Businesses with just one revenue stream, sometimes called one-legged ponies, tend to drop off the radar when the single revenue source dries up.
The one-legged pony business killer seems like a kind stranger when starting out. For example, after you’ve driven Uncle Joe’s truck for a couple years, he offers you a contract and helps get you set up to buy your own equipment. Who in their right mind would turn down a lucrative, long-term bread and butter contract offered by a friend or family member? These special deals sometimes work very well, but the dependence on a lone client can become more of a problem than an asset.
The time to deal with the one-legged pony issue is long before it becomes a problem, as early as the first business plan. Here are a few actions to help diversify your business to avoid falling prey to the one-legged pony.
- If A Good Deal Falls On Your Desk, Take It. By all means, take advantage of the amazing evergreen contract when the opportunity comes along. A bread-and-butter contract gives any business a solid base from which to build a great business. Plan from the start to use the stability as a benchmark from which to diversify and build a broader base.
- Develop Efficiencies. Get the business running and become proficient at providing top-notch service for your customer. Fine-tune the business to ensure you can provide a high level of service with every engagement. More importantly, become competitive.
- Research Similar Businesses. Learn about other businesses similar to yours, how they are surviving, what additional services they provide, and what other clients they attract in order to broaden their base.
- Add Revenue Streams. After an appropriate amount of research and comparison of different opportunities, make a plan to diversify your business and increase your sources of revenue. Here are a few examples:
- A log hauling trucking business could buy a gravel box and start competing for gravel-hauling contracts to fill in the cracks whenever logging gets slow.
- A service station selling only gas could add a mechanic, incorporate a car wash, or begin selling high-margin trinkets to entice its customers to spend more while on-site.
- A web designer who builds websites for small businesses could partner with a search engine optimization specialist to sell a broader range of services to its customers.
5. Keep An Eye On your Financials. Your financial reports will tell you if you’re adequately diversified. A one-legged pony’s cash flow rises or falls each time the lone customer hiccups, whereas a suitably diversified offering brings financial stability to the business.
As you work to diversify your business, make sure you look after Uncle Joe. Assuming it was your Uncle Joe that helped you get into business, it’s important to keep him happy as you seek opportunities to branch out. Keep your original customer happy. The one thing less enviable than a pony with one leg is one with no legs.