Businesses discover dangers of relying too heavily on a single client or industry

For decades, Indianapolis-based Indiana Supply Corp. successfully distributed Trane brand furnaces and air conditioners
across Indiana. At its peak, the company had $40 million in annual sales, 105 employees and three warehouses.

Then, out of the blue in October 2006, a letter
arrived from Trane’s corporate headquarters in New Jersey. In 60 days, it warned, Trane would sever all
ties with Indiana Supply. Instantly, a long-standing, symbiotic business relationship evaporated like
so much sweat.

"They
don’t give you any reason," said Indiana Supply’s former owner, Stan Hurt. "They just say ‘You’re canceled.’"

Hurt spent the next couple of years scrambling
to recover. But in April, the economic downturn forced him to sell his company for a fraction of its
former value.

In this
deep recession, many local small-business owners suffer the same harsh dilemma. Heavily tied to a single supplier,
customer or industry, they must diversify or die.

"I see it all too often," said Rhoda Israelov, executive in residence and career mentor
for Butler University’s College of Business. "A small business comes upon a [big] client or customer,
gets eager or excited about the project or service, and keeps coming up with new ideas."

"Pretty soon, all the resources are going
largely towards this one client," she continued. "Then, if something happens to that client
… in today’s economy, it could wreck the small business."

Founded in 1955 by Hurt’s father, Indiana Supply regularly won Trane’s accolades and sales awards.
In the end, it didn’t matter. Trane bought back all its warehoused equipment from Indiana Supply.

But the largest share of the distributor’s value
derived from its relationships. Decades of hustle developing the Trane name with Hoosier heating, ventilating
and air conditioning equipment dealers became worthless.

Indiana Supply met with other HVAC manufacturers and began distributing York brand products. But
it was starting from scratch. Many of Indiana Supply’s former dealer clients remained loyal to the Trane
brand—and Trane had begun selling its equipment to them directly. Hurt knew it would take years
to rebuild what had been lost.

So this spring he sold his small business to Pewaukee, Wis.-based Gustave A. Larson Co. Terms of the deal weren’t disclosed.
But Hurt said it had just 35 employees and about half its former revenue.

"This is the perfect storm situation, when you lose the Trane line and you have a major recession
at the same time," Hurt said.

Edinburgh-based Banks Machine and Engineering Inc. has a similar predicament. Formed in 1999 as
a spinoff of Indianapolis-based engineering firm Eagle Oxide Services, Banks Machine fabricates equipment
used in battery-manufacturing plants. For years Eagle Oxide was its largest-indeed its only-customer.

"We had enough business and the orders
were flowing continually," said Banks Machine General Manager Steve Halfaker. "We were happy,
but that was shortterm thinking. We had to think beyond that, and that’s what we’re doing now."

Both Eagle Oxide and Banks Machine are heavily
reliant on demand from the auto industry. Last year, new orders began slowing down. Then existing orders
were canceled. Halfaker had long recognized that diversification was necessary, but the recession accelerated
his timeline.

Banks Machine,
which has 13 employees, hired its first outside sales representative. It also identified every manufacturing
plant and food processor in a 150-mile radius and initiated a direct mail campaign. Halfaker recognized that Banks Machine
could fabricate parts for any manufacturer, not just battery makers.

The trick is convincing new customers. The quest is going better than Halfaker expected. Banks
Machine has already found one customer that makes rigs for oil exploration, and another that produces
parts for conveyors in stone quarries.

"If you’ve got a primary customer, take a look at really what it is you’re providing that customer. What things can you
then take and sell to any customers that need those same type of services?" Halfaker said. "We
tried to step back and say … we’re more than just a single piece or welding shop. We’re a metal fabricator
that can provide a complete package."

Others are having a tougher time translating their skills into new areas. Tiptonbased DC Coaters, for example, has been applying
black "electracoat," or "e-coat," to auto parts since 1993. The epoxy paint protects metal parts from
corrosion, greatly extending their useful life. Its 50 customers include all the major automakers and
their supply chains.

But
other industries don’t use the same process. DC Coaters used to have 60 employees working two full-time shifts. Due to
the recession, now it’s down to 30, who work only one shift three days a week.

"What do you do? You’re getting all the work that your customers can give you, but that’s
not enough to keep floating," said founder, co-owner and President Dennis Cook. "Usually we
would have expected a 20-percent reduction in a recession. But we’re looking at almost 50 percent. And
for some parts, depending on what vehicle they go into, it’s 100 percent."

A few years ago, DC Coaters invested several million dollars in new equipment that’s now standing
idle. Cook recently received a bridge loan from the U.S. Small Business Administration to keep his business
afloat. DC Coaters is counting on an uptick in the economy to increase demand. And Cook hopes it happens
soon.

"When we got
into this, back in ’93, automotive was on an upswing. Our best years were probably 2002-2003. We were really
doing pretty well. We thought we’d selected the right thing," Cook said. "But when it goes down like this, you kind
of question yourself whether you should have started it in the first place."

The first step toward client diversification
is personal networking, said Israelov, the Butler career coach. Small-business owners regularly complain
that they’re too busy to "press the flesh" at industry events. She said that’s a recipe for failure.

"You can never, ever be too busy to network,"
Israelov said. "That is your business. If you don’t do that, you’ll end up with ‘big client syndrome.’
Just like you wouldn’t go without insurance, or back up your [electronic] data, you want to have ‘big
client insurance.’"

It’s a delicate balancing act, because small businesses also can’t afford to neglect their main customer. T.J. Moyer, president
of McCordsville-based Moyer Technologies LLC, is learning how to juggle small new clients along with his larger first one.

Moyer’s firm installs fiber-optic lines for
telecommunications, such as telephone or security systems, across central Indiana. Founded in 2006, it
has three employees. About 90 percent of its work has been for Indianapolis-based Lear and Associates
LLC.

Moyer knows he needs
to broaden his customer base. But he’s wary of neglecting the date who brought him to the dance.

"As a new company, you’ve got to slowly build
your portfolio with what your main client is giving you. It shows you’ve been able to keep a customer
and make your company’s name a little more reputable," Moyer said. "If you try to diversify too far
and too thin, you’re setting yourself up for failure."