Our local Pioneer Press offers a well-written story titled IT PAYS TO THINK SMALL. The article chronicles the up-and-down nature of starting a business from scratch. The piece that caught my attention was how this company, which makes wax-dipped pine cones for burning, grew almost overnight thanks to orders from Target, Wal Mart and Sam’s Club. But that growth came with a significant problem.
The sales spike, though, concealed a weakness: The couple’s business was a one-product wonder. A seasonal product, at that. And its sales growth had been fueled by three big customers.
Talk about over-leveraged. The allure of one big customer is enticing to a young, growing business. I give these owners credit because they knew they had to diversify their offering and expand their customer base. They moved away from the large retailers and expanded into specialty, small retailers and their business has taken off again.
We used to work with a company that received over 75% of its revenue from one customer. This is a large company with many employees yet they have been struggling to expand their revenue stream.
This is a good lesson for any small company (including us). The strongest foundation is one that derives revenue from a diverse customer base.