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Don't put all your eggs in one basket.

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

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So why don't businesses follow it?

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

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

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

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

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I am fantastic as well.
Thank you for asking.

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

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diversification of your business strategy.

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

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

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Think about your financial
portfolio for example,

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

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

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

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

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So how do we do this?

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

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industries, suppliers,

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and practice diversifying within those
different aspects of your business

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

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

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something that is happening
in any one of those areas.

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

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something happens to a market,

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to an industry that can force
your business to collapse,

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

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you can enjoy additional revenue
streams for your business,

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

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

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

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

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but does our audience.

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

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you can find us wherever
you get your podcast.

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

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you'll find us right there.

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

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

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tell 'em what the first reason is.

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

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listeners.

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

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We don't do it on video.

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

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

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

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

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gym, washing the dishes
or walking the dog.

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

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

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Absolutely. Take us with you.

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After you watch this
episode here on YouTube,

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go to wherever you get your podcast,

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

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

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

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

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The first area I mentioned
was diversifying your markets.

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

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

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

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Amazon originally started selling
books in the online market space.

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That's what they were known for.

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

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online.

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

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is not often. You can
buy clothes on Amazon,

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you can still buy books on Amazon,

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you can buy houseware on Amazon.

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

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

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collapse online books.

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

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and that became online books.

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

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weaknesses,

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

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

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

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

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

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So think for example about us.

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

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

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

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

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

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

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Florida because we have an
ever increasing risk associated

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with storms that could
potentially take your business

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offline for a period of time.

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

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

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

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and that's a legitimate option for you.

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

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internet access there. But
think about a dry cleaner.

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We talk about the dry
cleaning example all the time.

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

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Florida,

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

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

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

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So diversification of a specific

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market.

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Also geography needs to be
taken into consideration as

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well.

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If you are located in a
specific geography and there

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

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think about the pandemic
and gyms like workout

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

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

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

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

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So geographic risk,

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market risk is real as your business is

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

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

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

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

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looking at market industry and suppliers,

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

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

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geographic risk, they
don't want to diversify.

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

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

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

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

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in addition to along the
lines of product line,

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I also think of geographic
markets as well.

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Yeah, a great example.

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

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

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

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

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but you didn't have internet access.

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

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

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we talked about market
diversification, Dave,

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

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Bit. So when it comes to
industry diversification,

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I'm not talking about your business,

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

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So if your clients are all in healthcare

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

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

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

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

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

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services, your products are
considered discretionary spending,

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

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

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one industry to be more than 25%

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

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I saw this firsthand in 2008.

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

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General Motors and General
Motors in 2008 had a huge

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

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

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

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

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

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

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

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

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the c e O of a robotics
company and he made

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robotics for assembly lines for cars.

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And his top three customers
were companies that made cars

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in the United States.

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

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

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

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

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your biggest challenge
right now is the US economy.

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If the US economy goes in the tank,

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

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

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

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

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go to Europe,

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go to Asia and offer your
robotics to people in

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

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

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

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

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industry.

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

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specific thing for the
automotive industry,

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I would say long-term,

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

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

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you have to figure out what
else you can manufacture for

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

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

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

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

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robots,

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

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factories for robotics
in other industries.

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

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

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

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I completely get it. I
completely appreciate that,

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

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

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

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

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

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

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

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all over the southeast.

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

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

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

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

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

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

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one type of plant. That's it.

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Now he sells 'em to specific
types of developers who

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develop different types,

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

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but they go really well in
commercial developments.

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

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types of places he sells them to,

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

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huge amount of risk there.

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

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

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

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

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

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

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

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

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another type of plant to provide that.

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

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

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

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industry as we've now.

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

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

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

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what would you consult on?

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

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how about we start doing that? Now

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

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

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

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

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So that question,

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

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

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

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

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

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you want to say niche focused focus

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

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But at some point you have
to think about balancing

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

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

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

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

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he told me this 12 years ago. He said,

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

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

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

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

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

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

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

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enterprise phase,

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

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

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was diversified.

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Yeah, absolutely. So the third area,

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

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respect to your suppliers
and your supply chain.

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

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

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Seattle is a huge,

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

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producing coffee.

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

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

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

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

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

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

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If you are dependent
upon only one supplier,

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

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

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

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

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

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

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

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

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Where are your coffee beans coming from?

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

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you are using to where you are in Seattle,

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

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we all saw this during the pandemic.

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The supply chain was absolutely
crushed by the pandemic.

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

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

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

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

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coffee beans.

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

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needed.

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

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

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00:19:00,750 --> 00:19:03,270
Also, thinking about where
those beans are coming from,

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

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

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00:19:11,770 --> 00:19:12,603
Colombia?

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00:19:12,660 --> 00:19:17,100
What if there's a major weather event
in the country that destroys the

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

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00:19:21,480 --> 00:19:26,340
You ought to think about diversifying
into another country where you would be

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

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wholly dependent upon a particular source.

