Business Buffet: Why Settle for One When You Can Have Multiple Revenue Streams?
Imagine walking into an all-you-can-eat buffet, where you have a variety of dishes at your disposal. Each dish offers a different flavour, texture, and nutritional benefit. You wouldn’t limit yourself to just one dish, would you? Definitely not me, especially in an Asian Buffet. Shoutout to my favourite by far in Berlin, Chikin…lol. Much like a buffet, business offers an array of opportunities to generate revenue. Limiting yourself to a single source of revenue can be just as imprudent as sticking to one dish at a buffet. You simply limit your potential.
“If you want to make a lot of money, look for passive revenue streams from multiple sources”. — Brandon Schaefer
The Source of Revenue: A River Analogy
There is an obvious truth that the source of a thing is where everything begins but is it something we hold to be true? Consider this analogy of a river. The source of a river is where the river begins. To digress a bit, I find it interesting how our financial system is on par with the river system. The river has a bank, and so does the financial system. The river has a current, and the financial system has currency. There are reservoirs for rivers and reserves (cash) in finance. Both systems are dynamic and rely on a continuous flow to thrive (cash flow in the case of a business). I might dedicate a whole write-up to exploring this corresponding phenomenon. Back to my analogy, a river, with its multiple tributaries, flows more robustly and sustains more life than a single, isolated stream. Similarly, in business, having multiple revenue streams ensures a steadier flow of income, protecting you against the unpredictable nature of the market. Diversification in revenue is like having various tributaries (in finance; tribute — tax) feeding into your main business river, ensuring its continuous and abundant flow.
Where a river flows, there is abundance — Nilotic Proverb
Value Creation: The Bedrock of Revenue
Here is another apparent truth to ponder: the beginning of a thing, and in this case, revenue, starts with its creation. And revenue creation is fundamentally about value creation. When a business generates revenue, it is essentially being rewarded for the value it provides to its customers. As the renowned management consultant Peter Drucker once said, “The purpose of business is to create and keep a customer.” Creating value for customers is the primary way businesses generate revenue, whether through products, services, or innovative solutions.
When people think of multiple revenue streams, what quickly comes to mind or the question asked is “How can we make more money?” Which is a good question but not the right one. It is said that the right questions hold the key to the right answers. So instead of “How do we make more money?”, I believe the focus should be on “What more value(s) can we create?” Now, this changes the dynamics.
Money: The Means of Showcasing Value
Let me explain. Money as we know it is limiting. Value, however, which money is, is limitless. The concept of money has a long and fascinating history. The word “money” itself has its roots in the Latin word “moneta,” which was the name of a temple of Juno in Rome where money was coined. Historically, money has taken many forms, from shells, cowries and beads to precious metals and paper currency. Today, it even exists in digital form. (More of that in another episode…lol).
Money is three things — it serves these three main purposes;
1. A Legal Tender; Money facilitates transactions by eliminating the inefficiencies of barter.
2. A Unit of Measure; Money provides a standard measurement of value, making it easier to compare the worth of goods and services.
3. A Store of Value; Money allows individuals and businesses to store wealth over time.
My emphasis is on the latter, a store of value. It is hard to capture value, yet, money helps us do so effortlessly. Therefore, money is just a means of showcasing value. Thus, when it comes to revenue, our focus must shift beyond just money as we know it, the fiat which is a legal tender or country currencies (dollars, pounds, etc.) which is a unit of measure, to the value aspect of it, making us unlock a whole hidden treasure.
What Value Creation Means and Tools for Creating Value
Value creation is the process of providing products, services, or experiences that meet the needs and desires of customers. It involves understanding what customers want, developing solutions that meet those needs, and delivering those solutions effectively. Some tools for creating value include market research, customer feedback, innovation, and continuous improvement.
