How many eggs are in your basket: Diversification

The proverb goes like this: “Don’t put all your eggs in one basket.”

In stock-picking, they call it “diversification.”  You should own 6-10 different stocks, in different industries, rather than focusing on a single company, industry or sector.
The same rule applies to running your own business.  To build and grow a secure business, diversify.
eggs of many colors
eggs of many colors
by woodleywonderworks, on Flickr
Diversify your products.  Don’t sell just one product, no matter how wildly successful it is.  As you profit from one product, add more to your portfolio.

Consider crocs.  The company makes colorful rubber sandals that last forever.  The only problem with crocs’ products is that they last forever.  Consumers only need one pair.  After everyone has purchased one pair (which they love and wear all of the time), now what will crocs sell them?  Good question.  The company came out with many different colors and styles to attract more consumers.  Before you know it, consumers purchased many pairs, even though they only needed one.

lila crocs
lila crocs
by loop_oh, on Flickr

Diversify your customers.  If you only have one customer, what would you ever do if you lost that one customer?  This is a huge challenge for consultants, who might have only one or a handful of clients.  Anything happens to that one client and a huge chunk of revenue (or even all of their revenue) disappears.  Again, take crocs.  If crocs sold 20% of its shoes to Wal-Mart, and Wal-Mart decided to stop selling crocs, then crocs would immediately lose 20% of its sales.

Diversify your markets.  A market is basically a group of customers.  You should try to satisfy more than one market.  For example, crocs sells styles appealing to men, women and children, and many different types of consumer – rich, middle-class and poor – in many countries.  Even though some markets will strengthen and some weaken, demand for your product will never cease.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

Trackbacks/Pingbacks

  1. Monthly reckoning « Accountinator - July 2, 2012

    […] readership in one blog alone is down, then why work on three? For one thing, diversification. For another thing, all of my content is evergreen – I’m accumulating a body of work […]

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