Danger, danger: The long-term risk of having one mammoth client
Wednesday, June 12, 2019/
When you own businesses, you wonder about how other people’s businesses are actually doing. You’re cheering them on to succeed, but there’s a situation that always makes me fear a business is in mortal danger. It’s a risk I call ‘one big client syndrome’.
On the surface, you have a great business. It’s growing, margins are strong, new work just pops up all over the place. You visit the big client’s office for a meeting, bump into someone from a different department in the corridor and bingo, they give you more work.
It’s true, every dollar of extra revenue is 10 times easier to develop from an existing client than from constantly chasing new ones. It makes sense on so many levels to grab that opportunity. Life is good. Late at night, your ambitions clarified by wine, you do a spreadsheet that extrapolates your recent growth out over the next five years. Holy escalating lifestyles! It’s game on!
You sign your kids up for private schools and lease an AMG Benz. So long, suckers who have jobs, you’re on your way to the cover of Cashed-Up Entrepreneur With A Boat magazine.
Steady on, tiger. What you have is a structure that I’ve seen destroy the entire personal wealth of a few people I’ve known. You’re facing serious long-term risk.
Client change is real
No matter what the quality of your work or the awesomeness of your service skills, clients just change for reasons completely outside your control.
It’s not a case of if it will happen, but when.
There are so many reasons for it. Your client contact leaves or gets promoted out of your area, and someone new comes in with their own bunch of suppliers. Their company stops needing that thing you do, or they need lots less of it. In the worst case, they go bankrupt, so you don’t even get paid for all that heroic effort.
I lost my most beloved advertising client, a worthy financial services firm, after 10 years of doing business together, because they were bought by another company and suddenly they’re getting their new corporate website done for $299 from some guy using a wix.com template.
It’s nobody’s fault. Nothing in business is forever. It was an honour to do 10 years of work with them, that’s pretty rare in that game. Lucky, I had other businesses by the time it happened so it was wasn’t a drama. That was no accident. My spider senses had told me five years prior I needed a backup plan before my hair started to grey and I became an ‘older creative director’.
Side-note to men: hair dye is not that plan, have some dignity.
If I had no backup, I’d be looking for a job, and nobody is less employable than people who have owned their own businesses for more than a decade. Your willingness to take orders is below that of toddlers. You’ll last about three days.
Who’s going to be daddy?
Even if you don’t lose your one big client, the power balance is wildly lopsided. They know there are only two people sharing this prison cell, and they’re the 18-stone one with face tattoos. They say they value collaborative work practices, but be assured you’re going to be ‘collaborating’ in the time, place and price range of their choosing.
If they decide they want a better deal, what exactly are you going to do?
You can’t risk losing them. If your business involves giving advice, you’re not going to give the frank advice that they need from outsiders. You can’t risk it. When things get intense, they can sense your fear, and you give them weak, timid ideas.
You have the negotiating power of plankton. Particularly if they’re big companies, which make an art form out of stringing out supplier payments. ‘Our payment policy is six months after the first day of the month after we received your invoice’, says some payments officer for whom your cashflow problems are just an abstract notion, because their own salary lands without fail every other Tuesday.
Big clients will ask you for special favours, and you just try turning them down.
I visited a client’s office once and there was a weird new vibe. There was tension and eye-rolling among the 20-odd staff. And there was a new guy in the corner. Turns out they won a big, lucrative client. But it came with conditions that would have made Faust go: ‘Screw this terrible deal, this is a price I cannot pay.’
They had to hire the chief executive officer’s entitled idiot son, who had some sort of hobby interest in that field. Think Donald Trump Jr. So he’s turning up late, adding his worthless opinions in client meetings, and giving instructions to competent, experienced staff.
But worse, ‘entitlement lad’ also acted as a sort of espionage agent, reporting all the office goings-on back to daddy, with his own special slant on this intelligence. It was an absolute nightmare. They had to get him out of there before he turned the whole place into a Survivor episode, and the client relationship didn’t last long after that super uncomfortable conversation.
It takes your attention off your other clients
When you’re servicing the big client, you have to prioritise them over the smaller ones when demand gets intense. Those smaller clients can sense it. When you’re screaming busy, it seems like only last week you spoke to them. You check your diary and it was two months ago. The imbalance becomes self-sustaining as the smaller ones drift away.
You also gear up to suit the needs of that giant client, in ways that might not suit the other clients. If you’re doing software, for example, they want it to solve all their specific problems. That might not be what other clients want, so it’s harder to grow sales elsewhere. You become an outsourced department of big client corp, rather than having a product with wider appeal.
What should you do?
When you lose a big client, you have to let staff go. Anyone who’s done that knows what a brutal experience it is. You still have to pay the lease on those larger premises, the office full of laptops and so forth. How long can your smaller clients support your fixed costs?
You need to ask yourself, if you resigned your largest client next week, could your business survive?
If that’s a no, you have work to do before you can sleep soundly at night.
Easy to say, harder to do. But, in short, get more clients. How you approach that depends on your industry.
Another big client is handy, because it’s easier to land another that size if you already have a successful relationship with one. Chasing up people that used to work for your client is productive. If they’ve just arrived in a new gig, they might be looking to shake things up.
But more smaller ones is better. It takes longer to build up a decent list of smaller clients, but as you get more, your risk drops away dramatically. No single client can take you down, and a diverse client base protects you against sudden downturns in one sector.
One of the most wonderful parts of owning a business is knowing you don’t have to dance to anyone else’s tune. It’s interesting you actually do better work when you’re not desperate to hang on to the business, because you come across as confident rather than needy. It’s a better experience for both you and the client.
This article was first published on Motivation for Sceptics. Read the original article.
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