The value chain – the flow of goods and services that starts with raw inputs and ends with a purchase by the end user – is an essential puzzle that entrepreneurs need to solve to make sure they have a viable business model. When a piece of the puzzle emerges before or after you in this chain that promises to supply much of what you need to be viable, it can be seductive to snap up the opportunity. However, it’s important to tread carefully here.

On the vendor side, there are benefits of having one that can supply a significant portion of a critical input, for sure. There’s less administrative burden, potential volume discounts, and a deeper relationship where the vendor is more attuned to your company’s needs.

There are drawbacks of such a deep integration, though. If the vendor knows you rely on them heavily for a critical input, they can demand higher prices, and your business may not be in a position to resist. More concerning, though, is the risk presented to your business through a disruption to this vendor (fire, labour strike, a falling out in the relationship, or going out of business entirely).

Concentration on the customer side has benefits, too. Less selling or marketing that needs to be done; less administrative burden; and more reliable revenue.

But like with vendors, there are risks here, as well. If the customer knows they take up a large portion of your sales, they may demand price breaks to continue the relationship. Worse yet, if that customer decides to take their business elsewhere, your company is now faced with a major disruption to revenue that may not be easily remedied.

This is not to say that you should avoid taking on large vendors or customers. As I said, there are distinct benefits of doing so. But we can mitigate the risks.

Regarding vendors, always scan for alternatives or substitutions. If things go sour with the big vendor, it is comforting to know that you’d have somewhere else to turn. In other words, don’t feel like you’re married to this big vendor. If there’s a substitute input that’s similar to what you’re currently buying from the big vendor – and switching won’t materially impact sales – be ready to switch to that substitute.

As for customers, don’t be satisfied with acquiring a large customer. Continue to grow, reduce that customer’s proportion of your total customer pool, and maintain leverage. Selling more to a large customer may also make your company indispensable to them, further improving your position.

Concentration in the value chain can present risks to your small business, but with some careful maneuvering, you can get the benefits from it, as well.