Don't put all your eggs in one basket.

This is a saying most of us have
heard and followed as good advice.

So why don't businesses follow it?

Join us to find out on this
edition of the Inside BS Show.

Hey, now I'm Nicki G. This
is the Inside BS Show,

and I am here this morning with my
partner Dave Lorenzo. How are you Dave?

Hey, now Nicki G I'm
fantastic. How are you today?

I am fantastic as well.
Thank you for asking.

We are talking about today, key value
driver for your business. Number eight,

diversification of your business strategy.

So oftentimes we think
about diversification in
all different areas of our

personal lives but not our business.
So what am I talking about?

Think about your financial
portfolio for example,

I'm sure you have heard and applied
this term when you are diversifying your

assets to make sure that you're fully
protected in the event there's a

fluctuation in the stock
market or something happens
with your retirement plan.

So we need to think about it
importantly for our business as well.

So how do we do this?

Think about the different areas in which
your business is operating markets,

industries, suppliers,

and practice diversifying within those
different aspects of your business

that's going to help you
achieve a few things. First,

it's going to reduce the risk
of your business being hurt by

something that is happening
in any one of those areas.

If you are not diversified and you
have all your eggs in one basket,

something happens to a market,

to an industry that can force
your business to collapse,

you also will benefit greatly from
this. So if you are diversified,

you can enjoy additional revenue
streams for your business,

you can increase the growth of your
business and the long-term value

things that we talk about a lot
in the context of exit planning.

Hey Nicki G, did you know you can
also get our show as an audio podcast?

Of course, I know you can get the
show as an audio podcast. I'm on it,

but does our audience.

I don't know. So those of you
who are watching on YouTube,

you can find us wherever
you get your podcast.

Just search up the Inside BS show
with the Godfather and Nicki G and

you'll find us right there.

Click the follow button so that
you never miss a show. Now,

there's a couple of reasons why you're
going to want to do that. Nicki G,

tell 'em what the first reason is.

You get to ask us questions
that is exclusive to our podcast

listeners.

Yeah, we only answer listener questions
on the audio version of the podcast.

We don't do it on video.

So if you want to hear what everyone's
thinking or if you want to ask us a

question, you got to download the
audio podcast. The second reason,

and my favorite reason is
because you can take us with you.

You can have a little Nicki g in your
pocket while you're working out in the

gym, washing the dishes
or walking the dog.

I love me some Nicki G in my
pocket when I'm walking the dogs.

I don't know about you Nicola, but
that's one of my favorite things to do.

Absolutely. Take us with you.

After you watch this
episode here on YouTube,

go to wherever you get your podcast,

click the follow button so we can go with
you on your journey and you can ask us

questions. We will see you
or more like hear you there.

So let's dig into some of these different
areas where you can diversify your

business and talk about how and
give you some examples to do that.

The first area I mentioned
was diversifying your markets.

So you are operating in particular markets
and you want to think about how can I

expand those to better reduce that
risk and increase my growth and value?

A good example of this, and an easy
one we all can think about is Amazon.

Amazon originally started selling
books in the online market space.

That's what they were known for.

Now we think about Amazon for pretty
much everything that we want to order

online.

I'm not to what Amazon doesn't provide
until I search and find something which

is not often. You can
buy clothes on Amazon,

you can still buy books on Amazon,

you can buy houseware on Amazon.

So that is a great example of a company
that thought about what different

markets can we enter into in case one
of these particular markets should

collapse online books.

Maybe that will change just like we
did with bookstores and retail stores

and that became online books.

So if you have an area of a particular
market where it could be exposed to

weaknesses,

now your business will be able to continue
generating revenue from these other

markets so that you are
not wholly dependent upon a
single market in the event

something happens to that
particular market. What do
you think about that, Dave?

Yeah, I think you're right about that
for sure. And when I think about markets,

you know what I think of, I
think about geographic markets.

So think for example about us.

You have a law firm that
is based in South Florida.

