Putting All Your Eggs in One (Market) Basket

We’re now at the height of farming season, and all the work of helping clients manage cash flow has paid off. Not only do they have lots of produce to sell, but they’re far enough into the season that they are now getting paid for the produce sold in June. July and August tends to be when farms reach the break-even point.

I know all my farmers are in good shape, except for one. This farmer has been selling almost exclusively to Market Basket. He was thrilled when he landed this account, because he was able to get a good price and get paid within 30 days. As a consumer, I was happy to know that Market Basket was buying from local farmers, even if they didn’t publicize it. As a business consultant, I was a little worried.

And today, as I read the ongoing saga about Market Basket, I began to think about my client and wonder how he is faring. Does he have other customers? Is he back at the Chelsea Market selling his produce at a loss? It recalls the old adage, “Don’t put all your eggs in one basket.” And this is why.

In business, you don’t always know what will go wrong, but I can guarantee something will go wrong. And you need to prepare for it. The walk-in will break down. An employee will walk off the job. A major client will go bankrupt. Whatever it is, you need to be prepared to adapt quickly. You need to budget for the contingencies to take care of whatever the thing is.

Like a good investment portfolio, you need to diversify to minimize risk. Have several refrigerators (or an ice machine) so if one breaks down, you don’t lose your inventory. Have extra capacity with your employees so if someone quits or gets fired, you’re not understaffed. Have many clients so that if you lose one, your business doesn’t collapse.

Diversity can take on many forms:

More Than One Product

Especially for a farmer, it’s essential to have a diverse product line. If all you sell is tomatoes, and you lose your crop to tomato blight, then you have no income for a full year. On the other hand, if you have tomatoes, corn, potatoes and squash, and one crop fails, you can still manage to eke out sales with the other products.

For a restaurant or food business diversification can mean many things. It can mean a diversity of offerings on the menu to appeal to many tastes: meat, fish, vegetarian and pasta. Even if all you sell is hot sauce, you can have a variety of offerings – a green sauce, a red sauce, and a mild sauce. If you have difficulty sourcing your red chilies, can you switch to green?

This diversity can support your business in several ways: First, you can appeal to a broader range of customer tastes. If all you sell is beef burgers, than you lose vegetarians. And you lose carnivores who want to dine with their vegetarian friends. Second, you are less reliant on one vendor or product. If there’s another outbreak of mad cow disease, you can still serve turkey burgers or veggie burgers.

More Than One Customer

On a very base level, it’s important to have more than one customer. In the case of my farmer/client, the loss of one customer could be catastrophic to his business. Beyond having more than one customer, you can have more than one type of customer.

For example, Cuisine en Locale has a weekly meal delivery service in which they prepare four all-local meals for customers to reheat and eat. When they first started their business, they thought their ideal customer was a new parent who was too busy to cook. It turns out that they also have customers who are busy professionals trying to eat healthy. By having a product that appeals to many different lifestyles, they have a bigger pool of customers to target. If the messaging doesn’t resonate with one market, they can approach several others.

More Than One Sales Channel

My client was selling 80% of his product to Market Basket. Now, he has to find a lot of new customers in very short order to pick up the slack. Similarly, a food truck is dependent on good weather for good sales. But what happens if the weather is bad? A food truck can offer catering as a way to boost sales during off periods. Many are opening up brick-and-mortar shops to ensure more consistent business.

Farmers can sell wholesale and retail (through farmers’ markets, CSA’s and farm-stands). While wholesale doesn’t offer the same pricing that retail does, it allows a farmer to push a lot of product to each customer. Retail offers better pricing for the farmer but requires more sales.

Bottom Line: You can have a focused product or offering, but still diversify to manage the risks inherent in business.

How do you diversify in your business? If you need help diversifying your business model, give us a call or send a note.