Following the result of the US elections, the early indications showed that Hilary Clinton lost because she concentrated solely on the larger states and neglected the smaller ones which she took for granted as an easy win, where democrats traditionally did well in. Not only did she lose some of the larger states, she allowed Donald Trump to muscle in on the smaller states that felt under appreciated by their usual choice and therefore went with those that had paid them some attention.
So why is this relevant to someone in business recovery and why am I writing a blog about it? It seems to me that we could actually all learn something from Donald Trump and from the mistakes of Hilary Clinton. It may not be best to simply focus upon the one or two large customers and just assume that the small ones are always going to be there.
Whilst it may seem sensible to focus on say the top tier customers as they give you the majority of the work, is it sensible to put all your focus on them? You can end up in a situation where the success of your company is solely reliant upon the success of your customer.
As a business owner you do not know what is happening with their business, they could find themselves in difficulty and not be able to pay. What then happens to your business? Those that supplied BHS for many years would have done so with the knowledge that they had a major customer and therefore major orders. When BHS went into administration, many of their smaller suppliers found themselves in difficulty as a result.
Not only had they lost a major customer, but most were owed a significant debt. With large orders comes a higher return, but also much higher risk. Not being paid by someone who makes up a few percent of the company’s turnover is difficult enough, suffering a bad debt from your major customer who could be 50% or more of the turnover could be terminal for the company. Many companies could not cope in this situation and could themselves end up in administration or liquidation.
For some though, they will have considered the risks and calculated that even with a bad debt the risk was worth it and the company could continue. Whilst being able to get over the initial cash flow issue from the bad debt can the business survive in the long term if the major customer is not easy to replace? At this time you need those smaller customers more than ever, but if they have not been looked after and serviced properly, then trying to get custom from them may be extremely difficult. Some of the customers may already have gone elsewhere, fed up with feeling like they had been taken for granted. Others may start to demand more competitive prices for increased orders, pushing down margins at a time when it really cannot be afforded.
As with everything in business, the risks and the rewards need to be considered. Having a major customer can be extremely lucrative for a company, but just make sure that your business is not reliant upon them, and that your smaller customers feel as valued as the large, as one day it may be the small ones that see you through a cash flow difficulty.