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