I recently had a call from an entrepreneur who had an embroidery machine. She was very concerned as she did not have enough business to make ends meet. When I asked why she had the machine she said she’d bought it to fulfill a large order she had received. The order had been completed, but she still had to pay monthly installments for two years and had no revenue from new business to meet the payments.
Don’t put all your eggs in one basket
Her heart was broken, her dream of her own business lying in taters around her. This is a mistake we make often – thinking that one large order indicates an ongoing trend. There is an old saying “one swallow does not make a summer” and this applies to business too. It is always advisable to ensure that no one customer contributes more than 20% to your sales. I’ll repeat that. No one customer should ever contribute to more than 20% of your revenue stream.
This is very difficult to ensure as we ideally try to get all the customer’s business – but that same strategy makes us very dependent on that one customer. In this entrepreneur’s case, the one large order that was received should have been sufficient to cover the entire cost of the machine or it should never have been purchased. Alternatively, more customers should have been brought on board to ensure an ongoing revenue stream. Stan, my own mentor, would always tell me to “get the business first and then we find a production capacity.” Never the other way around. He would also recommend that it is better to have ten small customers than one large one; if we lose one we still have nine.
Learning and moving on
In a case when the customer wants to take all the production capacity, ensure there is a contract in place so that the business can survive for six months once the sales to this customer ceases. It will take me six months to build the sales pipeline back to a sustainable volume. My only advice to the embroidery lady was this: go out and sell and don’t make this mistake again. Because one business venture has failed doesn’t mean the entrepreneur is a failure. It is an opportunity to build a healthier business next time.