Sometimes a small business has to be careful what it wishes for. Say you’ve finally snagged a big customer with a huge contract. Great news, right? Not necessarily.
According to Les McKeown, president and CEO of Predictable Success, “Most small companies that land mega-contracts with massive companies end up badly damaged and have their growth stunted over the long term as a result.”
In this article, McKeown describes how this happens:
One client generates more than 20 percent of revenue. In McKeown’s view, “unhealthy things” begin to take place when one client reaches 20 percent or more of total revenues. No one client or customer should be allowed to “dominate the top line.”
Meetings are all about one customer. A red flag is raised when you realize nearly every meeting you hold focuses on the needs of that one client. These meetings turn into “little more than a punch-list of their outstanding production or delivery issues.”
Your employees are getting burned out. A single big customer can easily come to dominate the small business that’s serving it. When this occurs, the atmosphere grows tense because this is the one client you can’t afford to lose.
As McKeown notes, “Your employees lose the ability to work at their own pace, and are increasingly yanked from pillar to post.”
Deadlines go haywire, internal priorities are constantly shifted and superseded and workers are stretched to the limit. “Net result? You have an exhausted, unhappy, and increasingly disengaged workforce.”
Creative employees go unfulfilled. Sometime after the initial honeymoon period is over, a big client begins “turning up the volume when they think they’re not getting what they want.”
This tends to frustrate the most creative employees in your business, because their ideas and suggestions get drowned out in the frantic rush to meet the client’s constant demands. Without creative input, you run the risk of further failing to satisfy the client’s needs.
You lose focus on your target market. With all your efforts geared toward the one big client, you lack time and energy to stay on top of your target audience’s needs and challenges. When this happens, your competitors are only too eager to rush into the vacuum.
New client acquisition gets low priority. Along with a lack of focus on the target market, your small business simply lacks the resources to do what’s most important to long-term success. As McKeown says, “It dawns on you you’ve developed an in-built dependence on the contract that can’t easily be given up.”
The effort it takes to meet your big customer's needs become so “all-consuming” that new client acquisition efforts get placed on the back-burner.
No small business can afford to put all its eggs in one basket. Watch for these warning signs and keep working to expand your client base.
What do you do to avoid the big customer trap?
It’s a pretty straightforward idea: To grow your business, you must understand your target market. Sometimes, however, in their haste to launch a new business or jump-start an existing one, entrepreneurs miscalculate and make ill-founded judgments and assumptions about that market.
Alina Dizik, a contributor to Entrepreneur, suggests asking yourself several questions in order to more objectively assess who your target market is.
Who’s going to pay for my product or service?
You’re in business to solve a problem plaguing prospective customers. Your assessment must therefore start with a clear understanding of who’s willing to pay for your solution.
“Not only do [your potential customers] need to have the problem, but they need to be aware they have the problem,” says Greg Habstritt, founder of SimpleWealth.com. Habsstritt suggests using Google’s keyword tool to find out if (and how many) people are searching for words related to your business idea.
Who has bought from me in the past?
Knowing the types of customers who have already purchased your product or service will help you refine “both your target marketing and your pricing strategy,” Dizik notes.
Am I overestimating the appeal of my product?
It’s one thing to guess how many prospective customers will pay for your offering. A more quantifiable approach is actually reaching out to potential customers and finding out what they think. This can be achieved by conducting surveys, organizing small focus groups or doing “man-on-the-street” interviews with walk-in customers.
What does my network think?
You can also bounce ideas off people in your social networks, who will probably be happy to offer you opinions and feedback.
Are my assumptions based on personal knowledge and experience?
Let’s say you’re an avid rock-climber. You launch a company offering travel packages to El Capitan in Yosemite National Park, because you think you know your customers. The risk is, you might be completely off-base. “Don’t assume that you can think like your target market,” Habstritt says. “You have to ask them and talk to them to really understand them.”
How do I sell my product or service?
Developing an effective retailing strategy will help pinpoint your target market. Do you plan to sell through a storefront, a website or both? If you go the online business route only, you may encounter a younger demographic than you would with a store.
What did my competitors do to get started?
As part of your overall assessment, you should be familiar with competitors in your potential market. Evaluate the competition’s marketing strategy, but “don’t simply copy the marketing approach of your biggest competitors once you define your target consumers,” Dizik says. Unless you can differentiate your business from others in the same market, what hope is there of success?
Will I be able to expand my target market?
As your business grows, you’ll have another decision to make. Should you continue to target a domestic consumer base or is it time to approach the global market?
Don’t rush into a new business venture without answering these questions. If you fail to target the right customers, valuable time and money will be lost on people who just don’t care.
Do you have intimate knowledge of your target market?
