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Risky business

Risky business

This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in February 2012 and is posted here by their kind permission.


Having one large customer is wonderful – until something bad happens



The Challenge

This entrepreneur has printed training manuals for a large national company for 18 months. He purchased additional machinery for their work, although there was no contract in place. Recently the orders have dwindled and the new machinery stands idle. The buyer now places orders with a friend. The entrepreneur asks if there is any way he can complain about cronyism.

Our response

Most small businesses dream of having at least one really large company as a customer. Big orders mean rapid growth and the cost of sale is lower than dealing with many small businesses. But there are disadvantages – entrepreneurs entering deals with very large organisations should consider Porter’s ‘Five Forces’ model, where the power of customer is identified as a competitive force.

In this case customer management had been complimentary about the work, the trainers preferred his manuals and he had believed that the account was secure. He was wrong, and although he could complain to management about the conduct of the buyer he is unlikely to gain by demanding their business as if it were his right to do the work. It is not – the company is free to choose whatever printer they like, for whatever reasons they may have. The entrepreneur will be better off by having a broader spread of customers desperately wanting to buy from him.

Doing things differently

What could he have done differently?  What can he do now? One way is by making himself indispensible to the customer, or at least so far ahead of any other company that they would never think of changing. A word of warning – the customer must believe he is indispensable; the entrepreneur’s own thoughts don’t count. That belief must also be held by people who make money decisions as well as the users. In this case the trainers were unhappy about orders going elsewhere, but they did not have the power to change buying decisions, nor was their approval strong enough to cause them to protest. He was not far ahead, let alone indispensible. He also only knows one side of the story; the competitor may have simply outsold him by making a more attractive offer to the customer.

There are many ways to make his business indispensible. It may be delivery schedules that others cannot meet; it may be the flexibility to smilingly accept revisions far later than others would dream of, or some level of clarity of text or layout expertise that is unique, or other capability or business practice. It should be a factor, or preferably a whole basket of factors where the customer will feel a lot of pain if he ceases to be their supplier. These factors are surprisingly easy to find – the entrepreneur could go to the customer and ask them for three ‘magic wishes’ which would make their lives so much easier that they can only dream of having them. Then he needs to go away and figure out a way to give them all or most of their wish. They will be his customer forever.

Other solutions

A contract is clearly the simplest solution, and should have been in place before he bought machinery.  He could still start a new sales cycle to gain a contract for a certain percentage of the work; then at least he will have a minimum guarantee, and know how much equipment he needs for the contract. He may be able to downscale his idle machinery, even if he pays a penalty.

And even better solution is to broaden the customer base, and this entrepreneur should do this right now. Once he knows his unique strengths he should seek out similar organisations to his current customer; they are likely to have the same needs. If he cannot find any unique or at least unusual strengths of his company then he is running a me-too business, and is dependent on competitors giving bad service, or luck of being in the right place at the right time. Would any entrepreneur deliberately make this their marketing strategy? I think not, but too many slip into that position.

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