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:
Betting On One Big Customer It's Risky Business
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Deadlines go haywire, internal priorities are constantly shifted and superseded and workers are stretched to the limit.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?