What happens if there's a hurricane here
in south Florida and there's no power

in Miami-Dade County for 10
days? Guess what? Your law firm,

you're basically sitting on your hands
for 10 days probably with a battery

operated fan blowing in your face as
you wait for the power to come back on.

You need to diversify and have some
work that you do outside of the state of

Florida because we have an
ever increasing risk associated

with storms that could
potentially take your business

offline for a period of time.

Now you can diversify that risk by
having an offsite place where you can

work. So maybe you can go
to a family's house and

work out of Pennsylvania
if there's a storm coming,

and that's a legitimate option for you.

You can still do Florida based legal
work in Pennsylvania because there's

internet access there. But
think about a dry cleaner.

We talk about the dry
cleaning example all the time.

Dry cleaners got four stores and they're
Miami-Dade County and Broward County,

Florida,

and a storm like Irma blows up the
center of the state and what happens?

Miami-Dade County, Broward County,
no power for six or seven days.

That dry cleaner has got no revenue,
no cashflow for six or seven days.

So diversification of a specific

market.

Also geography needs to be
taken into consideration as

well.

If you are located in a
specific geography and there

are inherent legal risks with doing
business in a specific geography,

think about the pandemic
and gyms like workout

facilities here in south Florida
or here in the state of Florida,

gyms were able to be open
almost the entire time they
were closed for two weeks.

If you owned a gym in New York
state or in the state of California,

you're out of business. That's it. Two
years, you were closed for two years.

So geographic risk,

market risk is real as your business is

maturing and you're starting to think
about how much your business is worth,

a buyer is going to price
in any type of market-based

risk. That's just a
fact. So when you and I,

Nicola are looking at business and we're
talking to a business owner and we're

looking at market industry and suppliers,

we're going to point to any
market risk that exists.

And if they don't want to open up
a location outside of where there's

geographic risk, they
don't want to diversify.

There are other ways to mitigate that
risk perhaps through insurance or perhaps

through having a contingency plan like
we talked about with your law firm for

you going out to western Pennsylvania
to operate your firm for the two weeks

when there's no power after a
hurricane. So when I think about market,

in addition to along the
lines of product line,

I also think of geographic
markets as well.

Yeah, a great example.

I'm really glad that you used the law
firm because I lived through that.

So I worked for a firm that had offices
in other geographic locations and we

were hit by hurricanes and most of
us had to just park our work. I mean,

you worked as long as your laptop was
able to operate until that battery died,

but you didn't have internet access.

So we were able to shift that work to
other markets to allow there to be no

downtime of what was happening. So great
example of being able to do that. Now,

we talked about market
diversification, Dave,

but now let's focus on
industry diversification. Talk
to us about that a little.

Bit. So when it comes to
industry diversification,

I'm not talking about your business,

I'm talking about the
industries your clients are in.

So if your clients are all in healthcare

and a recession hits the healthcare
industry, you've got a big problem.

Nobody who's going to spend money
on your products or your services.

If your clients are all in oil and
gas and there's a huge shift to

alternative energy and everybody's
into solar and wind and the

oil and gas industry takes a
30% hit or a 40% hit and your

services, your products are
considered discretionary spending,

nobody's going to be spending money
on you. My rule of thumb is this,

you want to take the approach
that you don't want any

one industry to be more than 25%

to be responsible for more
than 25% of your revenue.

I saw this firsthand in 2008.

I got a call from a lawyer
whose number one client was

General Motors and General
Motors in 2008 had a huge

credit issue and they filed for bankruptcy
protection. And this guy called me

and he said, I need you to help me find
some business like tomorrow. And I said,

you should have focused on this 18 years
ago. He's in practice for 20 years,

and General Motors had been his biggest
client for 18 years and they were

90%, 90% of his business
came from this one client.

It would've been a big problem if more
than 25% of his business came from the

automotive sector. I was just three
weeks ago, I was just down in Toledo,

Ohio and I was speaking to a room full
of CEOs and in that room there was

the c e O of a robotics
company and he made

robotics for assembly lines for cars.

