Whether you are a small startup business or an established one who has been around for years, it is important to really understand how dependent you are on a small number of customers, especially to understand whether or not you are an independent contractor.
If you operate, for example a retail business, likely you have many customers. If one of them decides to shop somewhere else, while you might be disappointed, you will continue to operate. On the other hand, if you operate a manufacturing operation and you have a few customers, if one of them were to leave it could have a dramatically different outcome for you in your business.
If you are dependent on a single client or customer for more than half of your income, you are really more of an independent contractor than a business owner, regardless of how many employees you might employ.
While of course, this should be a concern for you, but more importantly it also could be impacting your ability to attract other business. Here’s why:
- Revenue Impact – If a single customer or client were to move their work, overnight you could experience a significant drop in your revenue. Depending how fast you are able to react, this type of thing could put you out of business. Potential customers what to know how stable you are, especially if they are considering moving work from an existing supplier. If you look risky, this plays against you.
- Business Systems – The systems deployed in your company will have been influenced by your dominant customer or client. While they might work great for them, when it comes to new business, those systems and rules could take you out of the game.
- Negotiating Position – When a majority of your business is with one customer, you lose your ability to negotiate in your own best interest. You are at the mercy of your customer. When they ask you to reduce your price, it is difficult to not give them what they want. This may require you to cut services within your company that make it difficult to seek new business.
- Financing – Your ability to attract the financing you require to grow your business, comes down to how risky you look. Lenders and investors explore the potential risks inherent in a business before they get involved and you might find it difficult to secure the investment you need to take on new business.
- Sales Process – For a business to really flourish it needs to have a sales process that yields results. A business with only a few customers, means it has never been able to develop the sales process that will ensure it longevity.
So if you find yourself in this type of situation, what do you do? The most important thing is to not go back to sleep. It won’t get any better by simply ignoring it. Make the securing of new customers a strategic priority in your company. This means you need to make it equally as important as achieving your bottom line goals. It is going to take an investment, whether financially, or in time and energy. When you make the decision to invest in this, you might not get an immediate return. Remember you operate our businesses for the long term, so you need to position yourself for the long term.