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.

[huggytree]

id shut down instead of dying a lingering death....bettet to take your cash and run....sell the building and the equipment..

then start a new business...

[vangogh]

It's a scary way to live, but it also depends on the client.

True. It's not automatically a bad thing. You're right that you have to maintain a really good relationship with the client. However I'd still do what I could to find more clients since being dependent on any one source carries a lot of risk.

Lockheed Martin is a good example. The government drops one plane and Lockheed can see significant losses for a few years until they land another contract. Of course it's an industry with limited players. Only so many companies are building planes, etc for the government. The U.S. is also dependent on each of them.

@Kirstine your industry likely also has limited players, especially if bigger companies are buying up smaller ones. The client pool gets smaller, but I would think the supplier pool is also smaller. Still your company is right to diversify.

[Spider]

...and of course China or Mexico can do it cheaper..they can build anything cheaper
do they build Anything better though?When I was your age, Dave, we used to say that about Japan. Seiko watches were cheap imitations of something probably Swiss, German Leica cameras were the best in the world and Nikon made cameras not much better than the Kodak Brownie Box camera, and Honda had added a small, sporty-looking 50cc motorcycle to their "line" of motorized pedal bicycles. Not to mention the tons of plastic toys, tinny household appliances, and tiny transistor radios.

So, I say, beware the Developing Nations lest they eat our lunch before we have time to turn around a couple of times!

[huggytree]

when i find a product im installing that says MADE IN USA i hold it up and show the customer....it impresses them every time...were so used to every product saying China or Mexico...i make a point of showing them the label or box and brag about my quality......most people think USA means quality still (i do too except for cars)

dont think Mexico or China will rival Japan anytime soon....I dont see Mexico doing anything better in my lifetime...If anything I see Mexico going backwards

[greenoak]

its definitely hard to resist a big buyer....
we lost our major group of clients.... antique dealers.....for years and years they were over 70 percent of our business.... and then it all changed ....
.at least it was over a few years and we were able to re invent our store....
...thats one time when curiosity and just wandering really paid off for our business...we were aware and interested in the adjoining styles and markets, and could act ...which saved us...
p.s. arent the chinese are really just making things to their american buyers, like the toy companies, specifications ... old original chnese stuff is fabulous..

[Harold Mansfield]

dont think Mexico or China will rival Japan anytime soon....I dont see Mexico doing anything better in my lifetime...If anything I see Mexico going backwards

At light speed. It's becoming increasingly difficult to do business in Mexico for corporations. Between the drug wars, lack of law enforcement, corruption, and corporate kidnappings...Mexico is a dangerous place to be, let alone do business.
I wanted to take a weekend trip to Ensenada , but there isn't a chance I would even consider going across the border these days.
I'm wasn't too sold on the woman that said her husband was shot by Mexican pirates until I saw that they beheaded the lead detective investigating the case.
Pretty much summed it up for me. I don't think I'll ever go to Mexico again in my lifetime either.

[billbenson]

You have to remember that Mexico is very regional. Most of the problems are happening in the Western States and border areas. I wouldn't hesitate to go to Cozumel for example.

[Harold Mansfield]

I do understand, but the latest is just one more uneasy feeling about traveling there. Kidnappings have always gone on. American tourists have always disappeared. Corruption was always something that was widely known. Now cartels want to take over the border.
I can think of other places to go without all the hassle. I don't think Mexico deserves our tourism. Nothing has changed there in my lifetime, it just gets worse, and honestly the authorities aren't really that pleasant to or supportive of American tourists. Sure the people in the resorts are nice but outside of that closed environment...I never really feel that safe there. Unliked even.

[Steve B]

There's about a billion places in the U.S. that I'd rather see before felt the need to go to Mexico. Considering I only take 1 real vacation a year, I'm guessing I'll never make it back to Mexico.

I lived in S. Texas for many years so I've experienced the border towns. A guy I worked with was put in custody for having some ammunition on the floor of his truck when he drove over the border. He was gone for several weeks and it cost him $10,000 in bribes to get out. Luckily he knew the language and was able to communicate and knew a good U.S. lawyer to help.

[billbenson]

Just stay away from the borders and drug transit area's. You don't need to hide in all inclusive hotels. I spent 10 years of 100% travel for work in Latin America and the Caribbean. There are a lot of places I wouldn't go back to today, but much of Mexico isn't included in that. Having said that, there are other places I'd rather go on vacation, so its unlikely I go to Mexico. Can't thing of anywhere in the US I'd care to see either. On a date / honeymoon I'd go to Bonair, a quaint little dive island off Aruba. Alone to get away for a week I'd go to the Dominican Republic to a beach I know. I'm still thinking about moving to Costa Rica or Panama. I could work from either place and they are nice. I wouldn't recommend the Dominican Republic to others though unless you know the territory.

[greenoak]

i heard a long discussion on NPR about how dangerous mexico is becoming......and it said not to depend on the police... i sure wouldnt go...

[KristineS]

We do business with a Mexican company and some of our people have gone to Mexico and we've never had any problems. Of course, the company we do business with is a big and established company in Mexico so I'm sure that smooths our way a bit.

[Harold Mansfield]

i heard a long discussion on NPR about how dangerous mexico is becoming......and it said not to depend on the police... i sure wouldnt go...

I have never trusted that I could go to the Mexican police with anything. Actually my attitude has always been to steer clear of them whenever possible because it is just too uncertain what will happen by engaging them.
My last trip to Ensenada was a drive to San Diego and then a cab to Ensenada. On the way down it was fine, on the way back there was a road block/checkpoint (which was the main reason we didn't take our own car) and the soldiers were really young. I mean like they looked 15.

None of us spoke fluent Spanish but they didn't address us anyway, they just circled the car looking inside and staring at us while holding automatic riffles and spoke to the driver.
I have no idea what they said or wanted but I gather since we didn't have any packages, and didn't look like we had an money, they let us go.

Now that could have been a completely innocent checkpoint, but they felt no need to inform us of anything or even address us..that was the scary part. This is a well traveled tourist road heading back to the border. The cabbie said that it was a standard checkpoint, but it really didn't seem like it. They were looking for something..it actually looked like they were looking for something to do.
FOr some reason I just always get the feeling that they really don't care for Americans there, they just tolerate us, want us to drop some money and get the heck out.