T
he biggest word in business now
is diversification. Diversify your
products, diversify your customer,
diversify your revenue and marketing
streams, diversify. Most businesses would
believe that they would want to diversify
their products so that in the event that
one revenue stream goes down, the new
product will continue to sustain the
company. model seems to have remained focused
on the core business of the bank without
pulling important mindshare out of the
main business. Banks have not mastered
a number of areas to grow their expertise,
they have simply tapped into strategic
partnerships that will grow their revenue.
Many business owners would fall into
offering the customers more just because
they say they are missing out on a channel.
It’s been interesting to note the number
of companies that have recorded loses
this year. Hardest hit are the insurance
companies that have diversified their
products. Most local insurance firms
sell all kinds of insurance. Travel, motor,
personal, health, personal accident,
personal investment policies, etc. This is
the best strategy as you would imagine it
creates a one stop shop for any customer
and prolongs customer life time value
to any organization. However, despite
the increasingly challenging business
environment, this diversification strategy
hasn’t been able to cut through the hard
times. Companies would allocate more resources
into diversification rather than more
innovative ways to offer their customers
more without busting their banks, and
remaining focused on their core business.
The truth is that there are times lady luck
smiles on you, but other times, ignoring
the road to diversification may be the
answer. Focused growth may offer more
to the business.
In business, just as in life, it is easy to be
distracted by the glossy objects and shiny
marketing and business terms. You also
will not know whether the shiny objects is
real or coated until you own it. In business
it could be a lack of going in hard on one
thing, just as in life.
We struggle to develop a set of skills
without realizing that we can thrive with
operating on one skill optimally. As the
business environment changes, and the
consumer evolves into a more demanding
consumer, it may be time to focus our
businesses to fully service client needs
optimally and develop partnerships where
we can roll customers over without losing
of the actual pivot of the business. Banks
have done this successfully, and in fact
seem to have taken over the insurance
business.
If you walk into a bank today for a car
loan, they will sell you insurance. If you ask
who the insurance partner is, they will tell
you to call the bank in case of any queries.
Banks are making revenue from playing
middle man without really owning the
businesses. They are also remaining very
focused on providing financial services.
Many top tier banks even offer travel
insurance on FX and credit cards just
so that clients can take their cards. This
08 MAL29/19 ISSUE
A business that has up to five traffic
channels that are contributing equally to
the business does not sound like a business
that is experiencing positive channel
growth. All the channels are performing
below optimum until you push the gas
on all five to determine which one really
takes the show, and which one must bow
out. Having all channels operating at the
same level means that everything is being
done in all channels and no extra effort is
being placed on any one.
Companies that have achieved real scale
have fueled one or two channels to the
max to determine which one derives the
most success. Not having all five channels
contributing equally the same.
Diversification will of course reduce
the risk of being exposed if something
happens to one channel, and there are
times you will want to operate in multiple
places to catch overflow. However, this
could be a potential risk to the business,
but that’s part of what it takes to achieve
focus and real success.
Taking a look at how Warren Buffet
manages his investment portfolio, you may
begin to think that you have been reading
or understanding his books all wrong. It
also came as a surprise to me when I saw
a story on his investment portfolio in the
Washington Post. I wondered whether I
really have been understanding what I was
reading and preaching all this time.
Buffet is not a big diversification
player, despite having written that your
investments should be diversified. Much
as Berkshire holds different stocks, did you
know that 75% of the value of Berkshire
portfolio is held in 7 stocks?
How does Buffet and his team play? They
make big picks. Even with his “Don’t
lose money” rule, I realized they do not
do what they tell aspiring investors and
business owners to do. They don’t diversify
their portfolio, they will not pay that 1%
management fee to the mutual funds and
they are definitely concentrated in where
they put their money while advising
Many business owners would fall into of-
fering the customers more just because
they say they are missing out on a chan-
nel. Companies would allocate more re-
sources into diversification rather than
more innovative ways to offer their
customers more without busting their
banks, and remaining focused on their
core business. The truth is that there are
times lady luck smiles on you, but other
times, ignoring the road to diversifica-
tion may be the answer. Focused growth
may offer more to the business.