Grow Your Company With Fewer Customers

A new study finds evidence to support the idea of ‘less is more’. Here’s why scaling your company with fewer clients may just contribute to your company’s long-term health.

Helena Yli-Renko, an assistant professor of clinical entrepreneurship at USC’s Marshall School of Business, was working on her Ph.D in Finland in the late 1990′s when she began to observe a novel trend among Finnish telecommunications start-ups: rather than seeking out multiple customers to grow their companies, the companies all seemed to be clamoring to strike deals with Nokia, an industry leader. At the same time, the young companies were apprehensive about their growth strategies: “They were worried about putting all their eggs in one basket,” she says.

And rightfully so. Why put it all on the line for one big client—no matter how big they are?

Over the next six years, Yli-Renko set out to determine if those fears were justified. With Dr. Ramkumar Janakiraman, a management professor at Texas A&M, Yli-Renko surveyed 180 young firms operating in business-to-business, and asked: How does dependence on a key customer impact the firm’s customer growth?

Defying conventional wisdom, the researchers found that young companies that rely on one or two big clients were more successful than companies that didn’t. In her words, “What we found was that key customer dependence actually had a positive effect on the firm’s customer growth.”

Following are the factors that help young companies scale with just a couple of clients—and how your firm can leverage them for growth.

Who your clients are matters. If your one key customer is someone like Apple or GM—industry leaders that are well-recognized and well-respected—you’re going to get positive reputation effects from that relationship.

“That instantly creates legitimacy for that young firm,” says Yli-Renko. “Other firms may says, ‘If GM uses these guys, we can too.’”

Good clients act as great referrers—and your evangelists. By focusing on a single client relationship, Devesh Dwivedi, founder of a Web development company in New Jersey, has grown his business.

“They would hire us for every project they had, but the reason I use the word “evangelist” is because they personally introduced me to each one of their business contacts,” says Dwivedi.

The client also became a mentor to Dwivedi, helping him strategize on new product offerings, and how to best position his company.

Yli-Renko says this type of ‘evangelism’ was pervasive among her study. Going to an industry trade show, for example, with a client like GM will open doors for future connections. ”It’s about building personal networks,” she says.

Find the perfect balance. Denise O’Berry, a small business consultant based in Tampa, Florida, says the company should look at their bottom line to determine if they’re too dependent: If more than 50 percent of the company’s revenue comes from one client, it’s time to move on to new prospects.

“The sexiness of the steady client has quite an allure to it, especially for start-up companies,” she says. “But they need to divide their time between making clients happy, and not totally stop trying to do customer acquisition, mainly because of the risks. They need to have a process in place for business development in addition to satisfying their current clients.”

Know when to expand. Eventually, even if your company does rely on one or two big clients, you’ll want to expand.

According to Russ Lombardo, president of Cary, North Carolina-based PEAK Sales consulting, “When it gets to the point where a customer says ‘I want a demo,’ and you have to say, ‘Sorry, we’ll have to schedule it two weeks from now.’ That’s when you know you need more resources—or fewer leads.”

Yli-Renko concluded; ”The basic idea in the research is that if you can sell as much to one large customer as you can sell to 10 smaller customers, you’re going to be more efficient,” she says. “You’re also going to free up marketing dollars and management time that will then enable you to pursue other customers and grow your firm.”

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From a previous post by Eric Markowitz, via Inc, who reports on start-ups, entrepreneurs, and issues that affect small businesses. Previously, he worked at Vanity Fair. He lives in New York City. @EricMarkowitz

Why Businesses [really] Fail: What to Do

In working with chambers of commerce and business associations I’ve met many business owners who strongly believe that access to business capital is their number one barrier to growing their companies – and to some extent, and now as an entrepreneur, I can relate. The number two and three reasons usually stated are raising costs of health insurance and taxes. Most times these are also the same factors blamed for a failed business.

However, I believe those factors are more symptoms than the root cause, and the infographic alludes to that idea. The real problem? Intellectual capital (or the lack there of). This is the brainpower provided by a person or persons who know your industry better than you do; they know the who, the what and the when of things, and they sometimes have access to key figures to plug-in to. They see your business from a different perspective and could even provide you with an advantage over your competitors.

As you look at the infographic below, think of your business and the pains that afflict you, and then think of who specifically would best solve that problem, their skill set, is it a consultant, and MBA, a SCORE mentor perhaps? Think of that person and don’t limit yourself by money, or as Harish R. Rao says: “pay enough so that money isn’t an issue, then give high recognition, autonomy, and the opportunity to learn and grow,” and watch your team excel. The right person, after all, could be the catalyst for growth in your business and thus worth the investment.

Folks, we as entrepreneurs need to stop trying to do it all ourselves and instead need to hire, outsource, or create partnerships – in other words; delegate to the right people!