07/ 23/ 2007
by by Jeffrey Moses
The issues involved in whether to start a second business break down to a single overriding question: “Would the time, money and energy invested in the second start-up be better spent by continuing to focus on the growth of the first business?”
Many entrepreneurs have become successful by putting all their efforts into growing a single business. On the other hand, many have found success through diversification. As with most choices in the business world, both options have pros and cons. Here's a look at both sides.
Pro: Starting a second business can satisfy an entrepreneurial itch. Some people just need to keep creating new companies, seeing if they can turn their inner visions into outer success.
Con: Starting a second business requires time and energy—time away from family, recreation and running the first business. People often forget how much was required to start their first company. Starting a second business will require just as much, and you'll still need to devote a lot of attention to the first.
Note: Don't start a second business just because it seems more glamorous than the day-to-day management of your first business. Eventually, you'll be managing both businesses.
Pro: A second business can provide diversity that may help you weather the ups and downs in the economy as well as changes in the type of industry of the first business.
Con: It's virtually impossible for one individual to manage all aspects of two completely diverse companies. Therefore, it's usually necessary to put separate managers in place for both companies, meaning that your delegation skills need to be established. If you don't feel comfortable delegating and letting other people run some of the show, a second company might not be for you.
Pro: A second business can help you to develop your broad interests. If you feel like your entrepreneurial spirit has become stagnant or too narrowly focused, opening a second business might open your mind and reignite your energies.
Con: Remember that the failure rate for small businesses is extremely high, with many closing after only one or two years. The primary reason for failure is lack of funding during the crucial ramp-up period during which steady cash flow is achieved. Your second business will require ample cash reserves, which could funnel money from your first business, putting both at risk.
Pro: Because there is a chance of failure when opening a small business, having a second separate business might be a good plan B should anything happen to the first.
Con: Your family time will be extremely limited during the start-up phase. The strain on family life can be a factor in the success of the second company. Discuss this inevitability with your spouse and other family members.
When starting a second business, consider these key operational points:
1. Do the proper market research. Don't assume that because you had a hit with your first business, your second will be an automatic success.
2. A second business requires an accurate, comprehensive business plan. Just because you've been doing well with one business doesn't mean that you can wing it with a second. Lenders will require just as much assurance for your second start-up, even if you're highly successful with your first.
3. Don't undercapitalize your second business. Plan on your new company taking just as much time—or more—to develop as your first. Arrange financing with lenders (perhaps by using cash from your first business' profits), using your business plan to estimate amounts and loan payoff schedules.
4. Develop your delegation skills. As discussed above, you'll probably need managers for each of your companies. If you're the type who needs to do everything personally and hands-on, starting a second business will be frustrating.
5. Keep your vision on the long-term goal: having two successful, diversified companies up and running. This will help you overcome the initial stress and fatigue that may accompany your second start-up.
Starting a second business is a big decision, not to be taken lightly. Talk it over with your family, closest friends and mentors. Weigh the pros and cons of doing so carefully. Then do what feels best for you.
