Often we measure great companies by what they choose to create and sell. An even better measure, however, might be all that they choose not to be.
Apple rightly gets credit for building exceptional hardware and software. Even more impressive, however, is how Apple has steadfastly refused to get drawn into markets that it chooses not to service, even when would-be customers are begging to buy.
Take the enterprise. Sure, Apple has made forays into enterprise computing with its X-Serve server product and the hiring of a (small) enterprise sales force in the past few years, but , preferring instead a bottom-up approach through consumers.
If Apple tried, it could probably be a strong enterprise player. But it's content to focus on and increasingly own the digital media experience.
Red Hat, for its part, has taken the exact opposite approach to Apple's. Red Hat decided years ago to largely, introducing Advanced Server (eventually rebranding it Red Hat Enterprise Linux). I've the company for this devout focus on enterprise server sales, but the reality is that Red Hat is generating nearly $1 billion in annual revenue as a direct result of this focus.
Red Hat used to be in embedded, desktop, and a range of other businesses. Now its focus is almost entirely enterprise servers. It's paying off.
Not that these companies or others like them must forever remain a one-trick pony. After all, a bit of focus pays for the right to experiment and grow beyond one's core area of focus. Google's advertising business, for example, is now allowing it to expand into the enterprise with Google Apps and other products. Such extensions of its business are only possible because the company concentrated on its advertising business for so long.
This, incidentally, could end up being its downfall, just as it has jeopardized Microsoft's business. As companies grow, they naturally seek to expand beyond their original base. Cisco, as an example, is targeting 30 new markets, a challenging enough task, even as Cisco CEO John Chambers worries this may be "too few."
It's hard to do this effectively. Microsoft has sought growth beyond its traditional Windows and Office businesses, and has struggled to do so. Because the company has spent decades defining its focus in one way, and with great success, growing beyond that focus is hard, something that Clayton Christensen hits on in "The Innovator's Dilemma."
But this is a problem for mature companies. For start-ups and earlier-stage companies, focus is the key driver for growth, because it allows an organization to pull together in the same direction. Which direction it is is far less important than choosing a direction to attack.
Red Hat, Apple, and others do this exceptionally well, and it's why we rightly revere them. It's not that they don't see opportunity in other markets or products, but that they have the discipline to fixate on one or few things until they win.
In so doing, they concentrate and grow their brands, associating themselves with excellence in a given market. And customers reward them for it.
Customers, it turns out, like to buy from those companies that understand what they are...and what they are not.
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