How To Build a Diversified Portfolio

One of the most important factors in growing a healthy, stable business is minimizing your vulnerabilities. Yes, that can certainly encompass many areas and many specific things. But the common denominator among the most successful commercial lawn maintenance contractors is their portfolios, which is why they try to protect their “book of business” more than anything else. The single most effective way to do that is to make sure you have what we call a “diversified portfolio.”

Building a diversified portfolio of clients means that you are not too heavily weighted in any one sector or market segment. For example, if you care for 30 commercial properties, 20 of which are apartment complexes, you are not very diversified. In addition, you would be vulnerable to outside forces, some of which you might have absolutely no control over.

For instance, if property taxes start to skyrocket, or the Federal Government decides to raise capital gains taxes and/or eliminate many of the tax incentives for owning rental properties, guess what? Construction of new apartment buildings will likely slow, and owners of existing buildings could stop investing in capital improvements, or maybe even dump their buildings altogether. Roughly 66% of your business is now in severe jeopardy.

Things like this can happen in any market segment—even in a good economy.

So what should you do about it?

Start developing your well-balanced portfolio by conducting a comprehensive market study of your area. Break your market into five primary categories:

  • Commercial
  • Industrial
  • Multi-family (apartments, condos, etc.)
  • Retail
  • Office/Corporate

Use the phone book and internet search engines to find businesses in your area that fall into one of these five categories. Then you can begin the process of quantifying how many commercial properties there are in your area—by category. Work hard at marketing your services to the segments you feel you can grow in.

After you’ve banged out this comprehensive market study and initiated a marketing/sales effort, you’ll be well on your way to developing a more diversified portfolio that lessens your vulnerability to market forces that are beyond your control.

It will be nearly impossible to come up with 100% precise data. But you can take this common-sense approach to establish some core, fundamental numbers that will get you off to a good start.