all your eggs in one basket

[huggytree]

my friends company will be out of business in 9 months....they have been given 1 years notice that their largest customer is moving to a new supplier(somehow they had the 1 year notice in their contract)..

whats the percentage of business that this one customer brings to his business?? 80 percent

his whole company is built around ONE customer....i find that absolutely CRAZY

He makes some part for sewage plants...the large customer owns 75 percent of the market....so there is no where to go

this customer asked for 25 percent price reduction...to which he said NOOOOO

i told him he should have tried to give them a price break of some sort...definately not 25 percent, but maybe 5 percent reduction and maybe a 1-2 year price freeze....something to show your trying to work with them....its a slippery slope, but by not giving an inch he has now lost his business. he has 9 months to downsize or get into a similar/different product to manufacturer...

i have ridgid rules for how i run my company....i give in and break them slightly once in a while....by being too ridgid i think it hurt him....if all my business was from 1 customer i dont think id sleep at night

any of you have these issues?

[ParaTed2k]

Investment advisors constantly preach "diversity" when it comes to our investment portfolios. Yet when it comes to regular income we get "a" job, or start "a" business. Either way, we are "putting all our eggs in one basket". The name of the financial freedom game is "multiple streams of income". Your friend not only put their eggs in the one basket of the business (at least from the information you provided, but put that basket in one basket. They might as well have been employed by that water treatment plant.

[vangogh]

Diversity in customers/clients is very important for exactly the reason your friend's business is now suffering. When 80 percent of your business comes from one person or business then you don't have a client you have a boss.

[billbenson]

It sounds like Huggy's friend had a relationship with the sewage plant and made a custom part for them. It further sounds like somebody else figured that out and could manufacturer and sell it for less. Maybe personel at the plant changed and huggy's friend no longer was the buyer?

If that is at least partially true, its not a bad way to get started in business, but he should have found additional customers or parts to supply. It also sounds like he was selling only to one local sewage company. Thats the sort of market he probably should have taken nationally

[huggytree]

its a company which Builds and Maintains Sewage plants...not just 1 sewage plant....its parts used all over the USA

the company was bought out a few years ago, so the new owners are looking to save $$...and of course China or Mexico can do it cheaper..they can build anything cheaper

do they build Anything better though?

[billbenson]

I know for a fact that india can do good engineering; software and hardware. I'm sure china can build quality products. Mexico is fine for textiles but not for engineered products.

The thing about outsourcing to these countries is you need to give them very good specifications and micromanage them to be sure the quality is there.

Take something basic like the buckle for a seatbelt. It probably needs to be OSHA / ANSI approved. Certainly ones in airplanes do. They are probably made in china. They also are tested here and meet all regulations. When is the last time you heard of a seat belt made in china failure on the news.

I sell a made in the USA product that needs to meet OSHA / ANSI standards. It has piece parts that are made in china. Its assembled and tested here so enough is made here that they can say "made in the usa". The Chinese parts meet our quality standards so its not a good assumption that they can't produce quality. It is a good assumption that they will cut corners if the US companies contracting them don't make sure the quality is there.

[rezzy]

Aside from the discussion of having more customers to pad out these types of problems, Im curious, if faced with the two options of making less from one mega customer or closing up shop, which really is worst?

Depending on how much that price cut would have affected the bottom, is it better to cut your loses and jump out or do a slow gradual death? I dont operate a business with employees, so Im curious what you all think.

[vangogh]

I'd rather make less than make nothing so I think closing shop is worse. If I didn't feel like I could build the business back after the loss of a mega customer then I might close shop and start something else. More than likely I would have enough confidence to build the business back again.

There's nothing wrong with taking on one mega customer as long as you understand there's a risk associated with it and you work to mitigate that risk.

[Harold Mansfield]

I know people like this..that have a big client that sustains everything. It's a scary way to live, but it also depends on the client. The one thing I notice with people who have these type of relationships is they spend a lot of time, energy and money keeping personal relationships up with the client. Golf, Business trips, lunches and dinners. They know everyone's family and kids and even participate in family functions. I have seen it first hand that by keeping the relationship close, when certain things arise, they get the inside scoop or at least a heads up.

One of my drinking buddies supplies a major light and sign company out here. When constructions slowed, the relationships that he formed with the company officers saved his butt a few times when cut backs were made because they wanted to work with him.

If you look at a company like Lockheed/Martin, their main client is obviously the U.S. Government. If you are going to have a main client, that's not a bad one to have..but we all know a ton of schmoozing goes on to keep those relationships alive.

I don't think it's necessarily a bad thing and many times it may be unintentional, but you do live with the knowledge that it could all end at once. Just based on what you have said, it seems your friend could have found a way to save the relationship.
I know if it were me, the minute a new company purchased the client company, I would have been kissing a little butt to keep my relationship and contract with them beneficial to insure that they were happy.

[KristineS]

I work in an industry where there are only a few major players. The major guys are buying up the smaller guys too, so the client pool gets smaller every year. There isn't a lot that can be done about it. The company is working at diversifying and started up a subsidiary that deals with a different market a few years ago precisely for that reason, but the industry is what it is. The smart companies do diversify. It's simply too scary otherwise.