Entrepreneur’s brew – Importance of diversification in business

By Pastor Welcome Thamsanqa Mlungisi Dlalisa

Last week we dealt with how to be socially responsible and now we shift focus to another important aspect of business – diversification.

What is diversification exactly? Why is it Important?

Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximise return by investing in different areas that would each react differently to the same event. Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited.

This practice is designed to help reduce the volatility of your business over time. One way to balance risk and reward in your investment portfolio is to diversify your assets. Diversifying in practice means being involved in a number of things so that when one goes down at least others can carry you.

For example, you might have a tuck shop, salon, shisa nyama, public phones, sell airtime, repair cars and service shop, buy shares or have rooms that you are renting out as rental stock. However, do not start another venture when your first business is still struggling. That will create too many problems and will not help you. You must be very strategic and do your feasibility study first before you start different things. Your feasibility study will help you to determine prospects of success in the things that you involve put your money to. However, the advantage is that when one thing goes down then you can make a living off the other one.

If I have to simplify it, diversifying is starting different types of businesses so that if one fails, you do not completely go down with it. In business, you go through business cycles. You find that one particular type of business is booming and doing exceptionally well in a particular season and later on it starts going down and ultimately dies. Therefore, a good entrepreneur must never allow themselves to do only one type of business or sell just one product.

A good entrepreneur sees things as they start to go down and they move out of that business before they go down completely. This means a good entrepreneur will see an opportunity in the service sector and in the manufacturing sector and in the mining sector and in many other sectors and start operating in them. This way, you can balance your investments and reduce your risk exposure by not putting all your eggs in one basket.

Benefits of business diversification

1. It reduces your risk and spreads it

You can’t eliminate risk completely, but you can manage your level of risk. However, through diversification, you reduce your risks. This means if one your businesses are going down you can still survive through another one. I have a close friend of mine who was doing so well in training business. Just before the 2008 recession in South Africa, he went into property business also. Soon after the recession in 2008, his training business went dead. He started growing his property portfolio and has grown it since then. This way you can still survive even in most difficult of times. Don’t put all your eggs in one basket.

2. It increases your skills base

Every new venture is an opportunity to grow and learn new things as an entrepreneur. You start with a feasibility study and it helps you to learn new markets, new products and it grows your knowledge in new areas. It is true that when you start a business you get to master it after a few years of running it. After a long period of time, you stop growing as you hardly met new challenges. So, diversification grows your knowledge base and puts new and fresh challenges on your table. Growing is an essential part of every entrepreneur.

In order to help entrepreneurs of Tembisa to implement what we are learning via these articles, I have set up what I call the JOSEPH ACHIEVERS MENTORING (JAM) program. The program is based on Joseph in the Bible who rose to prominence despite his background. I am encouraging all Tembisa residents to join. This program is aimed at supporting all residents of Tembisa but it targets mainly young entrepreneurs, young professionals, university students and high school learners. It offers a range of support initiatives including career guidance, training and mentoring. Many have enrolled in the program and receive business management training and mentoring. I challenge you to enrol for JAM in order to propel your life or your business to new heights. To register on JAM, send an email to dlalisa.rhi@gmail.com or call the numbers below.

For more information, contact Pastor WTM Dlalisa on 083 395 1165