A common trait for entrepreneurs is the constant notion to create. We are driven to build new things, and most of us cannot turn this off.
With this notion comes a key decision of one business or many. In other words, should you put your time and energy into one thing or several?
Here’s my personal take at this point –
Single focus = Easier & Faster with High risk
Single focus is fine and recommended for most people. It’s the easier path. It’s also most peoples’ best shot at success. By narrowing in on one business or job, you put all your time and energy into that one thing. With consistent effort and process you will likely see progress, especially if you embrace learning and ongoing personal development. You will figure things out and see growth.
However, there is imminent risk with this singular focus.
One thing = greater risk
Whether you’re employed or the employer, you are at risk of having a single source of income. You are also at risk of losing your job or business. You’re essentially putting all your eggs in one basket.
Do as the financial advisors do
It’s analogous to finance and investing. If you invest in one stock you have all the risk and upside of that one stock’s performance. Whereas most financial advice lends towards diversification – spreading your investments out across various stocks and bonds. This shields your total investment from risk by spreading the overall performance across many investments.
For example, if one or two companies in your portfolio start to sink your overall investment is still okay. It’s okay because the other companies in the portfolio with positive performance offset the companies with negative performance.
Do as the real estate developers do
It’s also analogous to real estate. If you buy or invest in one property you better hope that single property appreciates over time. Otherwise, your investment is at risk. Most real estate developers do the opposite. They invest in multiple properties to create different potential revenue streams. If one property depreciates or get sold it doesn’t make or break their business.
It’s no different for business
This same concept applies to general business. It’s why venture capital funds and angel investors exist. They intentionally diversify their portfolio of investments to increase their overall chances of success. It’s also why many people freelance. They have a main day job for the majority of their income, but they offset total risk by having a freelance gig to create supplemental income.
So from my perspective, diversification is the better path.
Great. Why doesn’t everyone do this then? Because it comes with a cost!
Multi-focus = Harder & Slower with low risk
With diversification comes less risk but more work. Like I mentioned above, it’s easier to do one thing and do it well. It’s much harder to do several things and do them equally well. In fact, it’s virtually impossible to do several things equally well. Instead, you have to shoot for doing multiple things and doing most of them well.
Diversification requires split focus and a larger “intellectual bank” to store and process information.
So you have to like variety and be willing to shift into different problems at different times. You have to accept that there will be times of great success and times of great failure. You have to sustain the game of volatility.
Additionally, you have to accept a slower rate of return. Just like financial investments, one business could grow or shrink at a more rapid rate, especially if you’re putting all your time and energy into it. Whereas several businesses are likely to yield slower growth rates if you’re splitting your time and energy.
So at the end of the day you have to consider the following if you decide to diversify:
1) Are you wired and able to work on multiple things?
Some people are just designed to work on one thing and execute against it. Variety and diversity will confuse or overwhelm them. This is most of the world – give them a task and they’ll get it done.
On the other end of the spectrum are people who want variety. They get bored with singular focus and need more than one thing to keep them engaged. They also thrive off diversity. People with agency backgrounds often fall into this camp since most agency work requires tackling various projects simultaneously.
2) Can you prioritize?
The second factor is whether or not you can truly prioritize. Having multiple things in motion requires a constant effect of choosing one over the other. This is particularly challenging in the early days of a business/startup that has no proven track record. Giving it time and attention over other proven businesses takes a leap of faith and confidence.
3) Do you have a flexible schedule?
This one might not seem critical but it’s worth some serious attention. Running multiple businesses is not easy from a 9-5 desk job. Nor is it best suited for a new parent who’s time becomes scarce. You’ll be tasked with various things that require some flexibility and extra attention. So think about your schedule and how much wiggle room you have to take on something new. If you intend to build something meaningful it will likely require a meaningful amount of time. Keep that in mind.
4) Will you have patience to see things through?
Lastly, do you have patience and stamina to see things through. Can you let a business run a slower growth trend and accept that this is okay for the total long-term picture. It’s not easy… believe me. At times you are very tempted to throw in the towel if you aren’t seeing short-term results. But this piece is key. You have to create patience and sustain a slower growth rate if you want to manage multiple businesses.
Should you diversify?
If you answered “yes” to all the criteria above you would be a good candidate for diversification. If not, you should probably stick to one thing.
There are plenty of other things to consider with this decision, but this context has given me a lot of clarity on why and when it makes sense to diversify.
To close I will say this – managing multiple businesses is certainly not for everyone. In reality, it’s actually only for a select minority of us. It’s a lot of work no matter how you slice and dice things.
However, you’ll find that most successful entrepreneurs level up to this stage eventually in their career. It’s more a matter of when and how you approach it. That’s a topic for a future post! 😉
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