Key Points:

• Three distinct revenue streams will create a stable and manageable company
• The revenue streams need interoperability to create a strong business
• There are good and bad versions of “sanbonbashira”
• Hedging your risks is always the right play
• You don’t have to reinvent the wheel to achieve success

Imagine a one-legged or two-legged stool. That would be a strange sight, especially if it was standing upright. The probability of that one- or two-legged stool standing on its own is quite low. It would take very little effort to knock it over, a gentle breeze would probably do the trick.

*Quick note to all the cynics, there are some cases where the one or two legs could be so thick and massive that they will most likely never fall, but that’s an odd/non-existent stool. I understand there are many types of stools but humor me.

Now imagine a wooden stool with three legs. The stool is well balanced and the legs lean in to the center of the stool, working together to maintain the structure. Harder to knock over, not impossible but still hard.

Sanbonbashira:

I was introduced to the Three leg strategy in Japan. Those familiar with Japanese strategic planning may know the word “sanbonbashira”. The concept highlights the inherent stability of three legs, as explained above by way of wooden stool.

This three-leg concept is translated into business strategy as a three-revenue stream strategy. The idea is simply enough but the planning is a bit more involved than one may initially consider.

Interoperability – Go with the flow:

Industry, correlation of capabilities and co-efficiencies are all considerations for forming your three-leg revenue strategy. The three legs should have a form of interoperability to produce superior results compared to a stand-alone revenue stream.

Poor interoperability:

Revenue stream 1 – Medical equipment machining

Revenue stream 2 – Software development

Revenue stream 3 – Asset-based trucking

The above three examples, by themselves, are by no means bad business. The issue is they don’t complement each other. Machining, software development and trucking are all different industries with different customers that need different skills and experience to be successful. These revenue streams are essentially three separate businesses that will be hard-pressed to find interoperability.

Good Interoperability:

                Revenue stream 1 – Automotive parts machining

                Revenue stream 2 – Aerospace parts machining

                Revenue stream 3 – Assembly: Automotive & Aerospace & Medical

The equipment needed for machining automotive parts are similar/the same as those for aerospace. Automotive is low mix, high volume machining, aerospace is high mix, low volume machining which will require a skilled team of production planners to get the best ROI on machining equipment. Assembly of parts takes a different skill set and the customers are expanded beyond the Aerospace and Automotive worlds. In this scenario the company would be involved in limited versions of horizontal and vertical integration plus a standalone third industry. Now, this example may not be perfect and the quality requirements for these industries are very different but the complementary nature of these revenue streams is obvious.

Risk Hedging – Don’t put all your eggs in one industry:

A second consideration for the three-leg concept is industry and hedging risk. The above “Good Example” involves three industries which are not driven by the same forces. This allows for risk abatement if, for example, Aerospace takes a down turn because of an event that shuts down international travel *Nudge*Nudge*Wink*Wink*. One revenue stream may not carry its weight but the others will keep the ship afloat.

Don’t reinvent the wheel:

Many strategy books point to the blue ocean strategy. Where your business is the first in by creating a revolutionary product. Any person would see that as the proverbial golden ticket but let’s be realistic, most businesses are not capable of this.

Standalone revenue streams are the bulk of SMEs and it works. In many cases there is no need to reinvent the wheel. The three-leg strategy is the next step in the journey for any company looking for longevity and stability in the face of the ever-rocking ocean of uncertainty.

Making the right decision about where to invest, what to invest in and the timeframe for accomplishing goals will take deep-insight into markets and industries as well as an overarching vision to focus your energies.

As with most things, anything really worth doing probably won’t be easy. It is better to get started now with broad-based market research, perform necessary analysis and separate the wheat from the chaff.