Opinions expressed by Entrepreneur associates are theirs.
We are entering a volatile time in the market. Inflation is at an all-time high, and the cost of basic necessities, from food to gasoline, is constantly 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 insulates you from circumstances beyond your control. My business portfolio is broad and diverse: food and beverage, real estate, shipping and e-commerce. The 2020 pandemic was the ultimate justification for diversifying my business. My food business took a huge hit as tourism came to a temporary halt due to the government-ordered shutdown. In contrast, as big a blow to Sin City Cupcakes as it 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 wasn’t diversified and solely relied on just one business as my main stream of income, I’d 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 industries or business models that catch your eye
I started Ship Las Vegas in 2018 because I was intrigued by the mailbox rental model. Mailbox rentals are miniature storage units. They are a low-maintenance item that provides steady, consistent, and ongoing income. The only problem was that I knew nothing about running a mailbox rental/packing and shipping store. So, I walked down the street from my house to a local independent mailbox rental/boat shop and made a proposition to the owner: I’ll pay you $10,000 if you let me follow you around for two weeks, train in your shop, and capture your business processes for you . I’ll compile everything into a procedural manual for you and be the best intern you’ve ever had. He agreed, and the next day I started my well-paid two-week apprenticeship. I looked at $10,000 as an investment in a business model.
Protect yourself from the world’s circumstances and focus on a stable, constant income
No matter what conflicts are going on overseas or what things the embittered mob is currently obsessing over, there are some constant truths: mailbox rentals are monthly, recurring income, and insurance premiums are monthly, recurring income. I’m invested in an insurance company and it’s not a business model I’ve paid much attention to before. Still, I was a willing consumer who pays every month without much effort, thanks to automatic payments. That’s a cost 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 with monthly, recurring revenue? They are ideally associated with monthly expenses that are mandatory or strongly suggested by law or community – not glamorous, not sexy, but essential. For example, car insurance is required in the state of Nevada 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 is going on in the world around them.
Related: 4 Ways An Entrepreneur Should Diversify Their Income
Stay within your means
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 start my own bakery. My co-founder Dannielle and I were talking on the phone one night in November 2011, and she said she’d been playing around with recipes for alcohol-soaked brownies. A bell rang in my head and I was immediately enthusiastic about the idea. Alcohol-soaked cookies are a fun, celebratory product.
Las Vegas is an international destination where people come to overspend, overindulge, buy and do things they won’t buy and do at home. We needed booze-soaked cupcakes in Las Vegas, and I wanted to help launch the company. I had no baking experience and had to learn how to bake when we started the company. It proved to be a popular idea, and we are now very grateful to have an amazing staff who have baking degrees and more baking experience than I could ever hope to achieve on my own. Hire well, and get out of their well.
Subscribe to newsletters and listservs representing 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 regularly. I enjoy subscribing to tactical newsletters like “Contrarian Thinking” which feature examples of entrepreneurs who own “boring businesses” that I generally wouldn’t consider investing in. I also reached out to local Las Vegas business brokers and asked to be added to their mailing list. In my opinion, most businesses listed with a business broker are either overvalued or tend to rely on very superficial financial calculations to determine the selling price.
However, the value of being on the mailing list is twofold: 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 group of businesses in the same or overlapping industries all selling 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 instruments that reduce the risk of losing your investment while pushing the button for impact or purpose for you
Last year I joined a $10 million private equity fund as a general partner. The fund supports entrepreneurs who are in the early and early stages of their business (aka, just getting started) and focuses on founders who are veterans or military spouses. My father was a professional US fighter pilot 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 participation in the Veteran Fund. Supporting our American military families is very important to me, and this fund furthers that impact. From an economic and business point of view, the fund also serves as an investment vehicle through which they can be part of companies in different spaces, from virtual markets to climate technologies to data centers on the moon. Most importantly, the fund invests in these diverse companies in a process that is as leveraged and risk-free as possible.
Many private equity funds avoid pre-startup ventures or seed investments, as the start-up of a company is generally the riskiest stage. My partners and I examined the points of failure for most startups in the country and addressed each one through the investment fund’s criteria as well as how we appear to founders. We don’t just write a check and rest on our laurels, waiting for the company to make it or not. We’ve put our entrepreneurs through an accelerator program with the Founders Institute, and we’ve also built a top-notch team of LPs and Venture Partners who are subject matter experts in their respective industries.
You can go as deep into your diversification as you like. 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 hustle. Be willing to work nights and weekends on the side while your main business maintains steady income.
Business strategies, entrepreneurial tips and inspiring stories are all in one place. Explore the new Entrepreneur Bookstore.
