Is Your Business Adequately Diversified?
Is your business adequately diversified? Relying on too few customers, vendors, or key employees can leave you open to risks that can be catastrophic. Here’s what to consider.
Customers. Do you depend on just a few customers for the majority of your sales? What will happen to your business if your largest customer requests a major price reduction, starts buying from your competitor, or is bought out? Even if your company sells to many customers, you aren’t adequately diversified if most of them are in the same industry. This is known as concentration risk. Reduce it by targeting customers in different industries.
Vendors. How many suppliers do you rely on for the smooth operation of your business? Do you have a backup option if a key vendor raises prices, can’t provide enough product, or goes out of business?
Employees. Do you count on the skills and reliability of one key second-in-command person? What would happen if that individual suffered a family emergency and had to leave unexpectedly? Sharing information and allocating responsibilities among employees can keep the work flowing.
When your business is new, diversification may be difficult. But putting a plan in place to reduce your vulnerability to manageable risks is essential for your long-term success.