Many owners of small businesses end up with all of their eggs in one basket. They have one customer who accounts for the majority of their sales. Or they have one product which dominates their business. Or they have most of their sales concentrated in a single geographic area.

A business acquaintance who owns a small public relations firm just lost his biggest account. They represented 67% of his revenues last year. He's out beating the bushes for more business now but he's going to have a tough time for the next 12 months or so. He admits that he saw it coming but didn't respond quickly enough.

Sometimes you never see it coming. I once had a nice account worth $50,000 per year. My contact was a minority shareholder in the customer's business. He paid our asking prices, raved about our service and bought more from us each year. Then he and the majority owner had a big falling out and he was fired. The owner then brought in a cost-cutting terrorist who demanded that we reduce prices by 40% or lose all the business. We didn't make enough money on the account to permit us to reduce prices to that level, so we gave up the business. The loss of this account was totally unexpected. Luckily for us, this company's business represented a small portion of our overall revenues.

A friend of mine with a manufacturing business bought all of his raw materials from one supplier. Then the supplier's factory had a fire and couldn't supply his needs. Other competitive vendors were busy taking care of their own customers' increased needs and weren't interested in supplying my friend. He had to scramble to find material and ended up paying premium, grey-market prices for it. He learned his lesson and developed new sources of supply for his raw materials.

Don't let yourself get into one of these situations. If you have a single customer or product that dominates your business, take some of the profit from that business and 'invest' it in diversification. Hire salespeople to solicit new accounts. Develop new promotional materials and programs. Develop more products or services to broaden your line.

If most of your business is local, you don't have to suddenly open a branch office 2,000 miles away. But you must recognize that your fortunes are dependent on the fortunes of the local economy. If that bothers you, consider expanding your business by developing new business outside of your local area.

In 1983, my company picked up a major national account; their business represented 38% of our total sales. But we knew that they would leave someday because their needs were dictated by styles and fads. So we took some of the profits from their account and used it to expand our catalog of products. The catalog side of the business grew which lessened our dependence on any single account. When the national account departed four years later, they represented less than 8% of our overall business. We sure hated to lose them but their departure didn't sink our company.

Don't put all your eggs in one basket. But, if you find that you must, have a plan to get some other baskets as quickly as possible. And, in the meantime, keep a watchful eye on that single, concentrated basket!