Chris Culver
Marketing & Industry Awareness Committee Member
Cyntek Group Inc.
The electrical apparatus service, sales and repair industry seems to have peaks and valleys when it comes to repairs, no matter your business’s size or location.
Some days, you do not have enough people to complete all the work. Other days, the service center is as clean as it’s ever been from excessive sweeping and tidying, anticipating the next wave of breakdowns, rush jobs and general work.
I have experienced these extremes as an apprentice mechanic, a supervisor and an owner. When working in outside sales with my family’s service center a long time ago, we looked to balance this inconsistent workload with more services and repairs still centered around the electric motor.
These services included on-site predictive maintenance, electrical and mechanical services, switchgear repair and asset management programs. Our sales increased dramatically over the next few years, and the new strategy appeared to be working. Eventually most of our competitors caught up to us, and we began to experience this cyclical phenomenon again.
Then, about five years ago, a contact from a former client reached out to us for help with a new company he was working for. The industry and requirements were ones in which we had not previously worked, and the job needed an entirely different approach than anything we had done before. After a meeting and tour of their two sites, the direction was clearer – improving their processes and equipment would mean hiring industrial engineers and utilizing our existing team’s experience with industrial services.
We dove right into the work. At first, the team was comprised of my son, a single contractor and me. This diversification occurred more than five years ago. Today, this division of our company now has a staff of 10 people with current and completed projects worldwide and a heavy presence in the Canadian market.
This story illustrates how our company could diversify and discover new revenue streams, but how might diversification look for your business? Depending on your team’s specific skill set and industry niche, different diversification opportunities may be available to you.
Why Diversify?
As a small business owner, start by assessing your current revenue streams. Do you think your sources of revenue are diversified enough? How do you know? If one of the following statements sounds like a vague description of your company, you may need to start diversifying as soon as possible.
- You depend on a single customer to the point where losing this client would drastically affect your entire business.
- All your company’s resources are tied to a single product or service.
- You operate in a single industry or sector, refusing work in other areas.
- You serve customers only in a single town or city or limit your clients by geography.
These are all common risks that small businesses may experience and can drastically affect the business’s growth, long-term viability and stability if not addressed quickly.
If losing a single customer would cripple your business, it’s time to diversify your accounts. This will, of course, depend on the breakdown of your client base, but it’s always important to be wary of relying too heavily on a single client for continued revenue.
The same goes for operating in a single sector. What will happen if that sector suddenly experiences a long-term decline? If that does happen, having a diversified book of business in other sectors will protect your business.
As an example, one of our major clients is in the international travel and logistics industry. As you can imagine, the past few years have seen a massive drop in work and revenue from these clients, as they all effectively shut down due to the pandemic. Fortunately, as previously mentioned, we had been careful to diversify our accounts to other sectors and industries. As a result, we were protected during the pandemic. We even saw a surge in revenue from the industries that thrived.
Another risk that businesses may have to overcome is that of a single product or service line. You may have been making the same great product or providing the same excellent service for years, which is likely what made your company successful and still operating today. However, the market won’t stay the same forever. Changes in consumers’ preferences and technology will always impact the market. If you rely too heavily on a single product or service, a shift in the market could have a drastic effect on your company.
Lastly, be wary of limiting your company to a geographically limited market like a single town. Towns and cities outside of your own may have different industries and opportunities for growth. By expanding the geographic area in which you operate, you’ll help protect your company from any significant economic downturn in the area in which your company traditionally operates.
Getting Started with Diversification
The first step in diversifying your business is realizing that you need to do it. Many business owners can get caught up in the hectic day-to-day operations without taking a step back and assessing the overall health of the business. Judge the common risks mentioned in this article and see if any apply to your company. A useful exercise would be to stress-test your business every quarter using these risks. Run your finances with your largest customer or your best-selling product removed. Doing so will help you better understand where you need to diversify your business.
In the case of our company, diversification saved us these past few years. We found ways to diversify into similar sectors to create synergies with existing team member skill sets and assets. We were then able to increase margin and cross-sell electrical apparatus, millwrighting and electrical services to these new sectors. By constantly assessing, stress-testing and diversifying your business where necessary, you will mitigate risks of revenue fluctuation while consistently growing your business and revenue.
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