Harvard Business Review Entrepreneurship Entrepreneur Faces: Is Lemonade Enough? by Monica Tate-Maile November 03, 2009 My first business was a lemonade stand that a friend and I set up at the foot of our local marina. We started with the traditional fare, but after a few days we noticed that our target market of tourists wanted more than saccharine lemonade and chocolate chip cookies: They wanted a gift shop. So we invested in film and batteries and began hand-crafting souvenirs that we advertised as “made by local children.” Business poured in from the tour buses that stopped in our small town, and suddenly we were making $75 a day — a princely sum for two 12-year-olds. Our diversification plan worked so well that the owner of the Oak Bay Marina, a very kind man, bought us out within the week, laughing as he told us that we were damaging the traffic to his gift shop, and he would rather have us working with him instead of against him. Thirteen years later I faced a similar opportunity when my husband and I took over Focus Creative Concepts, the family premiums-manufacturing business. Was just serving lemonade enough to grow our business in the long term, or should we offer a wider range of goods and target new kinds of customers?I believed the business had major opportunities to diversify and grow. For instance, we had the capability to manufacture any non-consumable good (from mammogram machines to teddy bears) in a cost-effective way, which meant we could expand beyond our target market of consumer products companies that wanted to use premiums in their merchandising. Our potential customers included any business that outsourced material goods manufacturing . But “businesses that need manufactured goods” was way too broad a target. So last year I narrowed it down to retailers that had private-label personal care products — a market that fit with our capabilities perfectly, was large enough to offer growth opportunities for years, and could provide us steady revenues to offset the ebb and flow of our premiums business. Only a month after my husband and I took the reins, I divided the sales teams into two groups: premiums manufacturing for consumer products makers, and our new venture. At the time I thought that hedging our bets in two areas would mean a better chance of immediate revenue, but I now see that decision was a mistake for several reasons: The timing. When an organization has new leadership and the core business is unstable, it creates a scary environment for employees, who are looking for reassurance that their jobs are safe and their day-to-day quality of life will return to normal. Introducing changes to the core business while adding a new capability was a training challenge and caused widespread confusion. The result was a wary staff and sub-par execution. I should have waited until I had delivered some wins and earned employees’ trust before asking them to take a leap of faith and enter a new industry. Not enough resources. Even if our staff was comfortable with making so many changes at once, with fewer than 50 employees we just didn’t have enough people to develop two major offeringsat once. As a result, neither arm of the business flourished. In hindsight, I should have stabilized one stream of revenue before opening up a second. Barriers to entry. These are high in outsourced private-label manufacturing. The business is dominated by a few importers that have been in the industry from the beginning and provide cost efficiencies through minimal product differentiation among retailers. Next time you're in a CVS, take a look at the personal grooming section. You might find the exact same tools and accessories at Walgreens, Wal-Mart, and Rite Aid, with the only differences being price and the cards backing the products. In addition, the buyers were evaluating suppliers on a price-only basis. We had no power to negotiate — it was their way or nothing. Now that I've survived my trial by fire, I'm ready to start again, but this time I can’t slip up. A second false start would be devastating to my credibility with our staff and our investors, severely limiting my ability to maneuver in the future. If I’m going to add film and souvenirs to our roster, I'd better be sure that our new offering appeals to my chosen segment — or risk losing in a game where the stakes are my future as a leader of this organization. So now I'm faced with the question of how. With a larger staff and a stable core business, our situation has changed. Should I reload and go back to fight the barriers to entry or try something completely different? Right now, I'm thinking about the former. Call me arrogant, but I hate to fail. And now that I know what to expect, Ican turn a barrier into a springboard and craft a positioning for Focus that highlights the lack of industry differentiation as a weakness. Why not figure out a way to deliver better differentiation while keeping the economies of scale? If we can offer clients both, we bust the barriers and play by the retailers’ rules, all in one shot. But one of the definitions of insanity is repeating an action and expecting a different outcome. So today I pose a question to you, my highly intelligent readers: Am I crazy to try again?Would you look for less lucrative alternative areas for expansion, or keep at what you believe is your best option until you break through? Tell me your stories and pass along your advice. I bet that together, we can come up with an excellent strategy — and I'll be sure to keep you posted on what we do. Monica Tate-Maile is a managing partner at Focus Creative — Concepts, a manufacturing and strategic consulting firm for 0, consumer premiums. In her previous life, she worked for P&G Canada as a brand manager on some of North America’s largest brands. Monica Tate-Maile is a managing partner at Focus Creative Concepts, a manufacturing and strategic consulting firm for consumer premiums. In her previous life, she worked for P&G Canada asa brand manager on some of North America's largest brands. Recommended For You Why Kindness at Work Pays Off How Do I Handle a Bad Boss? 38 Smart Questions to Ask in a Job Interview 10 Common Job Interview Questions and How to Answer Them FP