Monday, August 30, 2010

Make Sure the Core is Strong

A common mistake I've observed is the practice of working on adjacencies when the core business area is having problems. If the core business is weak, it is likely the adjacencies will have problems also. One reason is the issues affecting the core business will likely be present for the adjacencies. Another reason is that adjacencies will dilute resources which are already having difficulty building a strong core business. For example, a restaurant that is a weak business would probably not benefit from expanding into an adjacency such as catering. It would be better for a restaurant with a strong business to consider expanding through a catering adjacency. The principle of a strong core also applies to the area of personal finance.

To me, a career is the core for income generation. Unfortunately, it took me about 12 years to figure that out. From then on, I focused my efforts on maximizing income from my job. During that time, I advanced two levels and quadrupled my compensation. Prior to that, I was looking at alternative sources of income (adjacencies) such as rental property and franchise opportunities, which distracted me from focusing on my core.

For us, my company stock was the core for our retirement savings. While this is a risky strategy, we were fortunate that the stock grew faster than the market index and inflation. From this core, we have expanded to other stock and bond investments which have lowered the risk for our retirement portfolio.

In retrospect, the focus on making a strong core provided greater returns than spreading our efforts across multiple adjacencies. With a strong core, we were also better able handle losses that might occur from trying adjacencies.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

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