Here in Rochester, countless small companies closed due to their reliance on Kodak and Xerox. When I took over this company, one customer accounted for 80% of our revenue. [We speak from experience here.]
I work with companies in the laser market with too big a concentration, looking to grow biotech and consumer goods to decrease dependency on other markets.
What’s the right mix?
My rule of thumb: 20% per customer, 33% per industry.
Your CFO may agree: CPAs audit for revenue streams over 10%, but would voice real concern over 20%, says John Rizzo, Managing Partner of Rizzo Digiacomo, CPAs.
How to diversify
If you're too dependent, but limited in resources to pursue new industries, some suggestions:
- Identify and stick to core competencies. Vertical integration doesn't decrease risk.
- Decide between geographic, industry or product expansion. "Decide" comes from the Latin for "to kill"--choosing which you will NOT pursue this year is one of the hardest and most necessary keys to success.
- Create a customer persona in the industry you excel at--look for parallels in product demands, demographics, buying behaviors. You're looking to reach similar customers with demand for similar capabilities, driving your product in a direction that increases your competitive edge in both markets.
- Test demand early and often. One customer, in looking at geographic expansion, started google ads in a country they were considering as a target. They were able to compare impressions and clicks against countries where they had a strong customer base. Talk to dealer sales reps in the new territory or market: what do they hear from their customers?
- Position your product in the new market: Same product, new customer will mean new "care-abouts."
- Look for leverage in your marketing plan. Change up your activities for better cross-over. Design a single tradeshow booth with changeable signage per market/application, web landing pages per market, etc.
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