In 1963, The Beatles released Please Please Me, which spent 30 weeks at the #1 spot on the charts. The young men from Liverpool were suddenly becoming rich and famous at an alarming rate. What if, in an effort to capitalize on their success, they decided to hire four more musicians and make a spin-off band? Maybe they could call it "Beatles West." These other musicians would write and perform new Beatles songs. This would enable them to produce twice as many records a year. Perhaps that cashflow would enable them to launch a third or fourth band. The opportunities would have been endless.
Of course, this is a stupid and terrible idea. The four new musicians would have no better odds at success than any other four guys trying to get into the business. It's obviously nonsense to make more "Beatles" groups, because what makes a band work is the talent and creativity of the individual members and how well they can work together.
Yet this is exactly how game companies ran things back in the early to mid '90s. Back then, a small team might be three guys, and a large team was perhaps six. If a team was lucky enough to strike gold and come up with a hit title, their first reaction was to hire a second team to expand their studio and work on two games at once. Having just won the lottery of business, they conclude that building a winning team is easily replicated and all they need to do is find a few bright people and the lightning will strike again.
Eventually one of the divisions would falter over a bad title. Maybe they would make mistakes. Maybe they would have bad luck. Sometimes both. In any case, money would be siphoned away from the original successful team to support the struggling add-on. Instead of one profitable team they would have two unprofitable ones. They would either go out of business or be forced to sell themselves to a major publisher. Either way, they would cease to be a small team of independent developers. Black Isle, Looking Glass, Westwood, and many others eventually folded or were absorbed, regardless of the fact that they turned out titles of legendary quality.
But one company steadfastly refused to expand. id Software - the company you never want to put at the beginning of a sentence because you're not supposed to capitalize their name - constantly resisted the temptation to try and do more than one thing at a time. Their initial hit games Wolfenstein 3D and Doom gave them an enormous (for the time) supply of cash. When seemingly more sensible companies would take that heap of cash and grow the company, the id team took the money and bought themselves Ferraris. I remember the scoffing at these silly kids who didn't know how to run a business, but I also note that they held out longer than anyone else. They focused on doing one thing, and did it well year after year, even as a hundred other companies came and went.
When id Software did want to do more than one thing at a time - such as when they wanted to do an expansion pack or a spin-off game like Heretic or Quake 4 - they licensed the required technology to another developer like Raven Software or Ritual Entertainment. This let them profit from opportunities without placing the company at risk. If Raven had failed in some spectacular manner, the Raven losses would never have leaked over onto the id Software balance sheet.