Small Business No-Nos

A couple of years ago I made a call on a $3M company. They needed help. As the owner described the business and customer base he mentioned that one customer represented 60% of the company’s revenue! Gasp, cough, clear the throat, turn pale, and fight off that faint feeling! Holy mistake bat-owner what the hell are you doing? Sometimes consultants have to hide all manner of emotions in situations like this.

Here is a short list of situations that should be of concern if you own a small business:

  1. One customer represents over 50% of company revenue.
  2. Less than 5 customers represent over 90% of the revenue.
  3. If the owner is also one of the salespeople and his or her clients represent over 70% of the revenue.
  4. Your salesperson has not closed a sale in 3-6 months. (Obviously you have to consider the length of the sales cycle. Adjust a “closed sale” to the sales cycle.)
  5. Your salesperson is new to the company and has not closed a sale in 9 months. (My rule of thumb is that it takes 6 months for a new rep to get their feet under them. Of course factors affect this as well so, again, adjust accordingly.)
  6. The owner spends too much time involved in sales instead of running the company. (How much is too much? If the company does $3M in revenue, there are salespeople creating business, and growth is good then the owner should be more involved with running the company. If the company does $500K then the owner may have to stay involved with sales.)
  7. Growth comes only from existing customers and not from new customers.
  8. The owner decides to market products to companies outside the main business niche. (Diversification of product lines will work but going into a new industry niche could be hazardous. More than anything else, greed drives this. Be careful.)
  9. As we saw in silicon valley in the 80’s don’t get carried away with your building, and what’s in it. Most of the owners I know have humble yet functional office space.

One business owner I know assumes that Murphy (of Murphy’s Law) has an office in the building. That’s a little out there for me but it worked well for him. I am no graduate of Wharton but it seems to me that if an owner has a solid product, a reasonable business/growth plan, good people, a decent market and economy then they will or should avoid some or all the above. Shouldn’t common sense drive business decisions?

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