If you are a pig farmer in China this week, you might be thinking it’s time for some diversification.
Until the cause for the mysterious death of 900 pigs near Shanghai is discovered, there is a potential risk to the health of pigs and a perceived risk to the safety of pork products.
The lesson for you as an entrepreneur is understanding the importance of and practicing diversification.
Diversification should be practiced throughout various aspects of your business.
Income – having multiple channels for income will help to ensure changes in regulations, technology, or demand won’t put you out of business before you can adapt.
Suppliers – having multiple sources for obtaining supplies, inventory, or information will help keep your resources plentiful at the best possible cost.
Purchasers – having multiple customers is very important. Any business that operates for the purpose of a sole purchaser has essentially given all control to that client. If you should lose them to a competitor, or they simply cease to exist, you run a very good risk of having to close your doors.
Services – having multiple service providers helps ensure you will not have a break in productivity if a server is down or someone is out sick.
Think of diversification as creating back-up systems. We often back up our computers to protect our valuable data in the event our machine stops working. While it’s very inconvenient for your hard drive to crash, if you’ve backed up all your documents, chances are, you will be back to optimal capacity with a new computer in less than a week.
Now consider what the effect would be on your business if your major supplier or purchaser ‘stopped working’. What if your largest client went to a competitor or demanded lower prices? Do you have back-up plans? Could your business survive such a change?