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:
- One customer represents over 50% of company revenue.
- Less than 5 customers represent over 90% of the revenue.
- If the owner is also one of the salespeople and his or her clients represent over 70% of the revenue.
- 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.)
- 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.)
- 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.)
- Growth comes only from existing customers and not from new customers.
- 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.)
- 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?