There are twelve standard forms of economic value (A concept articulated in the book “The Personal MBA” by Josh Kaufman):
There are twelve standard forms of economic value:
1. Product: Tangible items sold to customers.
2. Service: Intangible actions or activities provided to customers.
3. Shared Resource: Assets shared among users, like Uber or Airbnb.
4. Subscription: Regular payments for continuous access to a product or service.
5. Resale: Buying goods to resell at a profit.
6. Lease: Renting out a product for a fee.
7. Agency: Providing a service on behalf of another party.
8. Audience Aggregation: Gathering an audience to sell access to others, like advertising platforms.
9. Loan: Lending money for interest.
10. Option: Giving the right, but not the obligation, to take some action.
11. Insurance: Protecting against risk in exchange for premiums.
12. Capital: Providing funding in exchange for equity or interest.
All these forms of economic value are streams that can be explored in creating multiple revenue streams. For instance, a product business in thinking of how to create multiple revenue streams, can consider moving to another form of economic value, say, service in relation to the product or form an agency connected to the product, or consider subscription, I’m sure you get the drift. There is also the angle of considering the value chain of the industry you find yourself and attempt to provide a solution or product from the chain that you easily have leverage. [Reach out for more insight on this. I have a proprietary value chain framework.]
Value Creation Process Framework
Creating value is at the heart of any successful business. It involves understanding customer needs, developing solutions that meet those needs, and delivering these solutions effectively. Here’s a framework to guide the value-creation process:
1. Understand Customer Needs
- Conduct market research
- Gather and analyze customer feedback
- Identify pain points and desires
2. Develop Solutions
- Innovate products, services, or experiences
- Ensure solutions meet identified needs
- Focus on quality and usability
3. Deliver Effectively
- Optimize production and delivery processes
- Ensure timely and efficient distribution
- Provide excellent customer service
4. Measure and Improve
- Collect data on performance and customer satisfaction
- Analyze results to identify areas for improvement
- Continuously refine and enhance offerings
5. Communicate Value
- Clearly articulate the benefits to customers
- Use effective marketing and branding strategies
- Build strong relationships and trust with customers
Tools for Value Creation
1. Market Research: Understand the market and customer demographics.
2. Customer Feedback: Direct input to improve offerings.
3. Innovation: Develop new and improved solutions.
4. Continuous Improvement: Ongoing enhancements based on performance data.
5. Marketing and Branding: Communicate and promote the value effectively.
Here are a few subject areas that are relevant to the theme of multiple streams of revenue:
Revenue vs Income
If you have noticed, I have intentionally avoided using the word Income throughout the write-up till now. Just because Revenue and Income (streams) are mostly used interchangeably but are not the same. Revenue is the total amount of money a business earns from its operations before any expenses are deducted. Income, on the other hand, is what remains after all expenses, taxes, and costs are subtracted from the revenue. In essence, revenue is the top line, and income is the bottom line. Making the concept of revenue stream somewhat different form income stream.
Income Streams
An income stream is a source of regular income. It can come from various activities or investments, such as a salary from a job, dividends from stocks, rental income from property, or profits from a business, side hustle or freelance gigs. Diversifying income streams is crucial for financial stability and growth.
“Never depend on a single income. Make an investment to create a second source.” — Warren Buffett
Here are seven common types of income streams that individuals and businesses can cultivate:
1. Earned Income
Earned income is the money you make from working actively. This includes salaries, wages, tips, and commissions. It’s the most common form of income and typically involves trading time for money. Examples include:
- Salaries and Wages: Regular payments for employment.
- Freelance Work: Income from independent contract work or gigs.
- Commissions: Earnings based on sales performance.
2. Profit Income
Profit income is the money earned from buying and selling goods or services at a profit. This is a primary income stream for businesses and entrepreneurs. Examples include:
- Retail Sales: Selling products directly to consumers.
- Service Fees: Charging for professional services like consulting or coaching.
- Flipping: Buying items at a lower cost and selling them for a higher price.
3. Interest Income
Interest income is money earned from lending your money to others. This can be through various financial instruments, including:
- Savings Accounts: Interest paid by banks for keeping your money.
- Bonds: Earnings from government or corporate bonds.
- Peer-to-Peer Lending: Interest from personal loans made to individuals or small businesses through online platforms.
4. Dividend Income
Dividend income is the money received from owning shares in a company. Companies distribute a portion of their profits to shareholders as dividends. Examples include:
- Stock Dividends: Regular payments from shares of publicly traded companies.
- Mutual Funds: Earnings from dividends distributed by investment funds.
- REITs (Real Estate Investment Trusts): Dividends from real estate investments.
5. Rental Income
Rental income is money earned from renting out property or assets. This is a popular income stream for real estate investors. Examples include:
- Real Estate Rentals: Income from leasing residential or commercial properties.
