“We found that only about 1 in 10 companies achieved sustained and profitable growth over a decade (1998 – 2008) that would rank as among the best for the world economy.”

Chris Zook & James Allen

The average 6-year graduation rate at public universities is 57.6%. Limit this to 4 years and the rate falls to 33.3%. The success rate for public companies, however, is about 10%.

The reason? Managers don’t adequately define their company’s “core business,” leading to underinvestment in key areas and expansion into unwise adjacent businesses, according to Chris Zook & James Allen in their book, “Profit from the Core.”

I’ll warn you ahead of time, “Profit from the Core” is a business book made for executives, meaning that it may be too dry for some people. While the book may be pretty technical, I’ll try to glean relatable insights and end with a section on how the book’s key takeaways apply to your life.

4 Big Questions (with Answers!)

Question 1: What is a “core business”?

• Answer: A core business, according to Zook & Allen, is “the set of products, capabilities, customers, channels, and geographies that defines the essence of what the company is or aspires to be to achieve its growth mission.”
  • Great, a pretty broad definition. In general, a core business is the main driver (or potential driver) of growth that a company has at its disposal. A company’s core business really could be almost anything, such as a hyper-efficient cost-oriented supply chain (Walmart), a massive online marketplace (Amazon), or consumer data and IP (Facebook, Google).

• Example: 3 businesses in the same market could all have different core businesses. Here’s an example from the book on the car rental market.
  • Avis: Avis’s core business is airport rentals. With airport rentals as its defined core, Avis focuses on meeting the needs of customers who want fast service and business amenities.
  • Enterprise: Enterprise’s core business is repair rentals. Most of its locations are focused in the suburbs and with a slogan of “we’ll pick you up,” Enterprise is targeting customers who may have recently lost their car in an accident.
  • Dollar Thrifty: Dollar Thrifty’s core business is leisure rentals. The company targets consumers who may be a little more price-conscious and are looking for cars with fewer add-on amenities.

Question 2: How does a company define its core business?

• Answer: It’s tricky! Zook & Allen argue that the #1 mistake that companies make is inaccurately defining their core and its respective boundaries. The authors argue for an iterative approach that requires constant evaluation of a company’s 1) most potentially profitable customers, 2) most differentiated capabilities, 3) most critical product offerings, 4) most important channels, and 5) any other critical strategic assets.

• Food for Thought: You’re the CEO of a glass windshield manufacturer for cars. How would you define your core business, supplying windshields or supplying glass? The choice you make here dictates the future of your company and what adjacent businesses your company could expand into. Your company soon may either be supplying windshields for other vehicles (airplanes, trains, etc.) or be supplying glass for other uses (windows, doors, etc.).

Question 3: What are the benefits of having a strong core?

• Answer: A strong core is one of the main dictators of sustained growth. Zook & Allen found that “companies that have very few highly focused core businesses account for most of the companies [that achieved sustainable growth from 1998 – 2008].”
  • Additionally, a strong core helps a company expand into logical adjacent businesses by the leveraging the power of its core business. Zook & Allen find that “the average ‘adjacency’ move has a success rate of 20 to 25 percent. Adjacency moves off a strong core have nearly twice the success rate.”

Question 4: How can a company build a strong core business?

• Answer: Invest (time, energy, and money) in it. Not trying to jump ahead too much, but Paradoxes 1 & 2 (shown below) show how even a strong core is ripe for investment. In the book, Zook & Allen give countless examples of companies that chose to spend their available capital on alluring adjacencies instead of furthering their core businesses. They say that “the number-one rule of strategy is to discourage your competitors from investing in your core,” and the best way to do that is to heavily invest in it.

The 5 Paradoxes of Growth

One of the more interesting aspects of this book were Zook and Allen’s paradoxes. Here are their 5 paradoxes of growth:

1. The better performing of your business units are likely to be those operating the furthest below their full potential.
   • This is the exact situation that higher education is facing (discussion here). While there is not always a right answer of where to invest your available capital, Zook & Allen argue that the highest performing units are likely in the biggest need of further investment.
2. The stronger your core business, the more opportunities you have both to move into profitable adjacencies and to lose focus.
3. The management teams that have been most successful in building a strong core business and that have benefited from adjacency expansion are also the most vulnerable to industry turbulence.
4. All organizations inhibit growth.
5. From focus comes growth; by narrowing scope one creates expansion.

What This Means For You

The main takeaway from this book is simple: invest in what you’re good at.

Humans, like companies, have an innate tendency to focus on their weaknesses and underrecognize their strengths.

Job interviews play off this dynamic. Interviewers get a limited amount of time with you and because of that, they’re looking for the dealbreakers – the red flags. In preparing for interviews, for instance, I think it’s super important to improve your weaknesses. You want to be the person that was “solid throughout,” not the one who had serious problems on a certain section and got immediately eliminated.

However, the real world isn’t like job interviews. People rise to top of a field by methodically focusing on their strengths and becoming great at them. Being well-rounded is great (I’m a big fan of being well-rounded!), but you can’t just be “okay” at everything forever. Ultimately, you need to invest in your strengths to build your competitive advantage – your core.

What’s your core? Are you focusing on your weaknesses, or are you methodically reinvesting your time, energy, and focus into your strengths?