The Peanut Butter Conundrum: How To Spread Your Business

Last Updated Aug 20, 2007 8:46 PM EDT

Last year, a senior vice president with Yahoo wrote an internal memo dubbed "The Peanut Butter Manifesto" that was leaked to the Wall Street Journal. The VP described Yahoo's strategy in the memo as a "thin layer of investment spread across everything we do and thus we focus on nothing in particular."

Yahoo's strategy illustrates one of the dangers of diversifying your company--spreading yourself too thin. But many companies need to diversify in order to keep up their growth. The question is how to do that. The Wharton School of Publishing has an excerpt from Lawrence G. Hrebiniak's book "Strategy Work: Leading Effective Execution and Change," that examines this question and how it relates to online companies like Amazon. But the excerpt makes good points for any industry. Here are the three things the excerpt says any company needs to do before it broadens out:

"First, find natural synergies that can lead to growth. An example is Amazon moving from books to DVDs and music. Second, leverage a lofty stock price, as in Google buying YouTube with $1.6 billion in stock. And finally, think before moving into markets you don't understand. For example...there is no guarantee that Google will make money from its YouTube acquisition, and in fact may suffer from a "winner's curse." The company won a bidding war for YouTube, but grossly overvalued the property in the process."
The article adds that diversifying for its own sake doesn't make sense, but companies should look ahead for other opportunities. And sometimes odd couples make good relationships. Look at Clorox. It bought the Hidden Valley Ranch brand back in 1972 and integrated it into its business successfully.