Starting new business ventures within your existing unit can be very lucrative and certainly accelerate the growth of your overall business. However, jumping into a new area just because It is what everyone else is doing is a bad idea unless you first do your homework.
Budgeting for a new business unit requires careful planning, adequate capital, and a thoughtful estimate of revenues and expenses for the foreseeable future. Time and money should be spent on market research, training for employees (especially when moving into an area that is unfamiliar), and branding. New ventures can be structured in different ways. Those ways should be thoroughly investigated to determine what is best for your company and market. I have seen firsthand how much money can be wasted when these areas are not properly vetted before making the move. A failing business unit can suck the life out of a strong and profitable company.
First, determine if the new venture should be grown organically, or would it be better to buy an existing business to fold into your core operation.
A few years ago, a business with which I have close ties decided to move into a new arena because many of the businesses in their industry had already made the move. It seemed like a natural progression because the businesses were similar enough that sales reps talked to the same decision-makers and the products offered were compatible. Many of the players in the industry were having great success, so the management at the business decided it was time to move or they would be left the curve. However, before doing any market research, creating any budgets or forecasts, or even explaining the endeavor to anyone in the company, they hired staff, bought some software, and said, “Build this business from the ground.” Of course, these poor guys set themselves up for failure. For the next few years, they threw hundreds of thousands of dollars at this failing business unit with very little future planning on how to reverse its fortunes. Meanwhile, the core business suffered through sluggish growth because needed resources had to be used elsewhere. Finally, they decided to search for an existing company in the sector to target for acquisition. Upfront planning may have avoided years of wasted time and money.