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Product & Industry Concentrations

Posted by David Humphrey on 11 February 2015 | Comments

Too much on one thing can be bad, such as too much revenue from one customer.  This can also be true of too much concentration or reliance on one product or one industry. If a business sells a product and most of their customers are military related and there is a rumor or hint of a sequestration, or a change in military purchasing, buyers will be concerned and reflect this concern in their offer price.  

A business with a diverse clientele, some military, some health care and some consumer goods is perceived to have less risk. Buyers assume that all three industries will not slow down at the same time or for same reason thus making the risk of a significant decline in sales less likely.

Concentration can also be an issue in narrow product lineups.  Companies who build their company around selling one or a few products are susceptible to shifts in the industry, change in consumer attitude or new products supplanting current items.  This very true in the medical field where emerging products are continually being released and others are being recalled.  Offering multiple products is important for the business, even as one product seems to dominate, shifts in demand can happen quickly.