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

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00:19:37,680 --> 00:19:41,010
suppliers and your supply
chain. What do you think, Dave?

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00:19:42,000 --> 00:19:44,220
I am going to pick up
on your coffee example.

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

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other supply chain risks.

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Coffee manufacturer getting
their coffee from Africa,

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00:19:55,680 --> 00:19:59,610
somebody most likely a
competitor, went to the media,

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00:19:59,880 --> 00:20:03,900
did a little bit of an investigation and
found out who was helping harvest the

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coffee beans. Slaves
not good for business,

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00:20:08,880 --> 00:20:12,060
all of a sudden they couldn't
use that vendor anymore,

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00:20:12,180 --> 00:20:15,150
could not use them because
they were using slaves,

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00:20:15,210 --> 00:20:20,130
literally using waves to
harvest the beans they

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00:20:20,130 --> 00:20:24,150
were using in their coffee. They
had to pivot on their supply chain,

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00:20:24,150 --> 00:20:26,010
on their supplier immediately,

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00:20:26,250 --> 00:20:31,140
and it was not without downtime
and it was not without tremendous,

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00:20:31,260 --> 00:20:32,430
tremendous expense.

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

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

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00:20:41,790 --> 00:20:46,200
had a bribery issue with being
able to do business in the

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00:20:46,200 --> 00:20:48,100
country they were doing business with,

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00:20:48,370 --> 00:20:53,050
caused a transnational torts
issue when it was revealed

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00:20:53,200 --> 00:20:57,670
that they used a pay-to-play
model to be the company that had

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00:20:57,670 --> 00:21:01,990
access to the fields to be
able to harvest the coffee.

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00:21:02,530 --> 00:21:05,440
So there are all sorts of, and by the way,

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00:21:05,450 --> 00:21:09,700
that deal with the government was brokered
by the place where they were sourcing

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00:21:09,700 --> 00:21:12,340
the coffee beans. So I mean,

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there are all sorts of supply chain risks.

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00:21:16,420 --> 00:21:17,410
You need to,

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00:21:17,560 --> 00:21:21,970
I don't care if it's the best beans
coming from this one location with wine,

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00:21:22,450 --> 00:21:25,300
it's the best vineyard
making this type of wine,

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00:21:25,300 --> 00:21:29,860
and it's because of the geographic makeup
and you have to use this one vineyard

355
00:21:30,160 --> 00:21:33,280
if there's a risk of anything happening.

356
00:21:33,310 --> 00:21:37,660
And we saw this happen in Napa Valley
a couple of years ago with the fires,

357
00:21:37,750 --> 00:21:41,170
right? If that's the only
place you're getting your wine,

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00:21:41,260 --> 00:21:43,810
you've got big problems. So

359
00:21:45,460 --> 00:21:49,690
you don't have to be like
50 50 with these suppliers.

360
00:21:49,870 --> 00:21:52,540
It can be 80 20, it could be 90 10.

361
00:21:52,750 --> 00:21:57,190
You just need to know that that
10% can be ramped up to 60 or

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00:21:57,190 --> 00:22:00,130
70% if they have to.
And if it can't,

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00:22:00,310 --> 00:22:04,000
then you should have 50, 25,

364
00:22:04,000 --> 00:22:05,500
25 or 50, 30, 20.

365
00:22:05,620 --> 00:22:10,180
You should have multiple suppliers that
could handle the situation for you.

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00:22:10,630 --> 00:22:13,060
There is a huge advantage,

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00:22:13,120 --> 00:22:18,070
and in business they call it favored
nation pricing when you're buying all your

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00:22:18,080 --> 00:22:20,290
stuff from one particular vendor.

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00:22:20,290 --> 00:22:25,240
But the inherent risk in that is so
great that what a lot of people will

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00:22:25,240 --> 00:22:29,020
do is when they have a favorite
nation pricing deal with somebody,

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00:22:29,200 --> 00:22:34,090
they also reserve the right to start
their own line of production for that

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00:22:34,090 --> 00:22:38,230
thing that's being supplied so that
if they had to, they could do it.

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00:22:38,290 --> 00:22:39,430
They could do it themselves.

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00:22:39,640 --> 00:22:43,120
We did this when I was at Marriott with
the executive state brand in New York

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00:22:43,120 --> 00:22:43,360
City.

376
00:22:43,360 --> 00:22:47,020
We had a huge problem with outside
vendors who are cleaning our apartments.

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00:22:47,170 --> 00:22:52,000
So we started our own housekeeping
business and we were using our

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00:22:52,000 --> 00:22:54,610
own housekeeping business
to do 50% of the apartments,

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00:22:54,610 --> 00:22:57,550
and we had six vendors we
were using for the other 50%.

