The Principle of One Step Removed

One of ETR’s “11 Laws of Wealth” is that your chances of success in starting a new business decrease with each step you take away from the business you already know. For example, say you have a successful neighborhood restaurant called The Steak House. Your basic business is selling a certain kind of eating experience to a local community.

Over a few drinks with friends, you come up with two new business ideas:

1. The first is to open a local restaurant called The Fish House.

2. The second is to go into the wholesale steak-selling business.

Both of these businesses have several elements that relate to what you are already doing. The Fish House is almost identical except for one difference – you will be selling fish, not steak. All other key aspects – how you attract new customers, how you create a profit margin, and how you control your costs to deliver a bottom line – remain the same.

Starting a wholesale steak-selling business is about selling steaks. And that’s what you do. But in this case, there are many differences. For one thing, the market is different. You are not selling to local diners but to regional businesses. This means the selling strategy is different. That means the profit margin is different. And so on.

Opening up The Fish House is an example of starting a new business that is only one step removed from what you know. Opening up a wholesale steak business is three or four steps removed.

The first business has a good chance of succeeding. The only unknown: Will there be a big enough local market for fish? The second business has a poor chance of succeeding. There are simply too many things you don’t know about it… too many inside secrets that are blocked from your view.

It is possible, every once in a while, to succeed by taking two or three steps away from your core experience. But as a rule, you want to take one step at a time.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]