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Michael J. Kneeland has a unique perspective on the benefits and potential pitfalls of diversifying a business. As president and chief executive officer of Greenwich, Connecticut-based United Rentals, Kneeland runs a company that supplies a varied array of equipment, which allows contractors to expand their offerings. At the same time, Kneeland has overseen his own company’s diversification into new areas, such as power and HVAC solutions, which have been a benefit to both United Rentals and its customers. Here, Kneeland shares his thoughts on diversification.
Q: Your company allows contractors to delay the commitment attached to purchasing equipment. Does this flexibility allow contractors to diversify their offerings, and are you seeing it happen often?
A: We can contribute to the financial health and well-being of a company by providing rental as an option before making a purchasing decision. To my mind, this gives the contractor at least three advantages. First of all, it provides liquidity in today’s still capital-restrictive environment. It is true that interest rates are low and money is cheap, but access to capital is still a challenge. Second, renting before purchasing has other important benefits, such as the ability to bid more competitively and retain workers because it eliminates the immediate cost of insurance, parts, and other ownership-related expenses. Third, our national footprint and product portfolio allow a contractor to go farther afield in geography and types of construction. We have seen both happening, with commercial outfits taking on residential or repair work and then expanding their revenue sources geographically.
Q: There are at least two lines of thinking about the wisdom (or foolishness) of diversifying: one basically takes a grow or die perspective, while the other warns that it can lead to the dilution of a core business. What do you think?
A: Our position is that our core competency has to be central. The central focus of our business is essential to further growth. But it doesn’t mean you should stagnate. Any company can provide value-added products and services, but the strategy should be to focus on those that support your core business and differentiate you from others. For example, our move into Power and HVAC enhances our core because it helps customers we already have and falls into the same realm of distribution and marketing channels we use anyway. You have to say, what can I do differently to augment my relationship with customers? For us, it has meant making our portfolio deeper, not wider.
Q: What words of caution can you provide? Are there red flags that should prompt any business owner or company president to think twice about diversification plans?
A: Everyone has to have a strong financial plan in place at the beginning. You also need to have a plan B. In other words, what if you attempt to diversify and it doesn’t work, can you retreat without harming your business? You really have to think about the risks versus the rewards. I often say that life is about a lot of different choices. You have to select the ones that are most impactful and then say, what has to be true for them to be realized? Then you have to reverse engineer it, and say that these are the things that have to happen for them to be achieved.