Categories

Don't Let Your Customers Control Your Business & Your Future

Yes, the Customer is always Right, but…

I was catching up with a friend from my previous industry (envelopes) this week and we began to talk about the heydays when the rising tide truly carried ALL boats to profitable waters.

Our discussion reflected on how we felt like rock stars seemingly incapable of making wrong

St. Louis business broker & valuation firm
Metro Business Advisors is a St. Louis business broker & valuation firm

decisions. Business was growing and clients were ordering more product which created the confidence to order more equipment, hire more people, add on or build new buildings. It was hard not to get swept up in the feeling that we had finally figured it out after years of struggle.

Life was good… really good.

Being sales and marketing-oriented individuals with a healthy dose of entrepreneurial ability, the growth we experienced was a real ego-booster. We mirrored the growth of our customers by making long-term investments in those relationships with capital expenditures. One after another, the capital investments in capacity paid off and created the confidence to add even more. Equipment lead times were measured in years, so to continue to grow, the equipment pipeline needed to be full to satisfy anticipated future customer demand.

There is a caution in business: limit your concentration of business in one single client to no more than 10%; the lower the better.

In that heyday, my company had about 700 accounts with the top five or six representing 35-40% of the business and a large number of smaller customers spread over diverse industries. I felt secure that we did not have a customer concentration issue.

I have a saying: when you are feeling really good… duck!

Read on to see a demonstration.

So…

A new building was in the planning and the business was continuing to roll. We also planned to add manufacturing capacity. The overall strategy was to position the business for the long run – at least for the next seven to ten years.

As the building construction was underway and we were six months from moving in, the ground started to shift. And I don’t mean the literal ground that was being moved by the backhoes. One by one, my largest accounts began disappearing due to mergers that resulted in headquarter relocations and loss of vendor relationships.

Many of my customers were simply gone over the next two to three years.

DIMAC, the largest direct mail producer in the Midwest, was sold to a direct competitor of my company. Sterling Direct, another direct marketing producer, sold to an out of state company. Boatmen’s Banks were sold to Bank of America, AG Edwards to Wachovia, then to Wells Fargo. Southwestern Bell moved out of town and General American was sold to Metropolitan Life. Several more large financial clients also merged with out of town partners moving their headquarters to other states.

Over the next several years, revenue declined 40%.

Despite my efforts, my company’s success was tied to too few customers’ control.

I sold the business within eight years of moving into the new building. The decline in business and the stress that it created were just too much. At the end of the day, I had to admit that my enthusiasm for growth outgrew my experience and the business value was in danger of declining.

Lesson learned:

Appreciate you customers and do all you can to keep them satisfied with exceptional quality, service and commitment to excellence, yet…
ALWAYS remember if you build your house on a small number of clients, they have the ultimate control of your business.

Ever if you don’t believe you have a concentration issue, think through a “what if” scenario because “what if” can happen (and usually does).

Related Posts