I’ve often spoken about the importance of diversification when it comes to your investments. In case you missed it, diversification is an essential way to reduce your risk and avoid having all of your eggs in one basket. If you haven’t already diversified your investments, start doing it now.
Ultimately, diversification isn’t only important when it comes to investing though. Many people solely think of this term when it comes to investment portfolios, but concentrated risk can apply to many other areas in business. That’s why a common entrepreneurial mistake you need to avoid is having a concentrated client base.
Why is this a common entrepreneurial mistake you need to avoid?
As entrepreneurs, we’re naturally optimists. So when a huge customer presents him/herself, it’s tempting to build that new revenue into our business plans as a given and start moving forward accordingly.
While more revenue is a good thing, the cold hard truth is that customers can be fickle. Just like a stock, there are no guarantees that a customer will continually provide you the same returns, or even any money at all. Customers have their own money problems, cheaper competitors can arise; almost anything in this unpredictable life can cause a customer to get cold feet.
Having a small concentrated customer base can not only lead to disappointment, but can prove incredibly costly. For instance, if you had a new office space and staff dependent on two huge customers, that could mean bankruptcy of your firm if those customers suddenly vanished.
How can you avoid this common entrepreneurial mistake?
Even if you’re not dependent on one or two customers, we could all benefit from a little more diversification. Just like everything else, you need a plan to pull this off – instead of solely focusing on bringing in new revenue, you can and should tie customer metrics in. For instance, for every 200 new purchases, you could aim to bring in a new customer as well.
Every business is unique, but further diversification beyond just “more customers” can also prove immensely beneficial. If your customers are all baby boomers for example, focusing on millennials as well opens the door for new revenue streams and reduces risk.
If you enjoyed this article, you can find more entrepreneurial advice in my column for Inc. and my latest project, Love The Hustle.