Becoming a Consolidated Entrepreneur
Most people have one source of income: salary. Even entrepreneurs often limit themselves to a single source of income, based on the most direct business efforts they perform. But if you want greater security of income and diversity of income sources, you may need to look beyond that "one thing" and start consolidating into your business multiple activities that interrelate.
Let's look at what this means, how to make it happen, and how to have each activity support the other.
Consolidated Business Efforts
Before any product or services reaches a consumer, it has gone through a chain of producers and creators; the so-called value chain. A wooden cabinet has been brought to you by a transport company, you purchased it from a furniture store, and was made by a woodworker from wood sourced at a lumber yard who was supplied by a forestry company. This is often called the "depth" of a chain; a single line from material source to end product.
Likewise, that same wood at the lumber yard could have been used for other things; it could have been used in buildings, turned to firewood or processed into paper. This is called the "width" of the chain; multiple applications springing from a single material source.
This is important to know, because it shows that you, as an entrepreneur, can choose to go "deep" or "wide." In other words, consolidate multiple links of a production chain into your business, or find several uses for the same skill or material you work with.
For example, say that you are a consultant regarding logistics. You could give advice to logistics companies. Deepening, you could decide to also consult production companies so they interface better with transportation companies, or consult stores to receive goods in a better way. You have deepened your influence by consulting along the same "route" in the chain.
If you instead were to branch out from consulting about logistics into consulting about transport vehicles, or starting up a high-profile transportation business yourself, you are expanding along the same theme, improving your business "width."
You can choose to go deeper, growing your business along its value chain, or wider, expanding along different value chains that are related.
Designing the Supporting Network
It's not sufficient to simply expand your business wider and deeper; you have to consider how each of those moves supports your business objectives. Deepening your business activities usually reduces cost (by controlling your previous supply source) or improves margin (by removing the middleman from a supply chain). Widening your activities improves revenue (by targeting different markets) and safeguards your company as a whole against market fluctuations.
If you invest in a deeper or wider structure, it has to achieve one of these goals. If you are a woodworker, owning a lumber mill can reduce your material cost, because you do not pay the supplier's margins anymore. However, you have to invest in the mill and wages of its workers, so you have to be sure you get a return on investment!
An ideal situation exists when one such investment achieves multiple aims. If you have a furniture shop as well as a paper mill, then obviously that same lumber mill now improves the cost of supply to each of those. If you are a beekeeper, you can grow flowering herbs to improve honey yield, but those same herbs can also be harvested and sold for a herbal tea!
Each improvement you make in the business can thus provide more than one business benefit. Look for ways in which you can gain multiple sources of income from each investment, or improve the costs for each of your value chains.
Expanding in width or depth of your value chain must achieve at least one goal: more revenue, lower costs, greater profit or an expanded market access.
Mutual Reinforcement and Security
Say that you run a Bed & Breakfast, where you have an organic herb garden as well as honey bees. Guests have organic herbal teas available, and in the morning organic honey. Because of this, people are willing to pay more for their stay.
But that's not all! Guests can buy the honey and organic teas from the little store in the kitchen, at much better prices than in the supermarket. That's great value, and will improve your sales on tea and honey.
Turning that around, you could decide to have special "weekend wakeups," where the price of the stay is higher, but you show people around the garden explaining them how organic herbs and bees work out. People are willing to pay more for this, because it's special and educational.
Each component—the garden, the B&B and the products—reinforces at least one other. Together, they create an integral business concept that is unique. That value is cumulative and makes sure you maintain income and have security in running your business. When one component of the business has a lean year, the others make up for it.
The sum of your value chains' width and depth should be much more than the returns on investment on each individually. Together they should form a (next to) unique concept in their combination.
When you start a business, you may not realize that you can deepen or widen your entrepreneurship, and in so doing grow beyond your current market and current sources of income. By spreading the risk and improving your market position you can not only make your business more future-proof, but even put together a unique combination of business activities that makes a brand name famous.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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