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

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

Diversifying your business interests protects you from circumstances beyond your control. My business portfolio is wide and varied: food and beverage, real estate, delivery and e-commerce. The 2020 pandemic was the ultimate justification for diversifying my business. My food business took a huge hit as tourism temporarily stopped due to government shutdowns. In contrast, as hard a hit as Sin City Cupcakes was, shipping, real estate and e-commerce all had their best years. People started e-commerce home businesses and fled high tax states to move to Nevada. If I hadn’t diversified and relied on just one business as my main stream of income, I would be 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 the industries or business models that catch your eye

I started Ship Las Vegas in 2018 because I was intrigued by the mailbox rental model. Rental mailboxes are miniature storage units. They are a low-maintenance, low-overhead item that produces steady, consistent, and recurring revenue. The only problem was that I knew nothing about running a mailbox rental/packing and shipping store. So, I walked up the street from my house to the local independent mailbox/ship rental store and made the owner an offer: I’ll pay you $10,000 if you’ll let me follow you around for two weeks, train at your store, and to capture your business processes for you. I’ll put everything together in a procedure manual for you and be the best intern you’ve ever had. He agreed and the next day I started my 2 week apprenticeship for which I paid good money. I looked at the $10,000 as an investment in the business model.

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

Regardless of what conflicts may be going on abroad or what objects the angry mob is currently obsessing over, there are some constant truths: mailbox rentals are monthly, recurring revenue, and insurance premiums are monthly, recurring revenue. I’m invested in an insurance company and it’s not a business model I’ve paid much attention to before. Yet I was up and running as a paying user every month without much effort thanks to automatic payment. This is an expense I will continue to pay no matter what happens in the world.

Consider investing in business models that are “safe bets.” What industries have products or services that are monthly, recurring revenue? They are ideally related to monthly expenses that are required or strongly recommended by law or the community – not glamorous, not sexy, but essential. For example, in the state of Nevada, auto insurance is required to register and operate a vehicle on public roads. As a result, people will find a way to ensure that their monthly car insurance premium is paid regardless of what may be 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 was passionate about baking and hoped to one day open my own bakery. My co-founder, Danielle, and I were on the phone one night in November 2011, and she shared that she had been playing around with alcohol cupcake recipes. A bell rang in my mind and I was immediately fascinated by the idea. Alcohol cupcakes are a fun, festive item.

Las Vegas is an international destination where people come to overspend, overindulge, buy and do things they wouldn’t buy and do at home. We needed booze cupcakes in Las Vegas and I wanted to help launch the company. I had zero baking experience and had to learn to bake when we started the company. This proved to be a popular idea and we are now very grateful to have an amazing staff who have pastry degrees and more baking experience than I could ever hope to achieve. Hire well and get out of their well.

Subscribe to newsletters and lists that feature different lines of business

You don’t know what you don’t know. The best way to learn about different business models is to have them delivered to your inbox frequently. I like to subscribe to tactical newsletters like Contrarian Thinking, which have examples of entrepreneurs owning “boring businesses” that I wouldn’t normally consider investing in. I also contacted local business brokers in Las Vegas and asked to be added to their mailing list. In my opinion, most businesses that are listed with a business broker are either overvalued or tend to rely on very superficial financial calculations to determine the sale price.

However, the value of being on the mailing list is two-fold: First, it gives me insight into different business models, and second, I can understand what trends are happening in 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 once, or if there are several businesses for sale from the same part of town, this is all good micro information to help assess a macro environment such as local real estate.

Related: The Importance of Portfolio Diversification for Your Investments

Look for investment tools that reduce the risk of investment loss while pushing an impact or goal button for you

Last year, I joined a $10 million private equity fund as a general partner. The fund supports entrepreneurs who are in the preliminary and seed stages of their business (aka start-ups) and focuses on founders who are veterans or military spouses. My father was a career in the US Air Force and 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 through which I can be part of companies in various spaces, from virtual markets to climate technology to data centers on the moon. Most importantly, the fund invests in these diverse companies with a process that is as cushioned and de-risked as possible.

Many private equity funds avoid ventures at the pre-seed or seed level, as the start-up of a company is usually the riskiest stage. My partners and I researched the points of failure for most startups in the country and looked at each of them through the criteria of the investment fund as well as how we perform to the founders. We don’t just write a check and rest on our laurels waiting for a company to do it or not. We have placed our entrepreneurs in an accelerator program with the Founder Institute and have also built an all-star team of long-term partners 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 an income stream and start a side job. Be willing to work nights and weekends as long as your main job provides steady income.

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