Stories of promising but ultimately doomed attempts at technology-based diversification are all too common. The causes of failure are well known: forecast demand fails to materialize; sales and marketing efforts fall short; competitors rush in; the wrong partners are chosen; the new business proves so unlike the old that management loses its way. As a result, many companies have given up the idea of using technology-based diversification as a means of growth.
A mounting body of evidence, however, is beginning to point a way to effective high-tech diversification. Recent research into leveraged buyouts and corporate acquisitions indicates that a strong synergy with the core
business need not be a prerequisite for a successful acquisition.1 Similarly, while most internal diversification efforts have ended in failure, some companies have thrived by building new technology-based enterprises to address markets outside their core business.
Success has come to companies of all shapes and sizes, including:
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Small companies moving out of their established markets, including aerospace companies such as Hi-Shear, which has developed a growing business in automotive braking cables and tensioners, and Acclaim Entertainment, a start-up formed by ex-aerospace engineers, which now generates more than $500 million in annual revenues in commercial...