ABSTRACT
One of the most important decisions that a firm can take is to enter a new business. If successful, entering a new business can contribute to a firm’s growth rate and profits. If unsuccessful, entering a new business can drain a firm of important resources that could have been invested elsewhere and may damage the reputation of the firm. In this chapter, we explore a framework that not only can be used to evaluate a firm’s entry into a new business but also can be used to aid a firm in taking the decision to enter a new business. Our definition of a new business is very broad. Entering a new business can range anywhere from entering a new market segment using one’s existing technologies, to adopting a new technology that takes one into a new market segment, to diversifying into a totally unrelated business using radically different technologies. We start off by looking at some of the reasons that managers-rightfully or wrongfully-often give for entering a new business.
