling these products would allow BRCK to expand its market share and sell more products. It also gave them more opportunities to build their brand identity in the education field.

Walton recognizes that sometimes you have to focus, but when the right opportunity arises, focusing just isn’t always the right answer.

There are clear cases when a product portfolio is justified:

  • Creating cashflow with fast-sellers, as Kamata did, can fund growth and help keep your company alive.
  • Managing risk when single products depend on volatile outside circumstances. Chura manages to operate and grow amongst Kenya’s fast-changing telecom giants.
  • Creating a product line to sell more to the same customers, thereby sharing the same sales costs over more products. Powertechnics and BRCK both increased sales volumes and market share with this approach.
  • Chura also reduced the cost of developing new products, by building a core technology which was used in each product. This allowed them to try more products, and then focus on the clear winners.

Can you relate to the stories we told here? How is your experience different? We’d love to hear from you. Your questions and comments are what will help us make better lessons in the future.