Many manufacturers fall into the all too common trap of focusing their business on a small number of large customers or a specific industry. While this approach can bring profitable results, especially if you get the timing just right, it carries significant risks.
Imagine your business as a table, with each customer representing a leg. A table with many legs remains stable even if one or two legs are taken away. But if your table relies on only a few legs for stability, it becomes unsteady when even just one is removed.
Similarly, investors spread assets across their portfolios, so as not to be too reliant on one venture. Or even more simply, think of your diet. Broccoli is incredibly healthy and nutritious, but if that is all you eat, you will not be getting the balanced diet needed for a healthy life.
Now that we’ve given you more than your share of analogies, we’ll walk you through potential issues that can arise if you’re not properly diversifying your customer base. And if you find yourself overloaded by just a handful of customers, it’s not too late – NTMA has solutions to help that include thoughtful planning and leveraging your NTMA network.
Potential Pitfalls of Not Diversifying
When manufacturers aren’t diversifying their customer base, one unplanned change can leave them in the dust. Here are some root causes:
- Acquisitions: We see this quite often—a company gets acquired and then moves its contract manufacturing services internally or to its parent company’s choice supplier.
- Unexpected circumstances: Specific events cause industries to boom or suffer. For instance, times of war can be profitable for companies with the resources to handle defense manufacturing, while uncertainties surrounding election seasons can slow down some markets. Industries can sometimes crash seemingly without rhyme or reason. Regardless of the root cause of these fluctuations, if the results are unexpected, it is challenging to be prepared.
Case in Point: The Pandemic
Think back to where your company was in 2020. There’s no doubt the pandemic taught us a lot about running a business, but one of the most crucial lessons some of us learned the hard way was the importance of serving multiple industries. You might have been treading water if all your time and resources were spent on customers who experienced a downturn during the pandemic. But if you were fortunate enough to have dipped your toes in the medical device space, your bottom line might have been better than ever.
For example, one of our members specializes in aerospace manufacturing but happened to have a small amount of business in producing ventilators. At the start of the pandemic, their aerospace work slowed down exponentially, but because they had the resources and equipment to produce ventilator parts, they were agile enough to shift. At this time, their ventilator business boomed and their business flourished, all because they could transition their production to meet the market’s needs.
Was this customer lucky? Certainly. Sometimes, it’s the luck of the draw of what industries will thrive during challenging times. But were they smart? Absolutely. They didn’t put all their eggs in one sole aerospace basket and thrived because of it.
It’s Not Too Late – Here’s How to Diversify Your Customer Base
Acquiring a diverse customer base doesn’t happen by chance, and it certainly doesn’t happen overnight. It has to be a conscious strategy.
If you’ve already focused most of your time and energy on one customer or vertical, it’s not too late to diversify. Here’s our advice on how to switch gears and introduce more industries to your customer list:
Earn Industry-Specific Certifications
If you’re interested in taking on business that requires specific certifications, get started on them sooner rather than later. If you’ve been putting off earning your ITAR, AS9100, or ISO certifications, this might be the motivation you need to get to it. Getting all your ducks in a row in this area isn’t something that happens overnight, but think about where your business could be in a year, five years, and ten years if you’re able to support sectors with tight regulations like medical, aerospace, industrial products, or so on.
Don’t Overload Yourself with One Customer
Imagine this scenario: A customer wants to partner with you, saying they will buy up 100% of your capacity. It means you’ll need to focus primarily on this customer, tossing other prospective work to the wayside, which might be risky. But when they name their price, your eyes practically bug out of your head.
When NTMA’s president, Roger Atkins, was brand new to the industry, this exact scenario happened at his father’s shop – and when his father declined the offer, Roger thought he was out of his mind. Then his father explained that it’s not this year he’s worried about; it’s next year and the year after. If he had accepted the offer and turned away all his other customers, what would happen if that business disappeared next year?
It can be tempting, but going all in on one customer is not ideal when playing the long game. Don’t be afraid to turn down a massive deal like this – even though it hurts at the time – to secure the long-term success of your business.
Get Help from Your Manufacturing Network
If you aren’t quite diversified and find yourself in a lull, reach out to your NTMA community for support. On multiple occasions, manufacturers have posted on NTMA Connect, offering surplus work to others. By participating in this online network, you can jump on opportunities in your wheelhouse.
Getting your name out there by attending events and being part of the NTMA community can do wonders. Imagine you exchange information with a fellow supplier at a local event, and the next day, he gets a request for a complex medical part that he can’t handle at the moment – but he remembers you mentioning a tight-tolerance medical piece you produced last month. You just might get a call from this individual asking you to support this project. And just like that, your shop floor is busy and your machines are buzzing!
NTMA is Here to Help
Diversification can help set your shop up for long-term stability and success. If you find yourself needing support in this area, you do not have to go it alone. NTMA offers valuable resources to help you take proactive steps to navigate this journey, ensuring that your business remains stable, resilient, and adaptable in an ever-changing industry. Join today!