And his top three customers
were companies that made cars

in the United States.

And he was talking to me about a
particular challenge he had and I said,

it strikes me that what you're
mentioning to me is a challenge,

but I don't think it's your biggest
challenge right now. And he said,

what do you think my biggest
challenge right now is? I said,

your biggest challenge
right now is the US economy.

If the US economy goes in the tank,

people are not going to buy American cars
and they're not going to be making as

many American cars on assembly lines
and stuff is not going to break down and

they're not going to need your
robotics. So if I were you,

I would be looking at foreign car
manufacturers like go up to Canada,

go to Europe,

go to Asia and offer your
robotics to people in

other countries. So he's heavily
focused on that industry,

but he can diversify that industry
risk by spreading the risk out

over different geographies. So a
big rule of thumb for me, Nicola,

is no more than 25% of your
business coming from any specific

industry.

Now if you're like this guy and your
entire business is focused on making a

specific thing for the
automotive industry,

I would say long-term,

if you're really serious about
maximizing the value of your company,

and this is not a popular
recommendation, but it's a sound one,

you have to figure out what
else you can manufacture for

someone else in another industry with
the material have on hand or with

the process you have on hand.
And he said to me,

what do you mean what
else could I do? I said,

maybe you could be a consultant to
help people set up factories to build

robots,

and you could work with people in other
industries as a consultant to build

factories for robotics
in other industries.

You've got to come up with some other
type of revenue stream outside of what

you're currently doing. And he pushed
back and he said, this is all I know.

This is the only industry I've
ever worked in. And I said, look,

I completely get it. I
completely appreciate that,

but that doesn't mean
that it's not a problem.

It is what it is, but that
doesn't mean it's not a problem.

And I can give you another
example. There's an agriculture,

an ag company that I work with
here. The guy makes one plant,

he raises one type of plant,
he grows one type of plant.

He's very well known. And
so I don't want to out him,

but he only grows one type of
plant and he ships these plants

all over the southeast.

He's even shipped them outside of
the southeast to southern California.

He's the number one provider
of these types of plants to the

entire, basically to the entire nation,
maybe even to the world. I don't know.

There's a huge amount of risk in that
because he grows 'em here in the Redlands

in South Florida. So a
storm big problem. So he's,

he's got specific geographic market risk,
and then he's also got industry risk,

one type of plant. That's it.

Now he sells 'em to specific
types of developers who

develop different types,

different types of commercial
developments. These plants
are really expensive,

but they go really well in
commercial developments.

So he has diversified his risk
when it comes to the different

types of places he sells them to,

but it's just this one type of
plant grown in this one space,

huge amount of risk there.

So in both of your examples,
it requires some flexibility.

So you may think that there's no
other option, but in both of those,

there's a core competency you mentioned
with a robotics person. It's robotics.

And yes, while you're used to only
working in the automotive industry,

you could still take that skillset
and apply that to another industry.

Same thing with a plant.
That's one type of plant.

You could think about growing another
type of plant and use something that is

maybe a little bit similar so that you
can extend those core competencies to

another type of plant to provide that.

So it's going to require some thought
by use some additional development of

strategy and flexibility to make
that happen. But in the end,

you're much more protected in the event
something happens to the market or the

industry as we've now.

Mentioned my go-to for those folks,
Nicola, is I say to them, okay,

let's pretend you sold your
business today. What would you do?

And almost always they say, well,
some sort of consulting, well,

what would you consult on?

I would teach people how to set up a farm
just like I did. And then I say, okay,

how about we start doing that? Now

how about we make that 15% of
your revenue now so that you

could make it 45% of your revenue
if your farm gets wiped out,

or you could make it 45% of your
revenue if all of a sudden there's a

disease that runs through the farm and
the plants all die. You know what I mean?

