3 Steps For Building An Adjacent Business

Chances are you'll fail if you try to build out your core business—then again, you many not. Here's how to stack the odds in your favor.

Budgeting time is coming. Do you know what your new growth idea is? Will you submit the usual "same but a little bit more" plan, or do you have a big, disruptive growth idea that could make 2015 your best year yet?

Finding adjacent businesses to build onto your core business is probably the best way to produce new growth next year. But the odds are against you: 75% of such attempts fail.

So how can you accurately recognize the big adjacent growth idea for next year? If you are strategic and understand clearly how to separate good ideas from distractions, you can drive your chances of success as high as 80%.

For inspiration, consider 1-800-Got-Junk?. With 162 franchise locations across the U.S., Canada, and Australia, it is one of the largest junk-removal businesses in the world.

And in 2013 it got even bigger. The company launched a new adjacent business, You Move Me, a "professional local moving company created to move more than just your boxes." The company claims their movers will move you quickly, smoothly, and with genuine smiles. In its first eight months, the business generated $5.1 million in revenue, and it closed its first full fiscal year with $17 million.

Your "You Move Me" idea is out there; you just need to recognize it.

Finding Your Adjacent Business

1-800-Got-Junk? created an adjacent business by applying the resource-based view (RBV): they leveraged a resource from one business to create an unfair advantage in another.

As I said, most such attempts fail. In the 1990s, Laidlaw, the largest school bus operator in North America, began acquiring ambulance companies thinking their logistics capabilities would give them advantage. They didn’t. Laidlaw struggled, then sold the ambulance business at a significant loss. Likewise, Blockbuster’s attempt to leverage its brand and operations to create a Netflix copycat subscription business helped usher in the company’s ultimate demise.

But if you understand how and when adjacent businesses work, you can almost always succeed. Through design or serendipity, 1-800-Got-Junk? followed the textbook principles that the RBV theory shows lead to success.

I spoke with the Brian Scudamore, CEO of 1-800-Got-Junk?, to break down what they did.

Step 1: List Resources To Leverage

There are three places to look for a resource you can leverage:

  1. Tangibles: Equipment, technology, raw materials, etc.
  2. Intangibles: Brand, IP, customer loyalty, etc.
  3. Capabilities: The ability to recruit great talent, manufacture special products, deliver great customer service, etc.

The idea for You Move Me sprung out of frustration. A fellow entrepreneur, who owned a moving company in town, told Brian "when you move, call me, and I will take care of you." Brian took up the offer but was unimpressed. The movers arrived 45 minutes late in a truck emblazoned with a "guaranteed on-time arrival" sign. And the inauspicious start only got worse. The movers broke possessions and were more interested in listening to their iPods than to Brian’s family’s concerns.

Brian knew he could do better. More importantly, he thought of several 1-800-Got-Junk? resources he could use to create a competitive advantage: a call center that delivered reliable customer service, an established base of franchise partners, and the ability to recruit relatively low-skilled talent and build a "smiley, happy culture." Brian’s company knew how to manage trucks and build a brand, and across all three dimensions—tangibles, intangibles, and capabilities—1-800-Got-Junk? would enjoy a head start if it entered the moving business.

Ask yourself: How many unique resources can I leverage to launch an adjacent business?

Step 2: Strategically Identify Those Resources That Will Create A Sustainable Advantage

Few of the resources you list will actually matter. You will apply them and enjoy some success, which will attract competitors, who will erode your advantage. To block out competition, pass your resource ideas through a four-part RBV filter. For the resources to matter they must be:

  1. Rare
  2. Valuable
  3. Inimitable
  4. Non-substitutable

1-800-Got-Junk?’s skill at managing truck fleets and its call center are great, but probably imitable. But turning relatively low-skilled workers into a "smiley, happy" workforce is a feat few can achieve. Learning to imitate that would take years.

Building a reliable base of franchise partners also creates an advantage. You Move Me launched, day one, with 25 tested, proven franchisees, chosen from 67 1-800-Got-Junk? partners who were interested in opening a You Move Me franchise. It is hard to imagine another brand-new franchise launching with such a strong base.

Ask yourself: Which of my resources are truly rare, valuable, inimitable, and non-substitutable?

Step 3: Design A Breakthrough Experience

Since you are building a base of unique resources, you should also build a unique customer experience.

Brian locked himself in a Whistler townhome with four others from his team for two days. They dreamed up innovative ways to differentiate their offering. They thought carefully about what the brand would stand for, then came up with three "moments of truth" that would wow customers.

For example, on your moving day, the You Move Me team will call you 30 minutes before they arrive and say "We know you’ve already packed up your coffee maker, so what kind of coffee do you want? We’ll pick it up."

"Then we swing by Starbucks and pick it up," Brian explained. Competitors who have tried to duplicate this give up because it requires putting customer service above efficiency.

Now is the time to find your next big growth idea. There is a 75% chance your idea will fail. But if you understand how to recognize ideas that last from those competitors will copy, you can overcome the odds and build your own You Move Me next year.

[Image: Flickr user Michal Osmenda]

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