Everyone has heard that diversification is important to successful investing. However, most people do not realize that this statement does not only apply to financial investments but to all investments in their futures.
Diversification is important in business as well as in finance. To find an example of this, one does not have to look very far. Take Nike for example. Nike not only makes shoes; Nikes makes clothes, hats, golf clubs and nearly every other sport-related item in existence. Why does Nike make such a large variety of items? They do so because diversification equals security.
If you are a freelancer or a small business owner, diversification is even more important for you than it is for a large corporation like Nike with a strong brand and a long history of quality. However, some of you may be reading this and thinking, “A lot of small businesses sell only one product.” Would you like to bet on that? Let’s look more closely.
Let’s use a jewelry store as an example. Of course, a jewelry store sells only jewelry, right? This is not necessarily true. A jewelry store is also likely to sell watches and offer repair services. Also, the jewelry store sells a wide range of jewelry instead of only selling earrings or only selling bracelets. While watches and repairs and earrings and bracelets may not be a stretch from jewelry sales, they are both examples of diversification.
The point of these examples is to remind freelancers and small business owners to not “put all their eggs in one basket,” for lack of a better term. When freelancers spread the work they do among several companies, they do not put their livelihoods into the hands of only one company. Similarly, when small businesses diversify their offerings, they are less susceptible to problems arising in their supply chains or shifting consumer trends.