When a Customer Outgrows You

There is nothing that quite matches the excitement of landing your first really big customer. It often brings with it the confidence that comes with knowing, really knowing, that you can compete in the big leagues. There could be the added security of a baseline of business that permits longer-term planning. Even if you had to squeeze your normal margins a bit, the additional cash flow is worth it.

When you land a customer who is many times larger than you are, the disparity in size can be a trap. If the customer is ten times your size, a 5% growth in their business might mean a 50% growth in yours.

suit too bigEvery owner says that his or her company will grow in other areas to avoid being overly dependent on one account. In reality, just keeping up may be as much as their business can handle. Even if the customer is understanding of the small suppliers’ issues (not, for instance, demanding extended payment terms or exclusivity,) there are other challenges.

Larger customers may require more documentation, quality certifications, or compliant computer systems. They expect sufficient inventory to meet short-term surges in demand, and could ask for more visibility into financial statements than you would normally be comfortable with.

Does that mean small vendors should avoid chasing giant customers? Not at all. Most of the small start ups that I know who achieved mid-market levels (over $50 million in revenue) got there by riding one really large customer for some period. Eventually they grew up enough to attract a few more big players. There was risk, but the owners never lost sight of the long term benefits.

Eventually, they learned enough about how big organizations purchase and manage vendors to make themselves attractive to others. It was a wild ride, and not everyone comes out well in every such relationship, but the risk can be more than worth it.

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