Many businesses use profits from one area to subsidize losses or lower profits in another areas. For example, IKEA sells through retail outlets and online. IKEA also has many lines of products: kitchen and bath, storage, bedrooms furniture, etc. If IKEA is weak in one area, i.e. they’re not selling as many couches in Connecticut, they hedge their bets to sell more beds via broadband in Belgium. This is called diversification and it’s a smart bet for “Free Agents,” like me.
As a Free Agent, I have several, diverse income streams. I teach at a community college, consult with start-ups and artists on business planning, work at a coffee shop as a barrista, sell my art, and work at Next Generation Consulting. My income varies by job, from $8 to $100/hour.
I was recently facilitating a workshop for artists. The topic was Marketing. I illustrated that old cliche, “You have to spend money to make money,” using myself as an example. I had recently invested a good chunk of money ($3K) on my most recent art exhibit. I didn’t sell many pieces, and thus I had to cross-subsidize with other income. Bottom line: In the short-term I’ve had a net loss of $2K from the investment.
As you would expect, several artists in the workshop balked at my example. “I could never invest that kind of money,” they said. They sneered that I’m not really an artist, and pontificated that only because I’m a consultant could I spend that kind of money on my art.
It was clear that these artists were attending this workshop to learn how to make all their income from their art. They didn’t want to hear what I had to say about income diversification.
Of course, there are artists who make all of their income from their art sales alone. But like professional athletes, they are an elite subset of the greater population that consider themselves artists or athletes. Most artists would benefit from tearing a page from the entrepreneur’s Free Agent handbook and learn the value of diversification. Don’t put all your eggs in one basket. Mix it up, try new products and services, be in touch with your market, and offer better customer service.
Diversification, it turns out, doesn’t only work for IKEA. It works for Free Agents and artists, too.
