Why putting all your eggs in one basket is good for business growth
Has anyone ever told you it’s a bad idea to concentrate on a few big customers? It’s a line of thinking that we’ve heard before. Instead, this view suggests you should cast your net wide. A diverse spread of business is less risky with lower exposure.
That’s all well and good. But it’s not going to lead your business to rapid growth. We’re here to encourage you to take the risk. Be bold. In our experience, the thing that fast-growing companies have in common is client concentration. Putting all your eggs in one basket can be super helpful when you’re trying to scale quickly. Servicing a few, highly profitable organisations will put you on a rapid trajectory where the sky’s the limit.
If you have sluggish growth right now, it’s because there’s no revenue concentration. Your business is a disparate mix of lower-value customers with no mechanism to give you greater focus.
There’s no doubt it’s a hard egg to crack. But once you do, there will be no stopping your growth.
As ever, this comes back to your core customer. Zero down on the most profitable customers with the potential to drive your expansion.
There are prospect companies I’ve visited that have 200 customers. Five of these 200 have become very large. They’ve grown over time. But they’re not leveraging their success with these customers to go after others that look the same. They’re continuing to keep their cost structure based on the smaller clients.
When I arrived as MD of Peer 1 in Southampton, we did some detailed analysis of our customer base. I was most interested in our business’s spread and revenue concentration. It turned out that 5% of our client base accounted for 60% of our revenue. 60%! That’s huge. What’s more, these customers were growing at a rate of 4% month over month whereas growth from our smaller clients was stagnant or going backwards.
It was clear what we needed to do. We re-focused our business on that 5%. They were given the five-star service that was needed. And our business development team only needed 100 of these high-net-worth customers to double our business.
Efficiencies of operation
We’ve worked with Mudano, the strategic data consultancy, before Accenture acquired them. When they first came to us for coaching, they’d grown to a £15m business in less than three years. How did they do this? By serving one client. Yes – there was a big risk. But it was a risk they were willing to take due to the speed of their growth. It paid off big time.
There are big efficiencies to be had when your growth comes from one client. The service and cost structure can be fine-tuned to the client’s needs. Your offering can evolve and become more specialised, as happened in Mudano’s case.
There was one quarter when their revenue unexpectedly dropped to zero. Scary moment. They were expecting to turn over £5m, but the business dried up. But they’d been holding back a dam of new clients who wanted to deal with them. They took on a couple more to tide them over and their large customer returned the following quarter.
Repositioning your business
All the signs are we’re heading into another recession in the UK. So take action now. Think about repositioning your business. Work out your core customer and where your growth is likely to come from. Narrow down your positioning based on your greatest expertise.
You can do all this without expending any extra resources. Look at your existing customer base and service model. What are you going to stop doing? This is as important as where you’re going to focus.
At IT Lab, we had 650 customers that we’d serve on an ad hoc basis. When they needed us, they got on the phone and we’d provide time and materials. We decided to lose this business. The customers were given a separate phone number manned by a skeleton staff. We made sure it didn’t interfere with the delivery of higher-value contracts. And we cut the run cost to a minimum.
We also reviewed the customers who didn’t make us any money. Funnily enough, they were the ones that our staff didn’t like doing business with! So we put prices up, retrained some of them and got rid of others. A double hit that improved both our profitability and staff engagement scores.
Focusing on big deals
As CEO, it’s common to win a customer and start to build a great relationship with them. Over time, that customer takes you on a journey as you do more and more work for them. Make sure you maximise the potential of this relationship. Leverage it to go after bigger deals that will take you further up-market.
At Peer 1, the first of these big customers was Debenhams in the UK. We won their eCommerce business and scaled our revenue off the back of this expertise. Deliberate decisions were made around growing in the eCommerce space. We built a sales and implementation team that was capable of winning and bedding in these products and services.
When I arrived as MD in 2009, we were selling $249 per month contracts. There’s no way we could have imagined that five years later, we’d have a client spending $1 million a month! It seemed inconceivable. But that’s exactly what happened.
You need to evolve your sales capability at this point in your growth journey. Recognise that the start-up days are over. It’s very different at the beginning. You’re looking at the total addressable market and the small bit that you’re going after. You know the size of the client and the problem you’re solving and you can hire a sales organisation to go after that piece of the market.
Recruiting the right sales team
Part of successfully repositioning your business around a few larger clients is finding the right sales team. Big deals are done by people who specialise in big deals. If you can’t afford someone who’s in the same industry as you, look at an adjacent industry where they’ve sold a different product to similar customers. Don’t expect them to come with a black book. But look for a recent track record of success selling services/products to the value you’re looking to sell.
Our advice to clients is to hire two people. You’ll never be able to gauge one person’s success if you’ve only got one data point. You want them to be bringing in at least three times their total package in gross profit. If they’re both able to do this at the end of 12 months, then great. Keep them both. If not, say goodbye and keep looking.
Too often, we see Account Managers who service existing business but don’t try and grow it. It’s because they’re project or customer service people. They need to focus on finding more opportunities to sell inside that account. And when you recruit your sales team, make sure they’re 100% focused on sales. There should be no involvement in service. This is about specialisation, and I’m dogmatic about keeping account management and sales separate.
Using bigger customers to drive innovation
Looking back through my career, the moments where we’ve innovated were driven by good relationships with core customers. Your existing customers are far more likely to trust you to deliver. That’s when the learning happens before you take any new products out to the external market.
Take our experience with Debenhams at Peer 1. We productised our offering, refining it to a point where we could sell it to other large clients. Companies that bumble along with slow growth don’t seem to have this brain power around innovation.
If you’re a business that’s scaling fast, you’re constantly innovating and repositioning. All through this journey, you’re re-visiting the identity of your core customer and the problem of theirs that you’re solving. As you go deeper into an area of expertise and your positioning narrows, your geographical reach will likely get bigger.
If all your customers are located within a 50-mile radius of where you’re based, you need to work on innovation and positioning. Companies with a global customer base will have deep expertise gained through constant repositioning. Not only that, but they’ll also have premium pricing.
- NAVIGATING AND COMMUNICATING CHANGE
- BUILDING COMPANY CULTURE
- CHOOSING THE RIGHT OPPORTUNITIES
- ORGANISING YOUR A-TEAM