Concentration and Diversification

DiversificationFinance and entrepreneurship frequently go hand in hand. A business owner either learns how to manage and monitor the financial health and key metrics of her business, or the business goes away. Frequently the entrepreneur is CEO and CFO of the enterprise (among the many hats worn). Understanding revenue, cost containment, balance sheet strength, capital investment, returns on invested capital, etc are the very language of business.

Anyone that has taken a finance class – heck, anyone who has ever read or heard about the key topics of finance – hears about diversification early on. A financial portfolio should be diversified, right? It follows that concentration, on the other hand, is bad. Don’t put all of your eggs in one basket!

And it is on this point that core concepts of finance, and entrepreneurship differ – and significantly. The entrepreneur must focus and must concentrate his resources – financial and otherwise – on the business, or the enterprise either flails or fails. Concentration builds wealth, and diversification preserves it.   Where are you on this spectrum? Are you diversifying your fledgling business and starving it of the resources and energy it requires to be a success?

 

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