Comments on: Why Diversification Results In Mediocrity

By: Does the First Round Capital exchange make entrepreneurs more likely to want to raise money from FRC? - Quora

Sat, 18 Sep 2010 00:10:22 +0000

[...] hereCan you link to Speiser's blog here Keith?Charlie Cheever • Insert a dynamic date herehttp://gigaom.com/2009/07/12/div…Keith Rabois • Insert a dynamic date hereCannot add comment at this time. Ryan [...]

By: Fred’s Got it Wrong About the Lowest Common Denominator « SmoothSpan Blog

Tue, 21 Jul 2009 15:40:33 +0000

[...] to really find your focus carefully and not succumb to too broad a spread. Mike Speiser on GigaOm writes a great post on how diversification leads to mediocrity. And military strategists have been avoiding the lowest [...]

By: Nicholas

Nicholas — Tue, 14 Jul 2009 19:49:40 +0000

Attempting to do a start-up, it has been the “trough of sorrow” for sure, but every once in a while there is a glimmer of hope. A focused idea of what you want your business to accomplish even when that business may not arrive for a year or more, is necessary to creating distinctive products and services. This post reminded me of the principles.

Thankfully, Sunday Apple began to approve the music apps. Keep pushing!

By: Flow » Blog Archive » Daily Digest for July 14th - The zeitgeist daily

Flow » Blog Archive » Daily Digest for July 14th - The zeitgeist daily — Tue, 14 Jul 2009 05:00:15 +0000

[...] Why Diversification Results In Mediocrity — 6:00am via Google [...]

By: Abstract Badger

Abstract Badger — Mon, 13 Jul 2009 21:55:33 +0000

Diversity is mediocrity. Focus is excellence. Circuitous and synonymous post, at best, my friend.

Perhaps a course in remedial ecology. Or just a walk down main street.

Specialism and generalism are both valid strategies able to out-compete the other in their
preferred environmental niches.

By: Diversification Mediocrity - The Brink of Chaos

Diversification Mediocrity - The Brink of Chaos — Mon, 13 Jul 2009 21:08:22 +0000

[...] Jul.13, 2009, under Blogroll, Thoughts I just read an insightful blog entry over at GigaOM on the Impact of Diversification on humans – namely that it leads to mediocrity. In a world, where people are increasingly [...]

By: Niraj

Niraj — Mon, 13 Jul 2009 19:44:55 +0000

Also note: that my answer to a 21 year kid would be different. I would tell him to 100% vest into something. Because
1) he is not that big to lose a lot
2) he is also not that experienced to be able to devote 70% attention and still pass his Critical Success Factor.

My argument’s can easily be applied to Startup’s and Mature companies also

By: Jesse Kopelman

Jesse Kopelman — Mon, 13 Jul 2009 19:40:50 +0000

No large public companies seem to know this. They focus on growth above all else and the only way to achieve that is through diversification.

By: Ashu Joshi

Ashu Joshi — Mon, 13 Jul 2009 19:15:42 +0000

a very insightful post … loved reading this one!

By: Niraj

Niraj — Mon, 13 Jul 2009 18:06:02 +0000

“Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing.”

How do you know that you know for sure. For Bernie Madoff investors – 20 years of successful returns is a long enough time to know that Madoff was a the right investment. Until you hit the black swan scenario you don’t really know about anything 100%.

To me diversification is really similar to cheap earthquake insurance(enough pieces to start afresh from if something dramatic happened). 100% vested into something is stupid and 10% vested into 10 different ideas is mediocrity. The best formula is 70-20-10 – 70% core where you know the stuff , 20% diversified but related(example if I am technology investor maybe there are some verticals which consume technology I can concentrate on) and 10% totally new

By: Habib Ullah Khan

Habib Ullah Khan — Mon, 13 Jul 2009 11:06:29 +0000

You can have your cake and eat it too. How? By making your core specialty not a product or a service but your own corporate culture. If you excel at the culture game you will win the diversification game.

