How to diversify without dropping the ball
Diversification is an excellent way to insulate yourself from market fluctuations. However, managing multiple business ventures for the first time can be a challenge. Here’s how to diversify your business and gain security without sacrificing stability.
Your mantra should be “same but different”. You want to diversify in a direction that allows you to bring all the skills and experience you have in running one business venture to bear on another. However, you need that new venture to be separated enough from the first to avoid the one being impacted by the same market fluctuations and vulnerabilities of the others.
This might sound like a challenge, but it’s worth putting in the time to find the right fit. You inevitably take some time, attention and resources away from existing ventures whenever you bring a new one on board, so the benefits do need to outweigh the cost.
You can look to successfully diversified business leaders for examples and inspiration. Azmi Mikati, also known by his middle name, Taha Mikati, is the co-founder of M1 Group. He started his career in the telecom sector, selling satellite phones in Lebanon. First, he diversified within his sector, but he expanded his focus to building cell phone towers and the geographic reach to other countries. He then expanded to other sectors. His company has invested in telecom, fashion and real estate around the world.
Many business leaders start small. Accessible, natural next steps to diversify could include widening the scope from your initial niche to a related area, or expanding your range beyond your initial operating area. As your financial capacity and ability to take on risk expands, your expertise grows and your business team develops, you can start moving into even more diversified areas. At a certain point, you’re managing the leaders of companies and providing less direct oversight to each company’s operations. At that point, you might find it most profitable and prudent to diversify into increasingly wide-ranging ventures.
Another highly diversified business leader is Elon Musk. His career and ventures have had their share of controversy and ups and downs, but their diversification and ability to weather storms is a point in his favor. He started his career in web software, moved into fintech and contributed to what became PayPal. He has since founded an aerospace manufacturing and space transport services company; an electric vehicle company; solar panel, batteries and solar energy services companies; a non-profit research company; a neurotechnology company; and an infrastructure and tunnel-construction company, among other initiatives and investments.
A number of his ventures share common interests, threads or values. His aspiration to change the world and humanity by improvements to eco-friendly solutions are clearly related to the areas he’s invested in, and his core engineering and visionary leadership skills are applied across ventures. However, the sectors vary widely from energy companies to transportation, and even the common thread of technology solutions is mitigated by the diversity of focus. While his ambition is legendary and his approach may not be entirely replicable, the key takeaway is this idea of “same but different”, or using related skills, experience and, in this case, values to succeed across highly diversified businesses.
These examples can seem beyond the reach of the average business owner, but diversification can be an opportunity for businesses of all types. Some sectors are more vulnerable to market fluctuations, climate change and temporary climate effects, automation and outsourcing, and other risks and could not only benefit from diversification, but may also find that it is the only viable path for their businesses.
As demonstrated, diversification comes in many formats. The greater the distance between companies, the better insulated they are from the same risks. However, the more similarities there are between them in key areas, the less challenging they should be for you to manage. Plan slow, moderate diversification efforts such as increasing utilization of real estate resources, creative reuse of production by-products, an expansion into a related niche or sector, or a geographic expansion. Test the waters and keep an eye on the health of your original business ventures before committing more resources or adding to the diversification. Bring on skilled team members with a proven track record to support areas in which you have limited experience or skills.
Successfully managing multiple business ventures can be challenging but remarkably rewarding, especially over the long term. Start planning the next steps in your diversification today.