Why you should diversify your business interests (and how to do it)

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We are entering an unstable time in the market. Inflation is at an all-time high and the cost of basic necessities, from food to gasoline, is constantly rising. The best hedge against inflation is real estate, and the best hedge against relying on just one income stream is diversification.

By diversifying your business interests, you are protected from circumstances beyond your control. My business portfolio is wide and varied: food and beverage, real estate, shipping and e-commerce. The 2020 pandemic was the ultimate justification for diversifying my business. My food business took a huge hit when tourism came to a temporary standstill due to government-imposed shutdowns. By contrast, for as hard-hit as Sin City Cupcakes, shipping, real estate, and e-commerce were having their best years. People started home-based e-commerce businesses and fled high-tax states to move to Nevada. If I wasn’t diversified and relying only on one company as my main income stream, I would have been in a world of trouble. So, how can you diversify your business interests?

Related: Focus on One Thing or Diversify?

Read and pay attention to sectors or business models that catch your eye

I started Ship Las Vegas in 2018 because I was intrigued by the mailbox rental model. Mailbox rental is a miniature storage unit. It’s a low-maintenance, low-overhead product that delivers stable, consistent, and recurring revenue. The only problem was that I knew nothing about running a letterbox rental/pack-and-ship store. So I went up the street from my house to the local independent letterbox rental/ship shop and made a proposal to the owner: I’ll pay you $10,000 if you let me track you, train in your shop, and capture your business processes for you. I will collect everything in a procedural handbook for you and be the best intern you ever had. He agreed and the next day I started my 2-week internship for which I paid good money. I saw the $10,000 as an investment in the business model.

Shield yourself from the world’s conditions and focus on stable, recurring income

Regardless of what conflicts are happening abroad or what items the outraged crowd is currently obsessed with, there are some constant truths: letterbox rentals are monthly, recurring earnings and insurance premiums are monthly, recurring earnings. I am invested in an insurance company and it is not a business model that I had paid much attention to before. Still, every month I have been a willing and paying consumer without much effort, thanks to autopay. It is an expense that I will continue to pay no matter what happens in the world.

Consider investing in business models that are ‘safe bets’. Which industries have products or services that generate monthly recurring revenue? These are ideally associated with monthly fees that are required or strongly suggested by the law or the community – not glamorous, not sexy, but essential. For example, in the state of Nevada, car insurance is required to register and drive a vehicle on public roads. As a result, people will find a way to ensure their monthly auto insurance premium is paid no matter what is happening in the world around them.

Related: 4 Ways an Entrepreneur Should Diversify Their Income

Stay tuned for opportunities

My entrepreneurial journey started with my bakery. I didn’t start Sin City Cupcakes because I had a passion for baking and hoped to start my own bakery one day. My co-founder Dannielle and I were on the phone one evening in November 2011 and she mentioned that she was playing with recipes for alcohol-infused cupcakes. A bell went off in my head and I was immediately captivated by the idea. Alcohol infused cupcakes are a fun, festive item.

Las Vegas is an international destination where people come to spend too much money, eat too much, buy and do things they don’t buy and do at home. We needed alcohol-soaked cupcakes in Las Vegas, and I wanted to help start the business. I had no baking experience and had to learn to bake when we started the business. It turned out to be a popular idea, and now we are very thankful to have an incredible staff with a pastry chef degree and more baking experience than I could have ever hoped for. Hire well and get out of their pit.

Subscribe to newsletters and listservs with different industries

You do not know what you do not know. The best way to learn about different business models is to have them delivered to your inbox regularly. I like subscribing to tactical newsletters like “Contrarian Thinking” with examples of entrepreneurs who have “boring businesses” that I generally wouldn’t think of investing in. I also contacted local business brokers in Las Vegas and asked to be added to their mailing list. In my opinion, most companies listed with a business broker are either overpriced or rely on very superficial financial calculations to determine a sale price.

However, the value of being on the mailing list is twofold: first, it gives me insight into different business models, and two, I can understand what trends are happening within my local market, which is always good information for later. For example, if there is a cluster of businesses in the same or overlapping industry all for sale at the same time, or if there are multiple businesses for sale in the same part of the city, this is all good micro-information for macro environments such as local real estate.

Related: The Importance of Portfolio Diversification for Your Investments

Look for investment vehicles that reduce the risk of a loss of investment while also pressing an impact or target button for you

I joined a $10 million private equity fund last year as a general partner. The fund supports entrepreneurs who are in the pre-seed and seed tiers of their businesses (aka just starting out) and targets founders who are veterans or military spouses. My father had a career in the United States Air Force, then worked for the Department of Defense while I was growing up. He passed away in 2020 and I know he would have loved my involvement with The Veteran Fund. Supporting our American military families is very important to me, and this fund pushes that impact button for me. From an economic and business perspective, the fund also serves as an investment vehicle that allows me to be part of companies in a variety of spaces, from virtual marketplaces to climate technology to data centers on the moon. Most importantly, the fund invests in these diverse companies using a process that is as limited and low-risk as possible.

Many private equity funds shy away from pre-seed or seed-level ventures, as starting a business is generally the riskiest stage. My partners and I examined the points of failure for most startups in the country and covered each one against the fund’s investment criteria, as well as how we crop up for the founders. We don’t just write a check and rest on our laurels, waiting for a company to make it or not. We put our entrepreneurs through an accelerator program with the Founder Institute and also built an all-star team of LPs and Venture Partners who are subject matter experts in their respective industries.

You can go as deep in your diversification as you want. Start small and steady. For example, if you have a 9-5, W-2 income job, keep that as a stream of income and start with a side job. Be prepared to work on your busy nights and weekends, while your main job brings in a steady income.

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This post Why you should diversify your business interests (and how to do it) was original published at “https://www.entrepreneur.com/article/428870”

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