The Best Time to Diversify

When is the best time to diversify your production?

Professional, investing and business success are sometimes well-served by adopting a contrarian philosophy. A contrarian takes a position opposite to that of the majority, or works against conventional wisdom. They zig when the majority zags.

Moving Out of Step

Positioning yourself against the consensus opinion or prevalent trends requires a high degree of intestinal fortitude. Some will argue that our psychological well-being is rooted in social acceptance. Making a bold move against the group opens one to isolation and criticism. And you may also be fighting against your own personal fears or greed. And both are powerful motivators that make people act irrationally.

But, the underlying markets and production dynamics in food, fuel and fibre are cyclical. Given that, sustainable success usually requires repositioning yourself in anticipation of the episodic ups and downs. Buying when everyone else says ‘sell’, or stepping back when the crowd is jumping in. This can save you a great deal of emotional and financial pain when the market or production conditions inevitably change.

When you least think you need to…

A contrarian philosophy is reflected in my belief that the best time to diversify is when you least think it is needed. But why shift from a great market, when revenues are up and growing? Moving to diversify away from a business that is performing well reduces the risks of a market meltdown or production disruption. These perhaps also reflects cyclical weather, pest or other natural patterns. It is also often optimal from the perspective of having the resources to invest in researching and developing new ideas.

When things are going well you will have the profits and cash-flow to invest in new ventures or service debt. If you wait until your primary market has already turned, you can be scrambling to find resources to keep your business afloat. Let alone have funds invest in something new. Wait until the market has bottomed before you move, and you are largely reliant on outside help. That is, if any assistance comes at all.

Be Contrarian on Many Levels

A contrarian view on diversification functions on many levels. Be it for an individual, business, industry group or regional economy.

If you are among the employed, it can be advantageous to start planning a career shift while your employer is enjoying success. Some may even be willing to pay for your professional diversification path. But will not be keen to invest in you after a recession forces your lay off.

Industry groups often only get serious about diversifying at the bottom of their market cycles. This, when they should be making those moves before they hit a wall. For example, the North American lumber industry only looked seriously to Chinese markets after the US housing collapse. And most pulp producers are only now developing bioproducts and bioenergy options, after the paper markets have seriously eroded.

Governments and regional economies only seem to be engaged in large-scale diversification when their primary industries are faltering. And this often comes at the cost of deficit financing for support programs. It should occur when public treasuries are better positioned to help diversify the economy when the economy is booming and tax revenues are flowing in.

Move From a Position of Strength

There are no guaranteed paths to success. And diversification also come with their own risks (Diversify Don’t Diworseify). But the best time to invest in new products, services and markets is when you have the resources needed to commit to the process. And if you have no back up plans, the second best time is now.