Is your machine shop earning 80% of its profits from fewer than 20% of its customers? Or maybe you primarily fill orders for a single product line?
Shops that specialize can be very successful! But the owners of these shops are more likely to wake up one day and discover that they’ve backed themselves into a corner.
To protect your business and its people, you need to diversify.
Here’s How to Run a Machine Shop with Staying Power
For your shop’s success to last, it’s essential to think ahead. What would derail your current success? A new owner? A team member retiring? A customer switching to a competitor? A market shift? What about another pandemic?
If a single shift would spell disaster, it’s time to rethink your machine shop management approach with long-term, sustainable success in mind—the kind only diversification can ensure.
Don’t wait for dire circumstances
I’ve said it before, and I’ll say it again: manufacturers are survivors! I’m endlessly impressed by our industry’s ability to recover and reset. But landing in survival mode should never be the goal. We should all be preparing for the rain well before storm clouds gather.
For years, one NTMA member enjoyed impressive profits from a single product line. Then, nearly overnight, their customer transitioned the majority of that specialty work to a foreign manufacturer. The shop’s cash cow was headed to a dinner plate 12,000 miles away.
Incredibly, the shop survived. Many years earlier, the member shop had made the wise choice to maintain a variety of work, regardless of the size of any single revenue stream. Because of a long-held commitment to diversification, the shop was able to pivot quickly, eventually rebuilding to its previous level of profitability.
“Don’t put all your eggs in one basket”
The phrase is as common as a housefly, yet how often do we consider what it means in practical terms? What if you only have one basket right now? What if you have very few eggs?
When your shop is new (or you’re newly learning how to run a machine shop), you likely have a small team with a focused set of skills and only a handful of regular customers. That’s okay. As soon as you can, go ahead and add a manufacturing process to expand your shop’s capabilities. Or invest in a new piece of equipment that can increase production (and profits!) in a low-efficiency area of your shop.
Even small improvements can mean the difference between success and failure should you face a sudden obstacle.
When your business is bigger, you may analyze the risk and make a strategic decision to invest the majority of your resources into a single endeavor. That’s okay, too—IF you’ve truly developed a strategy around this decision. Do you have an exit plan in place? Will the earnings you acquire sustain you in a crisis? Have you built a team capable of pivoting on a dime?
A fully formed strategy should allow you to reap the rewards of today’s success while resting on the assurance that you have a backup plan ready to launch at a moment’s notice.
Diversify to Grow
Are you worried that diversifying will shrink your capabilities and diminish your profits? Don’t be. Over and over, decade after decade, I’ve watched manufacturers experience incredible growth after diversifying.
Diversification leads to more customers, more jobs, more referrals, more employees, and more equipment. And the cycle of success continues, rain or shine.
Join NTMA and meet other manufacturing leaders who are thriving through diversification!
