Is it a good idea to have one big client? …
… In short, no.
Articles about this topic have been around for years, yet sadly, businesses are still giving in to temptation. So I decided it was time for another go at persuading business owners that it’s not a good idea to have one big client.
I should say at this stage that this is not applicable to all businesses, but you know who you are if it is relevant.
When getting your startup off the ground it’s crucial that you are clear about who your target clients will be. What size of client do you want? How many clients would you therefore like to have? If you don’t think about this stuff, your strategy could be pulled apart as you grow. Everything will be affected. Lack of clarity in this area could even see your business ending up on the scrap heap.
Initially it’s tempting to take any client that comes along as you scrabble around trying to generate revenue in to cover your overheads. You may even have investors to impress too. Even more tempting is when there’s interest shown from a huge potential client. That’s when the real problems arise. Having a client who brings in more than half of your turnover leaves you vulnerable.
It’s an all too familiar scenario:
You have a growing number of small clients who are happy and ticking along. Suddenly, out of nowhere comes an enquiry from a business who could generate enough revenue to dwarf that brought in by your other clients. “Wow, what an opportunity!” you think.
The problems start immediately as you start thinking about how you can adapt your business model to be accepted by the big client, and how you can handle the huge amount of business this client may bring in. You’ll start neglecting your existing small clients right away as you plan for, and attend meetings, with the huge potential client.
The big client starts making demands that should normally ring alarm bells, but instead you just brush them under the carpet.
“We don’t sign NDA’s,” the big client claims.
“Ah ok,” you meekly reply, and give the big fish every bit of confidential information they ask for, including things they don’t even need such as your existing sales figures, turnover, cash in bank, etc. (By the way, big clients often demand this information from small businesses so they can assess how much power they have over the small business.)
You say you can do things that you aren’t really able to do. You spend ages on the proposal for them. You sign their T&Cs rather than them signing yours (perhaps you don’t even read the T&Cs in your eagerness to get them signed up).
You get the deal. Hoorah! Little do you know, that this is when your real problems will begin.
Things start to happen quickly. As soon as you are signed up with the big client the goalposts start to move. They make demands that were not discussed initially, but it’s too late … there’s no going back now. You just agree and plough on.
You put even less time into your other small clients. Perhaps you get pissed off with some of them getting in the way. You even lose some, but who cares! You’ve got the big client! “We don’t need those tin-pot clients any more!” you shout to your nervous teammates.
There are a million and one bad business scenarios that you could get caught up in. For example, if you produce and sell physical goods you may have to place much bigger orders of packaging and supplies up front. You may have to change your manufacturing processes, or even change location. Perhaps you need a bigger office to house more staff, or a larger warehouse to hold more stock, and new manufacturing equipment to make things quicker. All this requires money, so you take a great big loan, or raise investment. This takes even more of your time and focus, and for the first time you start to realise you’re in too deep.
Cashflow becomes a problem. You raise more funds, but the big client just turns the screw with new demands. Oh and don’t forget the big client can change the terms, or indeed ditch you at any time.
Perhaps you have to change your business model altogether. For example you start your business with the goal to produce luxury chocolates and sell them directly to consumers, whilst supplying a few specialist artisan shops. Suddenly you land a big deal with a supermarket. You end up ditching the consumer channel, neglecting your small artisan shops and putting all your focus into supplying the supermarket. If the supermarket ditches you, you’re screwed.
This is a business nightmare that is played out far too often … it’s just sooo tempting!
The message really is to avoid the temptation to go for that massive client if you know really that it will mean dramatically altering your model, or changing your business goals. Make a decision on what type and size of clients you want and stick to it. If it comes to the time when you believe you can take on much bigger clients, that’s fine, but do it intentionally and put the business model and infrastructure in place to do it properly.
Finally, don’t be afraid to say “no” to a potential big client’s demands – don’t let your judgement be clouded by the excitement and temptation of landing a huge client. If you feel uncomfortable with their requests, or the direction the discussions are going, just say no. If you are asked to sign something you’re not happy with, say no. If they want to hurry you before you’re ready, say no. If they want you to promise on things you know you will struggle to deliver … you guessed it … say no. If they threaten to walk away, let them – it probably wasn’t right for you or your business, and often, deciding to say no will be one of the best business decisions you will make.