This is not what you want to hear from your largest customer: “If you can’t handle our business worldwide, then we will have to look at other providers.”
That’s exactly what one of our portfolio companies heard, from its biggest client, three years ago. The portfolio company provided internet marketing services to US companies. When customers started expanding into Europe and Asia, the company’s network of overseas contractors was quickly stretched thin. That’s when the company (which we’ll call PortCo, for portfolio company) got the ultimatum: You have twelve months to build a real presence in all the geographies we want to serve. If you can’t do it? We love you, but you’re out.
Investors and managers talk about growth as an option, but often, it’s a necessity. This is especially true for companies that sell to businesses rather than to consumers. Almost every large business on the planet has a couple of key imperatives right now. Going global is one. Reducing the number of vendors they use is another. The combination means that if you become a key vendor for a U.S.-based company, you have to expect that, as they go global, you will be expected to follow. A company can have multiple suppliers of office supplies worldwide, because office supplies are not strategic (sorry, Staples). But if the product you are selling is strategic to your customers and makes a difference to their business, they are going to want to roll it out worldwide. You have to be there.
Not that it’s easy. In the year before PortCo’s largest customer laid down the law, 98% of their revenue was from the U.S. and rest came from Canada. Customers had been asking them to expand, but frankly, they didn’t listen. The money wasn’t there. They were busy. Now, there wasn’t any choice didn’t have a choice. And if you haven’t been listening closely enough, you may not have one either. Here’s what our company did:
International revenues are now 30% of PortCo’s total, and represent the fastest-growing part of their business. They have offices in Asia and Latin America as well as Europe. More important is what did not occur: They did not lose key U.S. customers to a competitor or a subcontractor. That’s something that could easily have happened did they not realize that growth was not a choice, but an imperative.