The world has changed. Terrorism, natural disaster, and global financial chaos. The last decade has been a wake-up call to anyone that runs a business. To be successful, or even to survive, expect the unexpected.
How can a business increase its chances of survival and reduce exposure to one catastrophic business occurrence?
1. Don’t get too dependent on one customer. When a business has a very large, profitable customer, it’s easy for that one customer to become virtually the entire business. Many companies, even large ones can become totally dependant on being a supplier to a local customer – such as an automobile manufacturing plant. What happens when that big business gets bought out or moves away? This also applies to self-employed consultants or contractors who become used to doing a huge majority of their work for just one big business.
Be aware of the exposure that one customer creates. But while earning a good income from that one customer, there are two choices: grow a business and diversify the customer base or start putting away substantial sums of money in case that customer disappears.
2. Don’t get too dependent on one supplier. Having a single supplier has many advantages. It makes for a close business relationship, easy record management, simplified bill processing and often preferential treatment. There is also a down side. If a business depends on one supplier – whether for a product that is re-sold or raw materials that are needed to manufacture another product, business risk is significant. Any change to a suppliers wellbeing spells disaster. If the supplier fails, a small business that relies on it may not be able to receive necessary materials to continue selling themselves.
3. Don’t depend on one revenue stream. If more that 70% of business revenue comes from one product or service, it may be time to start developing additional products or services. It is a good idea to ensure that any new products or services are complementary. That means not having to recreate a totally new business. For instance, a business that makes organic dog food may want to start making organic cat food or other dog-related products. When a business is dependent on one product or service it becomes vulnerable to competition.
4. Don’t depend on a single distribution channel. Its easy to fall into the position where a business has a single distributor, or even one method of selling. After all, if it works there is no compelling reason to change. The problem with this approach is that what works today, may not work tomorrow and it is not easy to start a whole new distribution or sales channel overnight – especially for a small business. Consider the impact of a distributor being bought over by a competitor. Or even a change to the law that prevents cold calling by a business that relies solely on that method of sales.
Careful diversification is a strategy for business survival. Certainly, you need to build one business at a time and stay focused. When you “don’t put all your eggs in one basket,” you’re better able to survive the unexpected, even the truly tragic, events your business may face.
