Here are four reasons why concentration can be bad for business.
A narrow business focus – one location – one client – one market – one product line –should be a part of a larger, long term broad based business strategy. Putting all your “eggs in one basket” is a good philosophy for a start- up company but concentration should only be a short- term goal.
Risks are greater when the business is highly concentrated; i.e. - a locale, with a limited customer base and a small product line. If there is a natural disaster and the company is located within the disaster zone, the outcome may be fatal for the business.
The recent natural disasters in Texas, Florida, Puerto Rico and the Virgin Islands serve as examples of how concentration can negatively impact a small business that has a narrow focus. Even without a natural disaster, concentration has more risk than diversification.
Concentration as defined by Wikipedia (in non-chemistry terms) is “the ability to give exclusive attention to a single objective or activity.”
Concentration is vital when a student is studying for an exam or a performer is memorizing a musical score. However, concentration as applied to a small business enterprise can be a danger.
Here are four reasons why concentration can be bad for business:
1. One Location:
An unexpected extended street closure by a municipality can prevent ready access for a customer base.
The business still must pay rent and cover payroll. (A smart business owners tries to address this possibility in his lease negotiations.)
A sudden natural disaster can destroy a local market. Many small businesses in the path of Irma have had setbacks.
Some of these businesses will have difficulty recovering. And, the owners who plan to reopen ASAP should anticipate an increase in the cost of insurance when a property has suffered storm damage.
It may be wise for these businesses to consider business interruption insurance and property damage insurance which also includes inventory.
2. A Narrow Market:
If a major retailer such as a supermarket or a national company that brings traffic to the local area goes out of business, small retailers may lose their customer base.
We all read about many major retailers closing locations and some major companies are being restructured following a bankruptcy. A small retailer near a big box that closes its doors must reconsider its marketing plan.
Next page- Reasons #3 and #4
About the author
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 16 years: combining business training programs with one-on-one mentoring. Marj is currently a financial advisor for Florida SBDC at FIU. She was Chair of SCORE Miami Dade from 2010 to 2014. She also serves as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has been facilitating workshops under the auspices of Miami Bayside Foundation for the past 3 years. She commenced her career as a real estate investment banker in New York and Miami.She uses these long term relationships to assist her clients in accessing capital. She knows both the process and the people and has assisted in providing financing for hundreds of businesses in Miami Dade.