Socien's Blog

When I think of diversifying to increase my revenue I first give myself a “what” sort of system I must create. Big established giants have a system that utilises their diversification approaches—I give an example of Amazon and Netflix. To have movies on their streaming platforms both giants first relied on being supplied by big motion picture companies in Hollywood like Disney.

Soon these motion picture companies launched their streaming services. Paramount Pictures launched Paramount+. Disney pulled all their movies out of Netflix at once and launched Disney+. Under Disney’s ownership there are quite competitive motion picture companies like 20th Century Fox Studios, Pixar, Marvel Studios and Lucas Film. There was no way Netflix was going to survive this mutiny. Lucky they had already stepped into film production themselves. Amazon expanded their empire acquiring Metro Goldwin Meyer, such a minor thing to do as one of the few trillion dollar companies so far on Planet Earth.

The next question question I would ask myself if “how” do I want that system to work. The how part goes to the first idea I had before diversifying. Initially having started out writing assignments and dissertations for lazy student out there I expand into being a vendor for mobile service scratch cards. I am not giving up assignment, no. In fact, profits, little they may be, out of selling scratch cards can supply my assignment writing hustle. If I need mobile data (because I can’t afford even the cheapest wifi subscription and equipment) I easily get any number of gigabytes I want plus lunch and a ticket into the library.

Diversification should serve to make my work easier not to pull my resources apart. It must future-proof my main line of business and help it withstand competition along with failing and rebelling suppliers. A rebelling supplier is even worse. Because before the rebellion I don’t get to see the signs that supply will be disputed in the future. It’s just Disney launching their Disney+ and pulling off all titles under them from the Netflix library.

Sometimes it may be cheap to diversity as a measure to supply yourself with a certain input than to rely on a third-party supplier. If, for example, you are an organic horticulturist you may find it expensive to buy manure from other farmers than when you expand into animal husbandry. After you do expand into animal husbandry you find out the a legume which you schedules to feature in your greenhouses is rich in protein and is cheap source of feed for your pigs.

When we start a new business under us as a company we are giving a lot of intellectual inheritance even if we give an entirely different and independent administration. We have three choices each time we diversify. We chose between (I) making the new business a supplier of our main and predominant line (II) making new business entirely independent and giving it it’s own capital, factories, philosophy and so so on and (III) making your old and predominant business a supplier and a minor to our new expansion efforts, or eventually discontinue it. The third choice is hard to make because it means giving up on your seed bed.

In the 1980s Intel gave up on their memory business because Japanese companies like Toshiba were on the rise, delivering to the market the same product cheaper and efficient. Intel’s new business of microprocessors now had to be supplied by years of intellectual property and work ethics behind. I believe that years in business and the intellectual property you have accumulated are part of your supply chain. In this case diversifying does not always mean you will keep the old and underperforming burdens alive. Sometimes you have to kill them and move to your next chapter.

The changing face of the automotive vehicle industry

Legacy car manufacturers include Ford and Toyota, those that have over fifty years of experience in the industry. They woke up one day in 2021 to hear the news of a new kid in the bloc who had made it to a trillion dollar market cap status. That kid is Tesla which, as of one point in June 2024, had market cap above $600 billion. That figure being enough take what’s worth the combination of Toyota ($199 billion), Porsche ($115 billion), BYD (98 billion), Mercedes Benz ($84 billion), BMW ($75 billion) and Volkswagen ($74 billion) at that point. Stellantis (a parent company for Jeep, Fiat, RAM, Opel, Peugeot, Messarati and DS Mobiles) and Ford where nowhere close to the top five. What had gone wrong for such coup to happen.

It compete with Tesla, legacy car manufacturers had to migrate to electric vehicles. This new playing ground now required a challenging supplying chain, intellectual property they never invested, software, electric motors and battery packs. Those of the legacy manufacturers who accepted the challenge saw Tesla as their enemy and competed for the high end segment and failed, leaving BYD a Chinese Electric Vehicle maker to sell in the entry level all the way to developing markets.

But if your are to investigate closely on BYD you would find that they followed my third diversification model. They Made their old and predominant business (batteries) a supplier and a minor to their new expansion efforts (Electric Vehicles).

Elon Musk, is himself good at programming software. He founded what’s now Pay Pal. The lines of codes involved where a great part of his initial efforts. Although he can not spend his time as part of the software team, he is a better involved CEO behind any software development for a premium EV.

BYD just like Tesla have had incredible investments in renewable energy. The Chinese company started off in the 1990s manufacturing storage units for electricity in the 2000s, a thing which Tesla did after a headstart in the EV segment. Over the years it mastered cheap mass production of storage units before moving into EV business. These two giants diversified into EV production after securing all the ingredients to their success not the other way round as did the legacy car manufacturers.