Business diversification is key to financial stability

It can boost your income and shield you from losses in primary trade

In Summary

• You may increase product variety, open new branches or apply skills in other industry


"Jack of all trades and master of none."

This saying is meant to discourage dabbling in too many activities and not specialising in any single one of them. In matters of business, diversification or venturing into new markets is a key ingredient to growth and survival.

Think of it this way: What if the hotel business is your only source of income? How would you have survived in 2020, when hotels were closed for several months as part of Covid-19 control measures?

If you have only one source of income, or your business depends on one customer, you are treading on dangerous financial grounds.

We have all engaged in business diversification, though we did not know the term for what we were doing. You are doing business diversification if you have a mix of crops on the farm with hopes that at least one will survive. If you have a side hustle while employed, you are practising diversification.

"The most significant benefit of a diversified portfolio is psychological stability when you need it the most," wrote the author Naved Abdali in his book titled, Investing: Hopes, Hypes, & Heartbreaks. The book is mostly about investing in capital markets, but that piece of advice on diversification applies to any business. Diversification provides psychological comfort compared to putting all your hopes in one thing.

There are several ways of diversifying. You may increase the variety of products offered in your business. You may open new branches in different locations, or you could extend your skills into a completely different industry.

Increasing the variety of products you sell can boost your income. That's why businesses in Kenya have mobile money services as an additional revenue stream. It's for similar reasons that hair salons also sell weaves and cosmetics. Bar owners tend to run butcheries on the same premises to serve both revellers and people passing by. Bus companies offer parcel delivery services to maximise on their vehicles' carrying capacity.

Opening a new branch can be financially demanding and requires good monitoring systems because the owner cannot be everywhere at the same time. Branches are a great backup just in case the original location of the business becomes unviable or unavailable.

Diversifying into a new venture can be rewarding but should not drain the original business. Many small-scale farmers do boda boda business as a side hustle. The motorcycle supplements the farming side of the household by delivering agricultural produce to the market.

Another good example of a business growing beyond its original mandate is how mobile network providers such as Safaricom got into mobile money services. Mobile money is today a major revenue stream for mobile network providers.

Any new venture must be self-sustaining. The business owner should calculate how much he or she can afford to lose before the new venture is profitable. If a project is not generating a profit, better to stop and try something else. Be careful not to diversify too quickly. Doing so could compromise the quality of your services.

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