When a big customer lets you go

by Bonita de Wet, Joint Managing Partner at BDO Pretoria.

Have you fallen into the trap of relying on a single big customer?

Many businesses start out with one big client; in fact they may be the reason for the venture getting off the ground in the first place. But what works during the start-up phase, won’t necessarily work as the business grows and becomes more established.customer bye

There are plusses to having a single large client; you get to focus on them and fully develop the relationship to ensure you provide exactly what they want. A client with a good name in the marketplace is also good for your own branding and could lead to opportunities for further business.

But, there are drawbacks too. Having only one client makes it difficult to say no. They generate most of your income, so you may feel obliged to agree with everything
they propose for fear of endangering the relationship. Your reliance on a big client can
also turn up the pressure when it comes to negotiating contracts, rates etc. This focus on
a single client may also make your products or services unattractive to their competitors,
limiting your own growth opportunities.

What happens if they go?

If that one big client decides to go elsewhere, your first step should be to find out their reasons for leaving and to ask for feedback on the work you did for them. You may not want to hear the answer, but it is a huge growth potential. You also need to ask yourself whether you understood their expectations, then decide if you want to pursue the relationship or let it go.

If the relationship is unsalvageable, you will probably need to downsize quickly to accommodate the lower income. This can be done by either taking home less income yourself, cutting down on costs and, as a last resort, letting staff go. I say last resort, because you would always want capacity to grow again, and getting rid of staff could limit your growth and your ultimate recovery.

Consider changing things up. Often when you have one big client you fall into a rut of doing things the way the client wants it done. This might not always be the most economical or best way. Look for efficiencies that will help boost your profile and attract new clients.

Remember that your biggest asset is still your staff, so you will need to communicate the bad news to them, and include them in the post-mortem process. Be honest and say it as it is. As difficult as it is, sugar-coating the situation will only make things harder for everyone. Explain the situation; be matter-of-fact yet compassionate. But do it sooner rather than later. Always ensure that your staff and partners know what is happening in the business, so that they are fully aware of the direction the business is taking and are not blind-sided in the event of a setback.

How to mitigate the risks

It’s not all doom and gloom, and there are ways to mitigate the risks of focussing
on just one client:

Keep working on your pipeline and keep looking for new clients. Even if you are at full capacity, keep pushing for new clients. Having more than one big client or many
smaller clients minimises the effect of losing one.

Diversification is what you should be aiming for. Increasing the number of service offerings you have, will increase your appeal to the market.

Enter into longer term supply agreements with the client, with sufficient notice periods to scale down should they choose to move their business, particularly if you need to invest in your own capacity to supply this client.