All sales are not equal. By following the path of least resistance in selling, you may be building vulnerabilities into your business that will come back to haunt you. I was reminded of that danger recently as I talked with a very successful entrepreneur--I'll call him Richard--who is the founder and CEO of an industrial engineering company. His engineers specialize in helping manufacturers develop products, improve manufacturing processes, find better suppliers, and manage their global supply chains. Since its founding in 2006, the company's annual revenue has grown to almost $20 million, and Richard wanted to hear any ideas I might have about how to continue that growth.
I asked him what kind of customers he had. He said they were a diverse group. A large majority were part of a giant multinational manufacturer, but because they were in a variety of divisions, they were engaged in very different businesses. And given how large the multinational is, Richard knew there were many other divisions that his salespeople could pitch to.
I said, "What? Are you kidding? You've got to be the laziest entrepreneur I've ever met." He laughed. "Your salespeople must be happy as hell," I continued. "Are they on commission?"
He said yes.
"So, of course, they want the easiest sales," I said. "This has got to be as easy as it gets. Joe suggests they try Jim; Jim suggests they try Charlotte; Charlotte suggests they try Marie. It's like shooting ducks in a barrel. Before you know it, you have a one-customer company."
Richard pointed out that the multinational gave its divisions a great deal of autonomy, and they behaved like separate businesses.
"But there's an inherent risk," I said. "What if you screw up badly in one division, and the senior management decides to ban you from the whole company? Or some new policy comes down from on high telling people to use another supplier?"
I explained to him that whenever most of a company's customers have a critical defining characteristic--such as being in the same industry or having the same owner--that company risks losing a huge amount of business all at once. That vulnerability might also affect its value when it's time to sell.
In my archive-retrieval business, for example, most of our customers came from health-related companies and hospitals. We were doing so great there that we ignored other types of prospects. Then I learned my company's valuation was low because so much of our business was in one industry. What if our customers all decided to start storing their records digitally?
"We didn't stop selling to hospitals," I told Richard, "but we put on new salespeople to go after other business, and that's what you have to do."
"But they love us," he said. "We can get a lot more business from other parts of the company."
"I'm not saying you shouldn't," I replied. "Let your sales crew there keep doing it. But you need to hire new salespeople to get new business from other customers."
I think Richard must have already known that he was taking a big chance in being so reliant on one company. That's why he laughed when I called him lazy. By the end of our conversation, he was already thinking about ways to diversify sales.
So remember: When you get the bulk of your sales revenue from just one or two customers, you're just one or two angry or cash-strapped customers away from going out of business.