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00:22:57,670 --> 00:23:01,450
And eventually it just worked so well
that we ended up taking it all over,

381
00:23:01,630 --> 00:23:05,650
but it started as a hedge so that we
wouldn't have supply chain issues. I mean,

382
00:23:05,680 --> 00:23:08,260
that is a risk that nobody thinks about.

383
00:23:08,620 --> 00:23:13,240
And in the day and age where we're only
a year out from massive c o issues,

384
00:23:14,260 --> 00:23:17,620
you got to be thinking about
that because there were massive,

385
00:23:17,620 --> 00:23:21,310
massive supply chain issues all throughout
Covid that rippled through the system

386
00:23:21,320 --> 00:23:25,900
for a year afterward. So
supplier diversity is a huge,

387
00:23:25,900 --> 00:23:26,733
huge deal.

388
00:23:27,100 --> 00:23:28,000
Yeah, absolutely.

389
00:23:28,170 --> 00:23:32,260
There are only a few companies that
really weathered that storm flawlessly

390
00:23:32,500 --> 00:23:34,630
whenever those issues
hit. And if anything,

391
00:23:34,630 --> 00:23:38,950
the pandemic taught us so many
lessons about not just supply chain,

392
00:23:38,950 --> 00:23:41,230
but how to really be
flexible with our business,

393
00:23:41,230 --> 00:23:45,920
how to think about it in advance so that
we're not caught in the big thing that

394
00:23:45,920 --> 00:23:49,130
might happen, whether it's a pandemic,
I know that's an extreme example,

395
00:23:49,310 --> 00:23:52,490
or it's some sort of
market impact like nine 11.

396
00:23:53,180 --> 00:23:57,320
So we're already prepared for those
types of events that might hit us.

397
00:23:58,160 --> 00:23:59,030
Think of it this way,

398
00:23:59,360 --> 00:24:04,250
if you were sourcing parts of your
product from China and you were selling to

399
00:24:04,250 --> 00:24:05,780
China during the pandemic,

400
00:24:05,780 --> 00:24:09,950
you got crushed because you couldn't
manufacture and then you couldn't sell to

401
00:24:10,190 --> 00:24:14,930
the largest market on the planet because
all of China was shut down for a really

402
00:24:14,940 --> 00:24:15,773
long time.

403
00:24:15,890 --> 00:24:20,540
So sometimes we're victims of our
own success and we keep pouring

404
00:24:20,550 --> 00:24:24,920
gas into the engine to go as
fast as we can in one direction,

405
00:24:25,280 --> 00:24:26,600
and that's fine,

406
00:24:26,840 --> 00:24:31,130
as long as you understand
that without that supplier

407
00:24:31,130 --> 00:24:34,460
diversity, the market diversity,
the industry diversity,

408
00:24:34,820 --> 00:24:39,590
it's going to have an impact on your
business because a sophisticated buyer is

409
00:24:39,590 --> 00:24:44,300
going to discount the value of your
business because of the lack of

410
00:24:44,300 --> 00:24:45,890
diversity. Even a lender,

411
00:24:45,920 --> 00:24:49,880
I've seen people have trouble getting
credit because there was a lack of

412
00:24:49,880 --> 00:24:50,520
diversity,

413
00:24:50,520 --> 00:24:54,950
particularly among clients or I
haven't seen it because of vendors,

414
00:24:54,960 --> 00:24:57,080
but clients or market,

415
00:24:57,080 --> 00:25:00,890
especially geographic diversity
lenders are really hesitant.

416
00:25:02,150 --> 00:25:06,470
They won't lend into an environment where
there's not enough diversity because

417
00:25:06,620 --> 00:25:10,250
they don't want their
interest rates being paid.

418
00:25:10,250 --> 00:25:14,240
They don't want to not get distributions
for a period of time because of some

419
00:25:14,240 --> 00:25:18,380
sort of an event that stops production
or an event that stops people from being

420
00:25:18,380 --> 00:25:19,213
able to sell.

421
00:25:19,760 --> 00:25:21,230
So you've heard in here,

422
00:25:21,320 --> 00:25:26,210
diversify your business strategy
to protect it against risk

423
00:25:26,420 --> 00:25:30,500
of events happening that can
harm your market, industry,

424
00:25:30,770 --> 00:25:32,900
and your suppliers and supply chain.

425
00:25:33,380 --> 00:25:37,100
This is key value driver number
eight on the inside p s show.

426
00:25:37,310 --> 00:25:41,090
If you enjoyed today's
show, watch another episode.

427
00:25:41,540 --> 00:25:44,330
We'll be back here tomorrow.
I'm Nicki G, and you are.

428
00:25:45,020 --> 00:25:49,400
Dave Lorenzo, the godfather of Growth.
Tell your friends, watch more shows.

429
00:25:49,970 --> 00:25:50,450
See you tomorrow.