Diversification Strategy
Professional Athletes differ from Amateur athletes because they get paid. Most of you are now thinking, ‘thanks for clearing that up, Einstein’. My point is that once an athlete starts to get paid, they need to change from a mindset of ‘just work hard and everything will take care of itself’, to the mindset of managing you and your ‘business’. As a professional athlete, you now need to take control of your ‘business’.
One of the things that successful professionals do is look at their business/career from a strategic perspective to understand the growth opportunities and to manage the risks. Let’s first discuss risks.
A quick online trip to our friend Wikipedia will tell us that:
‘Business risks implies uncertainty in profits or danger of loss and the events that could pose a risk due to some unforeseen events in future, which causes business to fail.’
Athletes inherently know their role on a team and in the sport, is uncertain most of the time and that there are numerous unforeseen events that could derail your career, both short term and long term. There are many tools and resources available to manage these ups and downs, but it is an indisputable fact that a career as a professional athlete is a short one.
To counter that inevitable risk, we should look at the career of a professional athlete as similar to running a business, where we know the service or product offered will have a short ‘shelf life’. A very basic strategy could be ‘make as much money as possible in a short period of time’. However, that is a basic and self-limiting strategy.
What I prefer and what we advocate here at Game Change is a well thought out strategy of sustainable performance. First, at the core of this strategy is playing a sport you love and leveraging the platform of the game to accomplish the following:
Build social capital (link to Social Capital article)
Obtain privileged insights
Positively impact communities
Create incredible life experiences and;
Make no mistake…get paid a lot of money, through your entire life.
And guess what, it really isn’t that hard to do as the opportunity is right there for professional athletes. So how do you execute on this strategy?
In business, there is something called ‘Diversification Strategy’. A strategic way for a business to grow, but also manage downside risk. I believe pro athletes must become familiar with this way of thinking.
Let’s talk about the positive side of a Diversification Strategy.
‘Diversification is a form of growth strategy. Growth strategies involve a significant increase in performance objectives (usually sales or market share) beyond past levels of performance.’
An athlete should always be growing- professionally and personally. And let’s be clear, personal growth is critical to performance. There is research to back it up (conveniently, we have it), your performance levels - on the playing surface- can be enhanced using this strategy.
Elite athletes inherently understand the importance of diversification. Most elite athletes grew up with balance. They diversified their activities to build an athletic base, enhance their skills, knowledge, social lives which allowed them to manage their physical and mental well being. But many of these ‘outside activities’ start to fade into the background as the athlete became closer to becoming a professional. And there may be a brief period of time in the early days of being a professional when you are ‘all in’ and narrowly focused to the extreme. But we strongly advocate that the time of being ‘all in’ should be relatively brief. In sports, as in business and even life, being too narrow is usually not a long-term ingredient for sustainable success.
As an athlete becomes more comfortable with life as a professional, we encourage them to start (or re-start) to diversify as a person. When an athlete begins to diversify as a person, they actually start to manage risks by uncovering new capabilities and competencies, new interests, knowledge and opportunities. That is a growth strategy.
Let’s review the different types of Diversification strategies and how they apply to Elite Athletes.
Concentric- adding related capabilities to current market
Horizontal- adding unrelated capabilities to current market and customers
Conglomerate/heterogenous - unrelated capabilities to a new market (career transition).
Professional athletes are very familiar with adapting and diversifying. A scorer in junior or minor hockey may not be a scorer at the NHL level so they need to adapt and diversify their skillset to stay in the league. This would an example of a Concentric Diversification strategy- adding or enhancing existing capabilities within a defined marketplace.
Of note, diverse, concentric abilities can be strategically sustainable- e.g. utility players or pitchers in baseball, sometimes have longer careers than position specific players. Having a diverse skill set can manage your downside risk as you don’t have all your eggs in a positional basket.
Adaptable athletes within the game can enjoy longer athletic careers, we can expand this for athletes looking to expand their lives outside the game, to leverage their brand in areas related to their sport. To use their status as pro athletes to penetrate new areas of personal interest and to build up their Social Capital. This would be an example of a horizontal diversification strategy. Offering capabilities to new people and markets. A simple, but dated, example is an equipment endorsement deal. What we are seeing now is pro athletes receiving equity (ownership) in return for lending their brand, not just cash. Furthermore, endorsing products that are closely aligned with their interests and/or values.
The third and final Diversification strategy is the ‘Conglomerate’ strategy- developing new capabilities in new markets. This is setting the table for transition as the athlete starts to engage in activities and pursuits outside of their sport and become a multi-faceted professional or ‘business’. This is the strategy we at Game Change work closely with our athletes on. Not only does this strategy prepare the athlete for transition, but it allows them to grow as a person, identify and capitalize on new opportunities while still playing and realize incredible performance on and off the playing surface. And leads to the holy grail of a strategy we have developed, called the Overlap Strategy.
This overlap strategy is a graduated combination of all three mentioned above. Essentially, the overlap strategy is intersecting all three strategies leading to an eventual transition out of sports.
The bottom line is, professional sports and careers in professional sport are loaded with ‘business’ risk. Diversification is a strategy that many of the most successful businesses and people, have adopted and succeeded with. It is something all professional athletes should consider.
Game Change was founded in 2011 to serve and enhance the athlete development needs of major professional and elite sport organizations and athletes. Game Change specializes in customized research and assessment services, the development of applied interventions and resources designed to provide long-term positive outcomes for organizations and individual athletes. Game Change believes strongly in sport as a catalyst for societal change and adheres to the philosophy of ‘changing the world one athlete at a time’.