So that question,

what would you do if you
sold this business usually
prompts a different type of

thinking. And I want to make something
really, really clear, Nicola,

before you move on to the final
element of this. That is that these

folks were highly successful because
they only focused on one thing,

right? So this niche
focus, or if you're fancy,

you want to say niche focused focus

is what leads you to be
successful when you're a startup.

But at some point you have
to think about balancing

the risk of only doing one thing
in one place or having one type

of customer with the health of your
business overall as a startup. Go for it.

Pound away at that. In fact,
the guy who's the farmer,

the guy who grows the plants,
he's the person who told me,

he told me this 12 years ago. He said,

I'm successful because I
know what business I'm in.

I'm in the business of growing this
one plant and I sell it to commercial

developers all over the place. They
know me as the guy who sells this plant,

and I'm the guy who can get it to 'em.

They tell me a season ahead of time how
many they need. That's how many I get.

That's why I'm successful because I
know what business I'm in. So I get it,

I get it. But at some point when
you're moving from startup phase into

enterprise phase,

you got to start looking at this
risk and you got to assess it,

and you have to realize that your business
would be more valuable if this risk

was diversified.

Yeah, absolutely. So the third area,

let me jump into that one that we haven't
talked about yet is diversity with

respect to your suppliers
and your supply chain.

So let me use an example to
discuss this subject area.

So you've got a coffee roaster for
example, and let's use Seattle.

Seattle is a huge,

huge area for coffee roasters achieved
much notoriety in that space for

producing coffee.

So you've got your supplier who's going
to provide the cups for your coffee.

What if you're only using one
supplier? Well, let's think about that.

What if the factory where the cups are
coming from has a fire in the factory and

now there's no cups that could immediately
shut down your business when you've

got demand, you're open every
day. You only have so much supply.

You don't have a warehouse
where you're storing cups.

If you are dependent
upon only one supplier,

that can be a significant risk for your
business if anything happens to that

supplier. So need to have other
ones that are already lined up,

not ones that you're looking for
in the moment, something happens,

but other ones who maybe you use them
from time to time or you already have them

arranged, set up so that if something
happens, you've got them there,

you know that they can provide immediately
to I meet your needs so that your

business does not have to shut
down. So using that same example,

let's think about the
supply chain aspect of it.

Where are your coffee beans coming from?

So oftentimes you're relying on a supply
chain to deliver the coffee beans that

you are using to where you are in Seattle,

so you can then roast them and
provide the coffee. We all love,

we all saw this during the pandemic.

The supply chain was absolutely
crushed by the pandemic.

And so many companies out there had to
be flexible and resilient and figure out

what they were going to do to get through
that period of time. And there weren't

many options. And what some of those
roasters did in Seattle was great.

So they were able to work directly
with farmers and importers to get their

coffee beans.

So just one way to be flexible and to
find another avenue to still get what they

needed.

But having that plan in place to
be able to look somewhere else and

adjust is going to reduce your
risk and help you move forward.

Also, thinking about where
those beans are coming from,

what if you're sourcing only from one
country? We all love Colombian coffee,

but what if all of your coffee supplies
dependent upon beans coming from

Colombia?

What if there's a major weather event
in the country that destroys the

crops that are going to result in
the coffee beans for your business?

You ought to think about diversifying
into another country where you would be

able to have some other type of stream
for your product so that you're not

wholly dependent upon a particular source.

So that's just a few examples of how
you can use your diversification with

suppliers and your supply
chain. What do you think, Dave?

I am going to pick up
on your coffee example.

I had a client that had two specific
issues related to this that'll highlight

other supply chain risks.

Coffee manufacturer getting
their coffee from Africa,

somebody most likely a
competitor, went to the media,

did a little bit of an investigation and
found out who was helping harvest the

coffee beans. Slaves
not good for business,

all of a sudden they couldn't
use that vendor anymore,

could not use them because
they were using slaves,

literally using waves to
harvest the beans they

were using in their coffee. They
had to pivot on their supply chain,

on their supplier immediately,

and it was not without downtime
and it was not without tremendous,

tremendous expense.

