Tiny MBA #12: Dilution

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Welcome to today’s Tiny MBA topic: Dilution.

Definition: Dilution

Dilution is when you add something into something else, and in the process make it weaker or less concentrated.

Is dilution good or bad?

If you have some orange juice or apple juice, and pour water into it, that’s dilution. You get more juice, but it tastes a little weaker.

If you don’t like the taste of concentrated juice, then diluting it with some water is great. But at some point, if you keep adding too much water, it just starts to taste blah.

In business, dilution can be as simple as adding water to the lemonade you’re selling at your lemonade stand.  You’ll have more (watered-down) lemonade to sell, so may make more money. But your customers might not like the weaker lemonade as much, so you could lose future business.

People are the most important ingredients in business. And people can get diluted too…  in particular their motivation.

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Illustration by Madeleine Kelly

If one or two people start an organization, for example, they’re often highly motivated to work hard and make it succeed. But if their ownership is diluted by adding too many other partners or investors, sometimes their motivation can get diluted as well.

If you start a band with three friends, for example, you’ll probably all play your hearts out at your gigs.

But if you join the school band with forty five kids, which is more diluted, maybe every single kid won’t be playing their hearts out. Or maybe they will, if the audience is big enough and the gig important enough.

There’s no ‘right’ level of dilution in business, just as there’s no ‘right’ level of dilution in juice.

But keep an eye on dilution – in life and business – because it matters, and can sneak up on you.

Tiny MBA is my occasional series of short stories illustrating business concepts for kids.

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