When growing your business, don't rely on one big client

By Bud Gayhart

As the calendar shifts from 2008 to 2009, we can look back on a year that brought challenges and changes to your business.

For many entrepreneurs, 2008 will be a year best forgotten, stuffed into a closet, erased from memory. If your business concentrated on the housing market or the auto industry, you probably saw sales revenues drop or disappear altogether.

The events of 2008 certainly should have made every entrepreneur aware of the need to diversify their clients and markets.

Last year, I met with the general manager of a business that was a third-tier supplier to the automotive industry. With the closing of the GM factory in Janesville, the business was faced with the loss of 98 percent of its annual revenue. Just one customer accounted for that 98 percent of sales.

While this is an extreme example, many business owners allow customers to become too much of their revenue stream. No customer should account for more than 20 percent of your business, and 15 percent of revenue would be a better target. So if your best customer(s) sends you more business and becomes a significant portion of your revenue, what should you do?

It’s easy to take more orders from your best customer and sometimes companies will begin to turn away smaller customers so they can meet the requirements of the "big dog." The challenge is to proactively seek new customers to balance your business and prevent one customer from dominating the business.

You should also take the same approach to diversify into multiple market sectors. The example of the tier-three automotive supplier I cited demonstrates the danger of having one very large customer.

All businesses need to periodically evaluate their mix of business, both by customer and by market sector to provide the diversification necessary to smooth sales cycles and sustain the enterprise through difficult times. For the automotive supplier I met with, we developed a plan that would gain the business entry into other markets including medical devices, consumer goods, agricultural industries, marine products, heavy equipment manufacturing and other market sectors. We evaluated the client’s capabilities and then targeted the new industries.

You can, and should, conduct a similar analysis to grow your business.

Our office has conducted market/client diversification studies for more than 50 companies and we have seen more than 40 of those businesses successfully gain orders that will help these companies well into the future.

It’s a new year and you have the ability to make it a great year. It will not be a simple process to diversify and grow into new business sectors, but if you make this investment in your business, you will be rewarded. Take time to calculate where your revenues are coming from:

-- What markets provide the greatest sales?

-- Which customers are the largest?

-- What percentage of your business comes from these markets and customers?

Armed with this information, you can now develop a diversification strategy both for markets and customers. Let’s make 2009 the year of change that positions your business for growth and sustains it for the future.

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