The Risks and Rewards of Investing and Diversifying
I’m a big believer in devoting all of your efforts into a single major business. My advice is to just focus on one big income stream at first, rather than concentrating on other opportunities. You should only consider diversifying when you’re ready, able and have enough experience.
Diversifying your business is not a simple task. There are risks involved that should be minimized as much as possible. Your attention could be compromised when it has to be focused on different divisions of your business.
Focus on One
One of the biggest mistakes entrepreneurs make is not focusing on their main income stream, or they think they can easily diversify their wealth and investment as soon as their project takes off. Both are very daring approaches to business.
An article in The Economic Times (India) elaborates on this: “Some diversifications turn out to be successful while others don’t. Because diversification comes with its own set of drawbacks and benefits, this is.
It is an enabling tool for companies intending to de-risk their businesses by removing dependency on a single business segment. Since different business segments have varying growth cycles, well-diversified companies are better able to ride out a rough business cycle.”
The Risks of Premature Diversification
If you throw caution to the wind and decide to diversify your business too soon, there a number of problems you might encounter, like:
If your employees– who most likely joined your company to be part of your thriving start-up– begin to question your dedication to the business, they may reconsider the direction you’re taking the company in since you’re no longer giving the same time and creative input as you once did.
Lack of Experience
In order to avoid constant failures, you should try to diversify your business into industries that you’re knowledgeable about. Remember, it can be much more difficult to succeed in diversifying your business when you don’t have the required skills or experience.
According to Small Business Chron, “If, through mismanagement, excessive ambition or simple greed, a company’s directors seek to expand in too many directions at once, both new and old sectors of the company may suffer from lack of attention and insufficient resources.” Make sure you do so with caution and always aim to minimize the risks to your company’s resources if you are going to diversify.
If you attempt to diversify your business and wealth, it’s likely that you’ll have to dedicate time to making those ventures work. That means you’re most likely taking time away from your current business.
Difficulties in Product Development
Brainstorming new product ideas will require you to sacrifice hours of work, which hinders you from working on high-leverage tasks for your business.
Other Income Stream Opportunities
If you attempt to diversify your business and wealth, it’s likely that you’ll have to dedicate time to making those ventures work. In order to avoid constant failures, you should try to diversify your business into industries that you’re knowledgeable about. Remember, it can be much more difficult to succeed in diversifying your business when you don’t have the required skills or experience.
Don’t ever compromise your productivity, responsibility, creativity and leadership to your current team– they’re the ones that helped you be in the position to succeed and enable you to expand your business ventures.
The main purpose for diversifying your business and assets is to increase your cash flow and grow your wealth. Be sure to do your homework once you’ve become established and have enough capital to invest in other ventures. Research the best industry to diversify into and see how well it performs based on ROIs.
Don’t get sucked into fad opportunities as you’ll risk losing your hard earned money. Invest wisely. The most important thing to focus on is your current business where you get the majority of your income from. The good thing about this is you can invest money without having to put in the time and effort it would otherwise take to make shrewd decisions since you should have an expert doing that for you.
Source: Types of Diversification