By: Gorf

Gorf — Mon, 13 Jul 2009 07:11:32 +0000

I cannot agree fully with your statement, especially at the team level. If you have skill and know how to get to your goal, with the right strategy you can use diversification to make the whole greater than the sum of each individual. It is ignorant to believe skill alone can reach success for one individual for most cases. Teams deliver a better analytical strategy, better contingencies, and better results when built correctly. However, most don’t carry a strong leadership skills. If you use diversification blindly like some corporate houses, then I agree with your analysis. However, if intelligence is added, which it takes one skilled leader witht he right strategic plan to achieve a particular goal, then you have a much stronger result and chance of success. It is however, unsustainable, just like your curve since most organizations get pulled down to the average like everything else.

By: Shankar Saikia

Shankar Saikia — Mon, 13 Jul 2009 04:16:17 +0000

DIVERSIFICATION AND ECONOMIES OF SCOPE (MONEY BURNS A HOLE …..)

Great post on this concept. There are two different perspectives here – a stock portfolio and a company’s product strategy – they are related at some level and they can be discussed separately as well. I want to comment on this post from the perspective of a company’s product strategy. Some companies start with a core product area (e.g., Oracle in enterprise database software) and then enter related markets (e.g., enterprise applications software). The company leverages economies of scope = the company creates products that are related, therefore enjoying lower costs. You can see this in the auto industry as well – a sedan, a coupe and a mini-van (not sure about a mini-van) use the same chassis etc. Similarly, in enterprise software Oracle focuses on the “enterprise” and in related offerings – databases, apps, consulting – all leverage the database software.

Other companies do NOT enter related markets and I question their strategy. I read about a mobile phone company (Bharti Airtel, India’s largest mobile phone carrier with over 100 million subscribers) that at one time considered getting into the airline industry! (this is documented in a Harvard Business School case study one can buy for about $ 7 (seven dollars!). This same company is now venturing into the retail (groceries) business. About 25 years ago United Airlines got into the rental car and hotel business under the label “Allegis.” One can argue that there were synergies between those businesses since they were related to travel. I have read about a textile manufacturing/retail business that has ventured into the … real estate business.

Summary: if there are no synergies (mobile phones, airlines and groceries????), a company probably should NOT diversify. Sometimes money burns a hole in the pocket and so people want to do something with the money!

By: Jim

Jim — Mon, 13 Jul 2009 03:28:44 +0000

So, what would you offer to someone who got laid off because he focussed on only one technology which no one uses anymore? Diversification is indeed necessary especially when level playing field keeps changing when rules of engagement are rewritten more often. Just my 0.02.

By: Mike Speiser

Mike Speiser — Mon, 13 Jul 2009 00:35:02 +0000

I was waiting for that one ;–)

I was very clear in saying that I’m not advocating that you make just one bet. There is random risk, as I noted in the first paragraph. And as an investor you don’t have the operational overhead which allows the investor to gain broader expertise. In Figure 2, I try to illustrate that you should make as many bets as you can before you lose the “edge.” Problem is that there aren’t 30 companies that will win in a single industry, and your edge is not easy to leverage across industries. My hunch is that 1-2 investments per year is about the most any single investor can handle.

At our firm we average less than 1 investment per partner per year. That’s pretty focused. Some angels have made >20 investments in one year, for comparison. And some investments are close enough to each other that you can leverage your knowledge. Before I was a VC, I was an entrepreneur twice. While much of what you do as an entrepreneur is about gaining domain expertise, a bunch of it isn’t. This important difference is what allows an investor to scale more than an operator. However, most investors take that advantage to the extreme and lose their edge.

By: Dave Kist

Dave Kist — Sun, 12 Jul 2009 23:02:35 +0000

It’s interesting that someone who works for a venture company, the very definition of not putting all your eggs in a basket, is advocating that diversification is wrong.

If that’s the case, why not just invest in one start-up?
Why invest in a whole bunch of start-ups?