Many of you are likely familiar with the industry-accepted process of risk management: identification, assessment, mitigation, monitoring, and reporting. You’ve also likely heard the term “diversify risk” regarding investment. Turns out, it’s also a sound business strategy. I’m going to give you a few examples from my military and industry experience to help you analyze your own outfit and consider ways to mitigate risk by spreading or diversifying it.
Right after retiring from the Air Force, I wanted to start my own business, but I had no idea how to go about it. With a family to feed, I accepted a position with a small, but respected, defense contractor in D.C., well known for innovation. The founder was a fountain of knowledge, both from a technical as well as a business perspective. He had experienced a great deal and was patient in passing his knowledge along to his employees. The most important lesson I learned from him was to weigh opportunities, ensuring that the juice was worth the squeeze. Examine an opportunity and ensure the benefits of capturing it are worth the effort. As important a tip as that is, that’s not the point of this story.
My family chose not to stay in the D.C. area, and an opportunity opened itself up for me to move to Southern Virginia and work on the famous Blackwater campus in Moyock, North Carolina. I jumped at the chance.
I actually worked for a start-up defense contractor but had all the privileges of being a Blackwater employee, working directly for the Executive Vice President, providing test and evaluation as well as other technical services to Blackwater Manufacturing. My primary focus was initially the Grizzly armored vehicle and later the unmanned airship under Guardian Airships. Blackwater had a lot going on and was always looking for new ways to expand. In this, they seized opportunity but also diversified risk. Later, when their relationship with the U.S. government began to wane, they were able to shutter lower-performing business units rather than go under.
While I was the sole employee from my company at Blackwater, most of the other employees were working as subcontractors on a U.S. military services contract in D.C. When that program began to become smaller, the prime contract holders reduced our presence. Since we had nowhere to send them, my employer had to lay dozens of people off. Very quickly, management learned to diversify risk by spreading our workforce across multiple contracts. It all comes down to the adage of “don’t put all of your eggs in the same basket.”
I started out my military career in the U.S. Army, where I served as a paratrooper at Fort Bragg. For combat jumps, we didn’t put an entire unit in the same airplane. Based on lessons learned in World War II, we’d mix the troops up with other units so that if a plane didn’t make it to the drop zone, there wouldn’t be an entire unit, and their inherent combat power, completely out of action.
When I moved to the Air Force, I learned that in case of impending major war, we would split aircraft up and place them in small numbers at different airports so that an enemy couldn’t hit an airfield and destroy an entire wing. The risk remained, but by adopting appropriate strategies, its impact was mitigated.
Working for others over the years, I learned a lot, both good and bad — but the most important lesson was to diversify income streams, a form of risk diversification. Without money coming in, you’re closing your doors.
As a small business owner, you can take similar measures to diversify your risk. One way to introduce additional income streams is to add services or products which will introduce repeat customers for those new offerings as well as completely new customers attracted by these expanded offerings. It’s important to create a relationship with your customers. In addition to the interaction or experience, a variety of products or services for your customer to adopt will help build the bond.
Another way to diversify is to create new business units, whether related or not to your core business. For example, a gun store may also host a shooting range, and training. Likewise, an in-house gunsmith for maintenance and customization adds value to a customer. Most gun stores also sell accessories and ammunition. However, not as many consider offering items for peripheral customers, like preppers. You could add rations, radios, and so on. That’s just one example, but it really comes down to your own market and circumstances.
Let’s also consider your supply chain. Whether you manufacture products or sell them at the wholesale or retail level, you rely on others to provide you with the right goods at the right time. Another way to diversify risk is to pursue alternative supply chains. The goal is to lower costs, but there are other factors as well. Such a move may come at a price, but increased speed or reliability of supply may prove to be worth it.
An important piece of advice is that if you pursue a new stream of income, set a pain threshold for yourself. By this I mean figure out how long you’re willing to invest in a new capability before it begins to pay off. This might be a matter of dollars and cents, but it could also be a question of how much time and attention you are willing to spend on it. Remember, the one thing you can’t make more of is time. It’s a finite resource. Use it wisely.