And the fact that they didn't vet
the supplier in the first place,

their brand took a huge hit,
same company years later,

had a bribery issue with being
able to do business in the

country they were doing business with,

caused a transnational torts
issue when it was revealed

that they used a pay-to-play
model to be the company that had

access to the fields to be
able to harvest the coffee.

So there are all sorts of, and by the way,

that deal with the government was brokered
by the place where they were sourcing

the coffee beans. So I mean,

there are all sorts of supply chain risks.

You need to,

I don't care if it's the best beans
coming from this one location with wine,

it's the best vineyard
making this type of wine,

and it's because of the geographic makeup
and you have to use this one vineyard

if there's a risk of anything happening.

And we saw this happen in Napa Valley
a couple of years ago with the fires,

right? If that's the only
place you're getting your wine,

you've got big problems. So

you don't have to be like
50 50 with these suppliers.

It can be 80 20, it could be 90 10.

You just need to know that that
10% can be ramped up to 60 or

70% if they have to.
And if it can't,

then you should have 50, 25,

25 or 50, 30, 20.

You should have multiple suppliers that
could handle the situation for you.

There is a huge advantage,

and in business they call it favored
nation pricing when you're buying all your

stuff from one particular vendor.

But the inherent risk in that is so
great that what a lot of people will

do is when they have a favorite
nation pricing deal with somebody,

they also reserve the right to start
their own line of production for that

thing that's being supplied so that
if they had to, they could do it.

They could do it themselves.

We did this when I was at Marriott with
the executive state brand in New York

City.

We had a huge problem with outside
vendors who are cleaning our apartments.

So we started our own housekeeping
business and we were using our

own housekeeping business
to do 50% of the apartments,

and we had six vendors we
were using for the other 50%.

And eventually it just worked so well
that we ended up taking it all over,

but it started as a hedge so that we
wouldn't have supply chain issues. I mean,

that is a risk that nobody thinks about.

And in the day and age where we're only
a year out from massive c o issues,

you got to be thinking about
that because there were massive,

massive supply chain issues all throughout
Covid that rippled through the system

for a year afterward. So
supplier diversity is a huge,

huge deal.

Yeah, absolutely.

There are only a few companies that
really weathered that storm flawlessly

whenever those issues
hit. And if anything,

the pandemic taught us so many
lessons about not just supply chain,

but how to really be
flexible with our business,

how to think about it in advance so that
we're not caught in the big thing that

might happen, whether it's a pandemic,
I know that's an extreme example,

or it's some sort of
market impact like nine 11.

So we're already prepared for those
types of events that might hit us.

Think of it this way,

if you were sourcing parts of your
product from China and you were selling to

China during the pandemic,

you got crushed because you couldn't
manufacture and then you couldn't sell to

the largest market on the planet because
all of China was shut down for a really

long time.

So sometimes we're victims of our
own success and we keep pouring

gas into the engine to go as
fast as we can in one direction,

and that's fine,

as long as you understand
that without that supplier

diversity, the market diversity,
the industry diversity,

it's going to have an impact on your
business because a sophisticated buyer is

going to discount the value of your
business because of the lack of

diversity. Even a lender,

I've seen people have trouble getting
credit because there was a lack of

diversity,

particularly among clients or I
haven't seen it because of vendors,

but clients or market,

especially geographic diversity
lenders are really hesitant.

They won't lend into an environment where
there's not enough diversity because

they don't want their
interest rates being paid.

They don't want to not get distributions
for a period of time because of some

sort of an event that stops production
or an event that stops people from being

able to sell.

So you've heard in here,

diversify your business strategy
to protect it against risk

of events happening that can
harm your market, industry,

and your suppliers and supply chain.

This is key value driver number
eight on the inside p s show.

If you enjoyed today's
show, watch another episode.

We'll be back here tomorrow.
I'm Nicki G, and you are.

Dave Lorenzo, the godfather of Growth.
Tell your friends, watch more shows.

See you tomorrow.