Diversification vs. Focus: The Hardest Tradeoff for Entrepreneurs Cover

Diversification vs. Focus: The Hardest Tradeoff for Entrepreneurs

The toughest, ongoing challenge I have as an entrepreneur is the debate in my head about what I should focus on.

Should I start another project? How much time, attention, and energy should I commit to X over Y over Z? Is it time to shut down one of my ventures, bundle my resources, and bet big on one thing? Or need I diversify more?

Besides being hard to answer for any given time frame, asking these questions is a project all on its own, a project that also takes time and energy, both of which could be spent on making actual progress at any one thing.

I don’t claim to have definitive answers, but I’ve learned a lot from my own decisions and mistakes in diversifying and focusing over the past five years. I made a long-term bet on a website that now generates a full-time income. I shut down my writing course after it made $20,000. Most of all, I think about what the word ‘balance’ means for an entrepreneur every day.

Below is a collection of my most formed ideas on the subject. I hope they’ll help you figure out when to quit and when to stick — no matter how many times you’ll have to do it.

1. Don’t splice your health, happiness, or sanity

Each new project requires a new version of you. You’ll have to think differently, act differently, and, unless you drop another commitment, do more of both.

I could probably make an extra $1,000 every month by spending 5–10 hrs on promoting and maintaining my writing course, but then I’d also have to wear the hat of “course owner” for each of those hours. If you’re wearing several other hats already, adding one too many can break the barrier beyond which your physical, emotional, and spiritual health deteriorate quickly.

It’s a bit like Voldemort splitting his soul into too many parts to protect himself from death — he became near-immortal but was also barely alive.

If you’re ambitious, chances are you needn’t worry much about whether you’ll achieve your goals — you need to worry about burning out along the way. If you feel like you can do anything, it’s tempting to try and do everything — often all at once. Confidence in your abilities is great, but it needs to be paired with a sustainable pace.

2. Drop what you won’t regret dropping, start what you’ll regret not starting

Jeff Bezos is famous for using regret minimization to decide to start Amazon at age 30 and walk away from his great, well-paying job. After a two-hour walk with his boss and two days of deliberation, regret became the lens through which he could look at the decision with great clarity — and decide to leave despite losing his year-end bonus and plenty of other benefits.

If a pursuit keeps haunting you at night, whispering, “What if?” into your ear, you might have to just go for it to gain (or maintain) inner peace, especially if what you have to give up to do so doesn’t feel like a big loss.

Otherwise, you might wake up ten years later, realizing you never became a bestselling author, successful creative, or recognized founder, not because you didn’t have the skills but because you were too busy dabbling in too many projects. Regret really stings, often, much more so than losing or getting money. Minimize regrets first, then maximize income.

3. Focus until what you have is worth diversifying from

As a budding entrepreneur, shiny object syndrome exerts an incredible pull. It’s like being at a buffet in a luxury hotel: You can pick anything you want, and it all looks delicious. Of course, you can still only eat so much.

Every entrepreneur starts at having made $0. As you figure out how to make your first one, don’t think about the second. It’s too soon, and you’re too green behind your ears.

When I started working for myself, I looked to others to give me work. Once I had a few freelance projects, I diversified on the side. Figuring out how to monetize a new project from scratch was much harder than getting client work, so I only diversified into the latter after securing the former.

Similarly, I then realized I couldn’t yet launch courses, be a coach, and sell products as an affiliate at the same time. I had to focus on one project until it worked. I did that in 2016, and, by the end of the year, Four Minute Books made about $1,500/month. That was enough to cover my rent and basic expenses, and only then did I build another source of income.

Entrepreneurship is hard enough as it is. Don’t make it even harder on yourself by pushing too many carts at the same time. Find a way to keep playing the game, then try new strategies.

4. Know the difference between internal and external diversification

In finance, you can diversify within an asset class, say by buying stocks from different companies, and across asset classes, say by investing in real estate next to stocks. The former reduces the risk of one particular bet not working out, like a company going bankrupt and the stock becoming worthless, the latter reduces your exposure to the overall asset class in case of a so-called black swan event, like a big recession that affects all stocks.

The same distinction exists in entrepreneurship. I think of it as internal and external diversification.

External diversification is about safety and stability

Once your first project becomes financially viable and pays your bills, one of the more safe and defensive moves you can make is to start another project in an unrelated area. This way, if your first project takes a hit, you’ll be able to soften the financial shortfall.

As an example, once Four Minute Books covered my basics, I focused on building a writing income that could do the same. As a business move, this reflected what I wanted to work towards long-term and my risk preference at the time. Above all else, I wanted to stay in the game without having to get a job or more freelance work, so I diversified externally. I went into another asset class, if you will — away from an affiliate business that depends on Google traffic and into a social platform that pays writers based on performance.

External diversification will give you a sense of safety and stability. It goes a long way in alleviating your paranoia about protecting your basic needs.

Internal diversification is about robustness and long-term growth

Another way to diversify is to make money in a new way from the same project. For example, if you sell an online course, you could also sell coaching to some of your customers. If the revenue from both matches, that’s a nice setup to make up for months with slow sales or recover from any individual coaching client leaving.

I failed to do this early enough with Four Minute Books. It depended too much on one source of revenue for too long, so when that one source saw a big drop recently, I had to react quickly and cross-fund some of the expenses from my other income streams. It worked out because I’m well-diversified externally, but, generally, internal diversification makes any one project more robust.

For projects you want to stick with long-term, diversify internally. Make money in different ways from the same business, and you’ll be able to keep growing and extending it.

5. Are you shying away from risk or actual danger?

Entrepreneurship is, by definition, laden with risk. Once you can cover your rent and food multiple times over, however, entrepreneurship stops — for the most part — being dangerous.

If you spend $2,000/month but make $8,000/month, you shouldn’t diversify more just to feel even safer. You’re already safe — so diversify only if it makes sense.

Will adding a fourth, fifth, sixth income stream really contribute to your happiness? If you find a lot of purpose in one project, should you spend most of your time in that one arena? When you have savings, a good financial baseline, and skills you can use to recover from setbacks quickly, don’t get lost in the hamster wheel of diversification for diversification’s sake.

Being an entrepreneur is making a commitment to accepting risk. If all you do as one is use diversification to shy away from it, maybe, you’d be better off in a job after all.

6. How does outsourcing fit into your big picture?

If you want to stay small, beware of growing too big. It sounds obvious, but it’s easier than you think to find yourself in a forest of tasks you didn’t sign up for but feel like you have to complete. Outsourcing may seem like a natural next step for some of these tasks, but it’s also a form of diversification.

Hiring someone else to do the bulk of the work for any one project says, “I want to keep thinking about this without doing the work.” Unless your profits stay extraordinary, why keep on your mind what’s no longer a good fit for your future? I try to outsource only what’s too good to quit but too much to handle myself and, so far, it’s saved me a lot of headache.

7. How much variation do you need to feel happy at work day-to-day?

Just like too many projects will split your brain into too many parts, too little can make work feel like a chore.

Besides the satisfaction of always working on something where you feel you’re making progress, multiple projects also allow you to switch when one thing is either working too well or not at all. Sometimes, a creative break or a few hours in a different arena is exactly what you need to return to another venture with fresh eyes.

Focus and diversification are terms thrown around in business and in finance, but, at the end of the day, they’re not nearly as relevant to either as they are to your happiness. Re-balancing them time and again may be the hardest part of the job, but it’s also what makes entrepreneurship so much more than just that.