- Equipment Rentals: Earnings from renting out machinery or tools.
- Vacation Rentals: Income from short-term rentals like Airbnb.
6. Capital Gains
Capital gains are profits made from selling investments or assets for more than their purchase price. This can be a significant income stream for investors. Examples include:
- Stock Market: Selling shares of stock at a higher price than you paid.
- Real Estate Sales: Profits from selling property.
- Business Sales: Earnings from selling a business.
7. Royalty Income
Royalty income is money earned from intellectual property or natural resources. This includes payments for the use of your creations or property. Examples include:
- Book Royalties: Payments to authors for each copy of their book sold.
- Patent Royalties: Earnings from licensing inventions or patents.
- Music Royalties: Payments to musicians or songwriters when their music is used or performed.
Understanding and leveraging these diverse income streams can significantly enhance financial stability and growth. Just like a diversified investment portfolio, multiple income streams help mitigate risk and provide a more resilient financial foundation.
There are more things I would like to bring to your attention.
Let’s just call it my rant!
1. Side Hustle, Freelance vs Entrepreneurship
A side hustle (business) is not entrepreneurship. A side hustle is typically a secondary job or business that someone pursues in addition to their primary occupation. It often starts as a way to earn extra income or explore a passion project. Entrepreneurship, however, involves starting and running a business with the intention of making it a primary source of income. Entrepreneurs take on more risk and invest more time and resources into their ventures compared to those with side hustles. But note that the difference really has to do with the positioning, one requires all your effort (full-time attention) while the other can be done juggling other jobs. So you can have an E-Commerce business as both an side-hustle or an entrepreneurial venture depending on your dedication.
Side Hustle:
- Definition: A secondary job or business pursued alongside a primary job.
- Characteristics: Provides supplemental income, flexible, passion-driven, limited commitment.
- Examples: Selling crafts online, driving for ride-sharing, blogging, teaching.
Freelance:
- Definition: Offering services on a project or contract basis, self-employed.
- Characteristics: Project-based work, multiple clients, autonomy, income variability.
- Examples: Graphic design, writing, consulting, photography.
Entrepreneurship:
- Definition: Creating and running a new business venture with growth and scalability goals.
- Characteristics: Full business ownership, innovation-focused, scalable, high commitment, high risk and reward.
- Examples: Starting a tech startup, opening a retail store, developing a new product, launching an online platform.
Comparison:
- Time Commitment: Side Hustle (low to moderate), Freelance (moderate), Entrepreneurship (high).
- Risk: Side Hustle (low), Freelance (moderate), Entrepreneurship (high).
- Control: Side Hustle (limited), Freelance (high), Entrepreneurship (very high).
- Income Potential: Side Hustle (supplementary), Freelance (variable, potentially high), Entrepreneurship (high, but with significant risk).
2. Passive Income and Passive Investment
Passive income is often misunderstood. The idea of earning money with little to no effort sounds appealing, but it is just a trojan horse (Lies! Neigh!!!). True passive income still requires some level of investment and oversight. For example, rental properties can provide passive income, but they still require management and maintenance.
On the other hand, passive investment suggests that one can invest money and forget about it, expecting returns without any further involvement. This notion is misleading. The term “investment” implies commitment and engagement. A truly successful investment requires monitoring, research, and sometimes intervention to maximize returns. Therefore, the concept of passive investment contradicts the very nature of investment, which is about being “in-vested” and actively involved. So all I’m saying is beware of anything passive especially when you have no clear idea of where labour is being exerted or work is being performed. Here are some popular examples:
- Dividend Stocks: Earn regular dividends from investing in profitable companies.
- Real Estate Rentals: Generate rental income from properties, especially with property management.
- Peer-to-Peer Lending: Lend money through platforms and earn interest.
- High-Yield Savings Accounts and CDs: Receive interest from low-risk deposits.
- Royalties from Intellectual Property: Earn from licensing books, music, patents, etc.
- Affiliate Marketing: Promote products and earn commissions on sales through referral links.
- Automated Online Businesses: Sell digital products or services online with minimal effort.
- Index Funds and ETFs: Invest in funds that track market indices for dividends and appreciation.
- Real Estate Investment Trusts (REITs): Invest in real estate without owning property and earn dividends.
