2nd May 2019
A Diversity Policy For Small Business
A diverse client or customer base is important for most businesses, but particularly for SMEs. It’s a way of ensuring that your survival (or at least, your cashflow) is not reliant on the whims of one or two clients.
When you start your business you may have only a few clients – or even just one. That’s fine, but you need to widen the net as soon as possible. Who knows how long a single client will stay with you, or even stay in business themselves?
There was a cautionary tale a few years ago in the collapse of Zavvi, which was the rebranded Virgin Megastores group. They relied heavily on Woolworths to supply their stock. When Woolworths went into administration in November 2008, Zavvi’s supplies dried up, and they too were in administration a month later.
It’s easy for a big new client to unbalance your business. If the relationship goes well, and they give you more and more business, you certainly don’t want to say no. But how much is too much? What if they come to provide 30% of your income? What about 50%?
The risks are obvious. The client might go under. There might be a change of management. You might just fall out with them. Any of these events would be a disaster if they have come to provide a large chunk of your revenue. The client could turn off the tap of new work, and suddenly leave you with a big hole in your balance sheet.
Would you also find that by then you had turned away other work simply to keep up with the new client’s demands? That former clients had now gone elsewhere, and won’t return your calls?
Another problem for SMEs is being over-exposed to a single market, whether just one location, or one sector or industry. This is harder to solve because the business will often have started in order to service that market. What’s wrong with finding a niche and sticking with it? But what’s good for a new business does not work so well for a business that wants to survive in the long term.
The solution to this over-exposure is, in a word, diversification. The ideal situation is to have a large number of clients, spread across different locations, different sectors, and even different stages of their lifecycle.