11/ 21/ 2005
by Steve Kaplan
It happened so quickly it seemed like a blur. My business was cooking at a huge pace. Sure, I only had one true client, but it was huge—I mean really huge, and I was billing it close to $3 million per year at a hefty 25 percent net margin. I was basking in the fact that I did not need to worry about meeting payroll, and that I was able to afford to go to great restaurants, take nice family vacations and buy a nice car to go with my new home that I had recently purchased. During the next several years, my relationship with my customer deepened, and my company was getting more and more business. Life was great. Then one day, that all changed.
The day I took the call from my biggest client, I thought nothing of it. We talked a lot, and frankly, the calls often meant more business. But this time it was different. “Steve, our budgets just got cut, and we’re forced to cut spending,” she told me. “So the services you’ve been providing us will no longer be needed. Sorry, but thanks for the past three years.”
I almost passed out. In little more than three seconds, I watched more than 90 percent of my business’ sales walk out the door. I was blindsided to say the least. Two things kept running through my mind: How was I going to pay the mortgage on my now huge home, and how was I going to tell many of my loyal employees that I had to let them go?
I had fallen prey to one of the most common mistakes known to any small-business owner: I had become too dependent on one client.
After a very tough next year, I was able to regroup, but this time I smartened up and implemented a new but also time-tested business plan: Never keep all your eggs in one basket. Instead of one huge customer, I opt for several customers, each representing a smaller piece of my sales pie. I learned a valuable lesson from the near collapse of my business, and that is to always protect my business and myself by not becoming too dependent on any one customer. That’s because there are two factors that you can never control: budget cuts and changes in personnel.
Since my first client dependency crisis, I have owned more than 20 businesses; and I never forgot the lesson. The result: None of these companies have ever been in jeopardy of failing because I learned to keep my eggs in lots of baskets.
How It Happened
Steps that led me to become too dependent on one client:
- The customer service demands from this big company client were so great that most of my time was spent servicing or handholding. This left me no time to search for prospective clients, thus leaving me vulnerable to a complete business collapse.
- Selling new or additional services to my existing client (because the rejection rate was lower) was easier than looking to sell to a new client, which again left my business open to ruin.
- My success with my current client was so great that I had no desire to search elsewhere.
How I Fixed the Problem
I learned several effective tactics that protect me when I feel vulnerable to one client:
- I keep my ear to the ground listening for additional opportunities within the customer’s company.
- I seek to get customers to sign multi-year contracts, which provides me with as much notice as possible in the event of a departure of a key person at my client’s company.
- I make it a point to visit my customer and get to know its associates as well as its boss.
- As long as there is no conflict, I contract with others in my client’s industry, replicating success models.
- I put a total sales force focus on this effort so that all my employees are on the same page with me.
Steve Kaplan is author of "Bag the Elephant: How to Win and Keep Big Customers" and is founder of The Difference Maker, a small-business consulting firm.
