Sailing directly downwind—with the wind at your back—is the most exhilarating point of sail, but also the most risky. A slight wind shift can send the boom crashing from one side of the boat to the other in an accidental jibe. The force exerted by the boom as it slams across the boat is enough to knock crew overboard, snap the boom off the mast or dismast the rig. Things can go from exhilarating to catastrophic in seconds.
In business, brisk sales all headed in one direction—from one product or from one main customer—is riskiest, too. One false move or a rapid shift in environment and something breaks.
When a majority of your revenue comes from one customer, the loss of that customer will put your business underwater. If you are a one-product company and your product is no longer relevant because another company offers one that is better, cheaper or faster, you’ll surely be in trouble.
Avoid relying too much on one resource or one line of effort. If one customer is buying all the products you produce, in addition to taking excellent care of that customer to reduce the risk of losing your one key customer, redouble your sales efforts to other customers.
What may be less obvious is a reliance or focus on only one industry. If you exclusively supply the auto industry, for example, and the UAW calls a strike, your ability to generate revenue will be reduced or eliminated until the strike is over and production is ramped up. Any disruption to the single market or industry you serve will negatively impact your business.
Though you may be knowledgeable of and comfortable with one industry, figure out how your product or service can benefit clients in another industry. The solution: the same advice your broker gives for your 401(k)—diversification. Reduce your exposure to market collapse by diversifying your client-base and your markets.
The same holds true when you maintain a single source for your inventory or raw materials. Disruptions to your supply chain can have a devastating effect on your business. Establish relationships with multiple suppliers for inventory, business services and raw materials to protect your supply chain.
Are you enjoying the ride and ignoring the risk? Please share your comments.
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