Hey now, welcome to the Inside BS Show. My name is Dave Lorenzo, I'm the Godfather of Growth. We're talking about customer concentration today.

Today's show is all about diversifying where the revenue comes from in your business. This is called customer concentration. Now, my rule of thumb is that no one customer, no one company, no one individual should be responsible for more than 20% of your overall revenue.

That's the line you need to draw in the sand. 20% maximum. This is problematic when it goes over 20% because you expose yourself to one person waking up in a bad mood and destroying your business, or you expose yourself to one company pulling out of your client base and totally destroying your business.

You don't want that. For that, you might as well just go get a job and one person waking up in a bad mood could destroy everything for you. So keep individual clients down to 20% or less.

You also have to think about customer concentration related to geography, and you have to think about it related to industry. Let's say you have a customer concentration where 80% of your business is done in the state of Florida and a hurricane comes through and the state is knocked off of its economic game for 10 days or for three weeks or for a month. What happens to your business during that time period if 80% of your business is coming from that geographic area what happens during that time period? I experienced this in New York after 9-11.

During the 9-11 events, the day itself was horrific but for about two years after those horrific events the city had an economic cloud hanging over it from a tourism perspective, certainly from a real estate perspective. And it was very, very difficult to do business in New York City during that two year time period. Our business was 80% concentrated in New York, in Manhattan.

It was a terrible, terrible economic time in addition to a horrific time from a terrorism and a loss of life perspective. So geographic exposure from a customer concentration perspective is also something that should be considered. And then there's industry exposure.

And we all experienced this if you worked in the financial sector or worked with people in the financial sector from 2008 through about mid-2010. The financial services industry was devastated during that time period. People were getting hammered with losses from the stock market.

The overall economy was abysmal. So if you were doing anything in business development or training related to the financial services industry, if your business was 50% or more dependent on the financial services industry, you were gonna be out of business. So how do you combat customer concentration? Well, as a CEO, I think you need to do many things.

First and foremost, when you have one client, one customer that's doing more than 20%, is responsible for more than 20% of your overall revenue, I would immediately begin looking at some of their competitors. And I would deploy a specific, focused, measured sales effort to go after other people in that sector. Now why? You're thinking to yourself, okay, Dave, I get it that you don't want one customer being more than 20%, but doesn't that expose you in the industry? Yeah, it exposes you in the industry, but it helps if that one customer has an economic issue.

It will help you there to diversify at least within that industry. And the reason why I want you picking the competitors to your existing client who's more than 20% is, because if that client has invested over 20% in you, it is a phenomenal opportunity for you to go to competitors and say, XYZ company finds us incredibly valuable. We can help you the same way we're helping them.

And because we work in a free market economy, you're able to go after competitors of your best client. So to begin to diversify, because you have an affinity for that industry, to begin to diversify, you go after competitors in that industry. Now, you also should have a sales effort in other industries outside of that specific, focused industry.

And that's how you combat industry-specific customer concentration. You focus on, if you have resources, three, four, five different industries providing industry-specific case studies, messaging to those specific industries with the way you solve problems, the way you help them achieve their strategic initiatives, their goals. Those are all great opportunities, and you have to have industry-specific sales teams deployed so that you can diversify from an industry perspective.

You also wanna diversify geographically. So if it's difficult for you, if you're a local business and you're only working, for example, in Miami-Dade County, Florida, I would, when you're ready, start a second branch of your company outside of Florida, start it in New York, start it in Chicago, start it in New Orleans. Don't start it in Broward County, Florida.

If you're going to expand outside your geographic footprint, you want to go as far outside your geographic footprint as possible. You wanna remove any specific geographic exposure. So going from downtown Miami to Coral Gables, you have the same geographic exposure.

My preference would be for you to go from downtown Miami to downtown Manhattan in New York City. If it's at all possible, you want to be able to move your service as far away from the geographic exposure as possible. Now, if you have physical plant issues, I get it.

You can't do that. But many businesses today are operating 50%, 60%, 70%, 80% remote. And if you're operating at a remote level, you have the ability to do that.

So these are the three areas you need to think about, specific individual customer concentration issues. The second you need to think about is industry concentration issues. And the third you need to think about is geographic concentration issues.

And the bottom line on all of this is the bottom line. When you diversify outside of your initial customer concentration focus, you are creating a business that is a better investment for everyone, including you as the owner. It's a business that has less risk.

It's a business that offers less headaches. It's the best opportunity for you in moving forward. A good business to sell is a good business to run.

And that's the second aspect of this. When you're building a business that has diverse customers, a diverse customer base, you're building a business that is easier to sell, that is better to sell, and that is far more valuable. Focus on diversifying your customer base.

It will help you increase your revenue. You'll be glad you did. My name is Dave Lorenzo.

I'm the Godfather of Growth. We're here every day with a brand new show for you. Thanks for joining us.

We'll see you right back here again tomorrow.