Which makes more sense: Focus or Diversification?

The latest bank failures in Georgia, which perpetuates our claim to having the most of any state, brings up an important strategic issue: Should a business focus on what it does best or diversify?

In case you missed it over the weekend, regulators shut down two small suburban banks, Neighborhood Community Bank of Newnan and Community Bank of West Georgia in Villa Rica. AJC reporter Paul Donsky wrote that they represent the 13th and 14th failures in the Peach State over the past year.

Many of our banks got in trouble for betting heavily on the real-estate boom of a few years ago. But, as the cliche goes, if you live by the sword, you can die by the sword.

At the other end of the business strategy continuum, is diversification. Unlike investing your portfolio, where diversification is strongly recommended, building a business often requires focusing your resources on what you do well. Spreading them out can defuse your efforts and hobble your mission, sales and profitability.

So what’s the right mix? How do you arrive at it?