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Are Your Eggs All In One Basket?
| Guest post by: MIchael Daley |
Article Overview: From a business perspective, diversification stems from spreading sales across multiple product lines with several suppliers, and marketing to varying geographies. Small business owners whose net worth is concentrated in operations that consist of a small basket of product offerings or regional exposure must also prudently manage risk.
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Are Your Eggs All In One Basket?
Many small business owners share one problem, especially in their early days. It's being overly reliant on a single customer or supplier for much of their business. If you are in that position, your business is operating with higher risk. Just as with investments, you don't want to put all your eggs in one basket. Your goal should be a well-diversified portfolio of customers and suppliers.
That's in an ideal world. In the real world, you may have to live with the situation, at least short term. But there are steps you can take to understand your risk and, over time, to change it.
Measure the problem
Work with your managers and accountant to quantify how your sales break out by customer. You only need to do this for the top five or ten customers to see whether you have an over dependency problem. If you are a manufacturer or retailer, take a similar look at your principal suppliers. Quantify how dependent you are on the top few.
Understand the risks
List the factors that could jeopardize your business with your chief customer or supplier. These will vary with your specific circumstances. They might include a natural disaster that interrupts your customer's business or that prevents you from shipping or receiving goods. It could be a change in the marketplace or a new technology that cuts demand for your product. It could be actions by your competitors. It might even be problems in your own operation, such as a drop in quality, delays in shipping, or poor inventory control. The list may be daunting, but until you understand the risks, you can't develop solutions.
Look for ways to minimize risk
Brainstorm with your managers on long term steps to reduce such risk. It might be to enter new markets or to tweak your product design. Think through contingency plans to address possible disasters or find alternative suppliers. Discuss how you would respond to changes in the marketplace. Try to set measurable goals for change and clearly assign responsibility.
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Article Tags: business owners, diversification, risk, small business, suppliers
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About the Author: MIchael Daley RSS for MIchael's articles - Visit MIchael's website Click here to visit MIchael's website   General Ideas on Expense Management Business Networking How to build your value through relationships Versatility The Door to Opportunity Speedy and Intuitive Navigation is Critical for a Successful Website A Years Worth of Holiday Promotions for Your Business |
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