- Blogging and YouTube: Monetize content through ads, sponsorships, and affiliate marketing.
- Automated Drop-shipping Businesses: Sell products online without holding inventory.
- Vending Machines: Place vending machines for passive income with minimal maintenance.
- Mobile Apps: Develop an app and earn from in-app purchases, subscriptions, or ads.
- Print on Demand: Design and sell custom products online without inventory.
- Silent Partnerships: Invest in businesses and earn a share of profits without active involvement.
3. MLM as a Strategy for Sales
Multi-level marketing (MLM) is a strategy where salespeople earn money not only from their sales but also from the sales made by the people they recruit. This creates multiple levels of compensation. MLM has a controversial history, with some viewing it as a legitimate business model and others as a pyramid scheme.
The concept of MLM dates back to the 1920s with the California Vitamin Company (later known as Nutrilite). The model gained popularity in the 1950s with companies like Amway. The success in MLM often depends on the ability to recruit and build a large network, with those at the top of the pyramid typically earning the most. The most successful participants are usually those who initiate and expand their sales networks early. So know that MLM is not a business but a sales strategy for a business to sell more products. And so if you’re compelled to buy a product, then you’re in a sort of a pump and dump scheme for the product. You are the customer (anything you buy the product to sell) and not the partner as some make you believe. So just make sure you’re certain and aware that you are being used as a salesperson. And if you’re okay with that… excellent! Sell away!
Book Recommendations about the Topic
1. “Multiple Streams of Income” by Robert G. Allen — This book provides practical strategies for generating multiple sources of income.
2. “The Millionaire Fastlane” by MJ DeMarco — DeMarco discusses how to build wealth through multiple revenue streams and entrepreneurial ventures.
3. “Rich Dad Poor Dad” by Robert T. Kiyosaki — Kiyosaki emphasizes the importance of having multiple income streams for financial independence.
4. Revenue Growth Generation: Four Proven Strategies — Lean Principles Applied to Growth Companies and Startups by Josemaria Siota, Luiz Zorzella proposes a new solution called the Growth-Canvas©. This is an actionable framework, which includes four proven strategies to achieve compelling growth opportunities through lean principles, to maximize the growth learning and minimize the investment, time and risk.
5. Side Hustle: From Idea to Income in 27 Days Book by Chris Guillebeau offers a step-by-step guide that takes you from idea to income in just 27 days.
Finding All the Puzzle Pieces
I leave you with the remarkable story of a man widely considered the Master of Multiple Revenue Streams. He is no other person that the Sir Richard Branson. Confession; this is the man that made me realize that it is possible to own more than one business as an individual (a story for another day). Many people may know him for his popular 3 streams of revenue;
Stream One: Virgin Records; Branson started with Virgin Records, a hugely successful music label.
Stream Two: Virgin Atlantic; He then launched Virgin Atlantic, a customer-focused airline, creating a new revenue stream.
Stream Three: Virgin Galactic; Venturing into space tourism, Branson founded Virgin Galactic, aiming to make commercial space travel a reality.
But what you may not know is that Sir Richard Branson has had success with over 400 companies (and some failures which he isn’t shy to mention in some of his books — Like a Virgin, Losing my Virginity, Business Stripped Bare, The Virgin way and many others). His accomplishments demonstrate the power of multiple revenue streams and the importance of seizing every opportunity.
“Business opportunities are like buses, there’s always another one coming.” — Richard Branson
And when the opportunities do come, or when you create them, use what you have as value to generate revenue but don’t stop there. Once you’ve created a working system for revenue generation, seek to expand it and in your expansion, think of more value offerings than money-making schemes because value is limitless.
By diversifying your revenue streams, like filling your plate with different foods, you can enjoy a well-rounded, satisfying, richer, and more fulfilling business experience which consequently contributes to your overall financial health and stability. Remember, the goal is to create value, and in doing so, the revenue will follow. And once the revenue comes, just like enjoying a variety of dishes at a buffet, why settle for one when you can have many?
PS: I hate to break it to you, but relying on just one revenue stream is like trying to make a puzzle with only one piece — good luck with that! You might feel comfortable now, but guess who is knocking…reality! So, roll up your sleeves, add more pieces to your puzzle, and embrace the joy that comes from a gushing flow of more revenue streams.
