“Lose your focus, lose your shirt.”
I once had a marketing professor who uttered these words almost daily. What he meant is this: if a business loses focus on its core and spreads itself too thin, that business will lose its core and eventually fail.
I agree that a successful business is a focused business. But I also think that different companies need to focus on different things in order to be successful. The point of focus depends on the industry, and the company itself.
Focus on the core
Many companies need to do exactly as my professor suggested: focus on their core, on what made them successful. Wal-Mart Stores, Inc. (NYSE:WMT) is an excellent example of a company that embraces this thinking.
Wal-Mart Stores, Inc. (NYSE:WMT) became successful by doing whatever it takes to give consumers the lowest prices possible. Wal-Mart is cheap, and the retail giant is OK with that. Although Wal-Mart Stores, Inc. (NYSE:WMT) sells brand name electronics and other quality items, the company hasn’t attempted to sell luxury items in order to appeal to wealthier consumers. Wal-Mart Stores, Inc. (NYSE:WMT) knows that its customers don’t want luxury, they want affordability. In fact, 56.7% of Wal-Mart’s customers make $50,000 or less, and 79% make $75,000 or less. Wal-Mart is built around average Americans, not the Kardashians.
If it ain’t broke, don’t fix it. Wal-Mart Stores, Inc. (NYSE:WMT)’s strategy is anything but broken, as the firm is steadily growing with revenue increases of 3.4% and 5.9% in 2011 and 2012, respectively. Although Wal-Mart saw incredible growth the last 10 years, the firm successfully managed the growth by keeping focused on its core business.
Wal-Mart Stores, Inc. (NYSE:WMT) isn’t the kind of stock that will jump through the roof in a matter of days. But investors looking for a solid company with buy and hold potential should certainly take a look.
Focus on innovation
In the tech industry especially, a business can quickly become insignificant if it focuses too narrowly on its core. Why? Because the core of tech companies and the entire tech industry can change (almost) overnight. Tech companies need to focus on innovation.
For example, Microsoft Corporation (NASDAQ:MSFT) is playing catch-up in the tablet and smartphone markets because it failed to recognize what Apple and other competitors saw: to fail to innovate is to be left behind. Microsoft Corporation (NASDAQ:MSFT) built its business around PCs, and Windows software is engineered to best work with computers. Until recently Microsoft thought that PCs would keep the company successful if Microsoft Corporation (NASDAQ:MSFT) focused on building the best PC possible.
Microsoft Corporation (NASDAQ:MSFT) was wrong. In the third quarter of 2012, PC shipments dropped 8.6%. Microsoft’s net income followed, with a 22% decrease to $4.47 billion from $5.74 billion in the same quarter the year before. Then, quarter one of 2013 brought a 13.6% decrease is shipments from a year earlier, and the numbers are expected to get worse.
PC sales are declining because the tech industry created devices that consumers like better: tablets and smartphones. Tablet and smartphone sales are expected to go up over the next five years as they eat into a market previously dominated by PCs.