Is Landing a Huge Account the Right Way to Scale Up?
It’s no secret that scaling companies need to scale up their sales. You’ve heard before that nothing chews up cash faster than a growing, scaling company. It’s no wonder that growing companies get excited when they land a big new client. But blind dependence on the big account can be extremely dangerous for a scaling company.
Having one dominant, oversized account or client can change the way your company operates. That’s not always a good thing. You may like the income that comes with a large new client, but you may get more than you bargained for. A big fish in a small pond tends to throw its weight around in the business world.
A “Big Fish” Example
A colleague related how he’d seen this scenario play out in Europe a few years back. A certain furniture company was expanding rapidly, having captured the huge “assemble-it-yourself” furniture market. They quickly became a big fish in the market and needed additional suppliers. Eastern Europe was coming out of Communist control and had hundreds of plants that were operating well under capacity. The furniture manufacturer contracted with many of these smaller plants that were looking to scale up operations.
They offered them huge contracts at a decent price. But it required the plants to retool to meet the needs of the furniture maker. The plants were eager for the work and re-tooled. They had so much work that they didn’t pursue other clients.
A year later, the contracts ended, the furniture manufacturer came to the plants with new contracts at a significantly reduced rate. The smaller, scaling plants were in a world of hurt. They had retooled everything to meet the needs of the big client. That was the only thing they were set up to do. Turning down a much less lucrative contract wasn’t an option. They had put all of their proverbial eggs in one basket. They had scaled up, but now they were locked in.
That doesn’t mean you shouldn’t pursue or accept large clients. But you need to do so thoughtfully and ask yourself some key questions.
Does Taking on a Big Client Align with Your Vision?
Will you still be in control of what you want your company to be? That’s why it’s so important to have a clear vision for your company and ask yourself if it’s broad enough to accommodate such a customer.
How Will this Client Affect Your Strategy?
Is the client you’re considering so large that it will affect your strategy for reaching the market that you’ve identified? Will it preclude you from pursuing other business?
What Does It Do to Your Cash Flow?
It’s easy to get a bit giddy over the money that (potentially) will be coming in. But how will this client’s demands affect your cash flow? Are you prepared for a change? Will you incur unexpected expenses to meet the demands of your new client?
What is the Long-term Perspective?
How long will the new big client continue to do business with you? How much will you depend on their business? What if they find another supplier? Will they come back to you with demands to lower your price? Can you survive if they go out of business?
I mentioned reviewing your vision to see if it aligns with the challenges of taking on a large client. Click on the “Assess Your Strategy” button below to take a quick (2-minute) evaluation of your current corporate vision.
