Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with Joel G. Block @JoelBlock.
A money business insider, Joel’s a long-time venture capitalist and hedge fund manager (gobbledygook for professional investor) who lives in a Shark Tank world like TV. Since selling his publishing company to a Fortune 500 company.
Joel delivers the inside track with strategies for business, money, and success to business executives and their teams.
SmallBizLady: Why is it important to have more than one stream of business income?
Joel G. Block: All small businesses need to be concerned about diversification of revenue streams, because they can run into all kinds of problems if they’re dependent on only one type of revenue coming into their business. So, for example, there could be seasonality for retail companies that causes them to take in all of their money at one time of the year, and they need to diversify so that they level out their cash flow. There could also be a risk of concentration, where they have one really big client, and then something happens to that client, so diversification of not only revenue streams but the client base, is critically important. It also helps small businesses to grow faster when they are more diversified.
SmallBizLady: Help us understand more about streams of income.
Joel G. Block: Multiple streams of revenue does not mean that you go into multiple businesses. So, for example, you don’t start a lawn mowing service and then a pool cleaning service, and then a bakery and a butcher’s shop. What one would do is to take the primary revenue stream and repurpose whatever assets or skills they have into another marketplace in a similar way for similar but different customers – or so they can sell more to their existing customers.
SmallBizLady: Can any business generate multiple streams of income?
Joel G. Block: Most businesses can generate multiple streams of income, but it requires creativity on the part of the proprietor or entrepreneur. The business itself is not the limitation. It’s only limited by the imagination of the people in charge.
SmallBizLady: Do you have an approach to create profit centers?
Joel G. Block: In business, a profit center is an area of your business that generates profit. Every activity that you participate in should be a profit center. Nothing should be a cost center. In other words, everything that you do should ultimately be for the purpose of making your business more money, and better off. If it’s not doing those two things, then it’s not a business activity, it’s probably more of a hobby.
SmallBizLady: So, how do you create profit centers?
Joel G. Block: First, you have to be a little creative. Let’s say that you were going on a business trip, and it costs money to fly to a certain destination to see one client. It might be valuable to set up another opportunity in a similar locality, so that you can take advantage of the fixed cost of the airplane, the hotel, and the food that all go along with travel, so that you can spread the cost of those fixed expenses across more than one opportunity, and potentially bring dollars into your company from more than one company, and end up doing business with multiple organizations.
SmallBizLady: How should one get started in building new profit centers or revenue streams?
Joel G. Block: First, you should assess the assets that you have and that means including the skills that you have as well. Once you have assessed your skills, then you can start to apply the skills and the assets such as intellectual property, the ideas, and the different customers that you have. You can begin to consider them for new applications.
SmallBizLady: What are some examples of different streams of income?
Joel G. Block: We refer to different streams of income in a business as a Revenue Octopus™. We generally think that businesses should have as many as eight different revenue streams flowing into them and again, they’re not different businesses, they are examples of different services inside the same business that are rendered to the same or similar customers. For example, a real estate company might offer brokerage services, they might offer leasing services. They might offer property management services, they might offer lending services. So those would be four good examples for a real estate company. They also, if they have a property management department, might offer maintenance and repair services as well as other services that are relevant in their community such as negotiating tax discounts with the authorities, they might have an entitlement department where they get permits for a new building, etc.
SmallBizLady: Are there any disadvantages to managing multiple income streams?
Joel G. Block: There’s not a lot of disadvantage as long as you build the revenue streams in a good way that is sustainable, and you don’t do it too fast. If you get the first revenue stream going in your business and then you launch the next revenue stream after the first one has begun to take hold, then you’ll be able to focus a good amount of attention on the second one, as you had already done on the first one. And keeping them going is much easier than starting them from scratch, so once the second one is going then you can launch the third one and so on.
SmallBizLady: Is it best primarily to focus on income streams that can expand your business?
Joel G. Block: There are different philosophies about how to expand and grow your business. One of the best ways is to go deep with your existing customers by offering them additional related services that you know that they are going to want and need. Another way to expand your business is to find new customers and a strong business is going to survive because they both grow with new customers and go deep with the existing customers that they have. The Revenue Octopus™ strategy allows you to do both. Grow your business by going deep and by offering goods and services to new customers who find value in your company.
SmallBizLady: Do you have a favorite type of additional business income that has worked well for your business?
Joel G. Block: Every business is different, so a favorite that I have would apply to the businesses that I have been in and I have been in the real estate and venture capital hedge fund businesses for most of my career. We have a well-defined Revenue Octopus™ for our hedge fund and I had a good one for the venture capital business when I was in that space, but every business can have multiple streams of revenue to go both deep with existing customers and offer a variety of applications or shades of gray in the product offerings to many customers that want to do business with your firm.
SmallBizLady: What is the best advice you can give someone who’s about to do this?
Joel G. Block: Think carefully about your assets including your skills, your intellectual property, your customer base and everything that you have so you can come up with new ideas and new ways to serve them. Ask hard questions, such as what do my customers need? What is it that my customers want that I’m not currently providing to them? How can I do more business with my existing customers? Where are the people who need my services that I have not yet found? And by asking those great questions, most of the answers to most of the issues that you have will bubble up to the surface, so you can address them.
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