Sometimes clients can be more trouble than they are worth.

Sometimes clients can be more trouble than they are worth.

Everyone in business goes after the big contract and it’s a great feeling when you land it. Do a great job and you can get repeat work, eventually turning the big contract into the Big Client. But wait a minute – is that what you really want?

The answer will be ‘no’ in a surprising number of cases. The value of a big client will often depend on how big it gets in relation to the rest of your business. The consequences can be dire when it starts crowding out other clients and other opportunities. As a small business, you don’t want your long-term prosperity to be sacrificed on the altar of short-term gain.

So at what point should the red lights be flashing about over-dependency, and what can you do about it?

Every industry sector is littered with small business calamities resulting from dependency on too few clients. Sometimes these are very high-profile. A tremor went through the entire auto parts industry in May when Ford announced it was closing its Australian plants, the latest in a steady series of retrenchments that will cascade through the ranks of second-, third- and fourth-tier suppliers.

But you don’t have to be an auto parts supplier in Melbourne or Detroit to suffer the consequences of over-dependency on a client.

It’s not just that you are a dead cinch to fire when the going gets tough for your client. You are even easier to dispatch into oblivion if your good relationship with the client company rests primarily on the strength of one or two personal relationships you have built with key executives. In most industries, executives move around jobs so frequently that a rock-solid relationship you have with a firm one day can amount to very little the next.

Short-term financial risk is only one issue. The deeper problem a big client poses to a small business is its potential to damage its ability to expand both its client base and set of competencies.

There isn’t really a rule of thumb to tell you when a client is getting too big for the good of your business. In consulting, by the time a client gets large enough to be accounting for, say, 50 per cent of your business revenue, it could easily be absorbing up to 80 per cent of your time and resources.

This kind of distortion occurs for a number of reasons. The client becomes cognisant of how important it has become to the business and grows more demanding, in the extreme case treating you as though you are an employee of the firm who should be at its beck and call 24/7. They may even be kind enough to give you an office and expect you to be there a few days a week, something I have seen happen to other consultants.

This is where you need to draw a line in the sand, unless of course you’re tired of being your own boss and feel like actually being an employee again.

But redressing the power balance can be very difficult because the financial repercussions of losing the client have grown so high.

Of course, as a small business you may think the ends (keeping the customer) justify the means (kowtowing). Unfortunately, that is often not the case.

In some cases your commitment to the big client prevents you from pursuing superior and more remunerative opportunities with other clients. It snuffs out the time, energy and resources you need to take a longer-term perspective and market yourself properly.

At the same time you are failing to broaden your skillset. If you only work with one client you will only learn how to solve one set of problems. Unless your aspirations are very limited this is not a hole you want to be dragged into.

A couple of years ago I did advisory work for a company that accounted for roughly 30 per cent of my income. The work became increasingly rote and unsatisfying, and didn’t seem to be providing enough of a return considering the amount of intellectual capital I was transferring to this client. But it was nice and secure so although I had my doubts I hummed and hawed for a full year before becoming so fed up I took the radical step of cutting all ties.

Then something stunning happened. My client base began to expand rapidly, and all of the income lost by untethering myself from this particular client was more than made up for in the space of a few months.

What happened? Of course I found more time for marketing and had a more positive frame of mind generally. It also turned out that some key potential clients had not been coming to me before because I did so much work for the other firm I was widely perceived to be an employee of theirs. It was only when I had freed myself up to focus on other opportunities that they became aware of my availability.

Of course, this is not to say that you should never have, or aspire to have, big clients, much less that you should instantly dump the ones you have. Just pay attention to the warning signs and remember that in some cases it can be better to jump now than be pushed later.

– Michael Baker
Sydney Morning Herald