Updated: Nov 17
One danger that many small businesses flirt with is the over-reliance on one or two large customers. Especially if the customers currently send enough business to keep things busy. The obvious risk is that the customer may suddenly disappear. As unlikely as it seems at the time, it happens frequently. Even if you have a long-term contract, a downturn in your customer’s business could cause financial problems that would inhibit your customer’s ability to pay in as timely a manner. If more than 10% of your revenue comes from one customer, you may have a reason for concern. I do not suggest that you pull back on a relationship that is and will more than likely continue to be very lucrative. Just do not become complacent. Your business development efforts should never stop, especially if you have a customer concentration issue. Fill every crack in production time with new clients, even if they are much smaller.
I keep emphasizing the fact that the business environment today differs from just ten years ago. Fortunes seem to turn on a dime. I am familiar with a few small businesses that do a lot of government contracting. Depending on how things are going in Washington, DC, this can be very profitable, or it can be dry as a desert. Early in the Obama administration when Congress passed the stimulus package, many businesses (especially construction) secured contracts for infrastructure projects. Relying on jobs that come about in this way creates a daunting problem—They can disappear as quickly as they appeared. A few short years after the stimulus, the politicians put in place the sequester which dried up most federal money for non-essential projects. This is not to argue the politics of what was right or wrong. It just illustrates how fleeting success can be unless you continually back-fill your current client base.