Rules for Entrepreneurs – Avoid relying on a few whale customers

As you build your business the thing you need the most are those first customers. They are what provide you cash flow and a track record to win new customers. Getting the first few are the hardest because they are usually buying from you and believe in your ability to deliver. This is one of your greatest strengths, but over time, it can become one of your biggest liabilities. Let me explain…

Selling yourself is different from selling your business

As I mentioned, when starting a business there is probably just you and maybe a partner. Many people bring contracts and relationships from previous jobs that help jumpstart the business and gets the cash flow going. These customers are buying from you because they know you and your ability to deliver. This is great and is the way many companies start, but you are really just selling yourself and not selling your business. This is the habit you must break.

Within the first six months of your business you should be planning a major marketing and sales effort to expand your client base beyond your core relationships. This takes your business to the next level where people are looking at the business and not just buying from you. Still they are buying from you but you must have people that can manage the project and be ready to take the lead. This accomplishes two things:

  1. You have more time to continue selling and growing the business
  2. You do not become the “go to person” for every issue keeping the perception that they are buying from you

Whale customers are great to have in the beginning

As the business grows, you might be lucky enough to land some great big clients that provide a lot of revenue to help you expand. This is great and we should all be so blessed by winning these kinds of clients. However, what develops is the “90/10” rule – 10% of the clients provide 90% of the revenue. This could mean that 1 or 2 clients are keeping the company running and losing one of them would be catastrophic to the business. So you must do one key thing quickly – diversify.

You must diversify or your put your success in jeopardy

Diversification is hard for some companies. Many people get lazy and confident that they will never lose them. Trust me, I speak from experience, you will. It could be a change in management, your champion leaves to take another job, budget control moves to a different department that doesn’t know you and doesn’t see your value, or the company goes out of business. What I am trying to say is that anything could happen and it could happen at any time.

So what do you do? After I learned my first hard lesson, I applied this rule – for every whale client, I worked over a six month period to find 5-10 customers that matched their revenues so that over a two year period those whales went from 90% to 10-20% of your overall revenues. This gave us a greater sense of comfort so when we would lose one of those two whales, which we eventually did, we only had a dip in revenues and used our sales campaigns to pick up the slack and pick up a few new smaller customers to fill in the revenue gaps.

Are you in the “Whale Boat” right now?

Are you dealing with the same dilemma? What have you done to diversify your client base? What advice to you have for your fellow entrepreneurs?

One Reply to “Rules for Entrepreneurs – Avoid relying on a few whale customers”

  1. Great post Steve and I couldn’t agree more that in the beginning whale customers are great to have. And while I agree that diversification is important, it holds true for even many of the largest companies, not just individual consultants, that the vast majority of income will come from the minority of customers. My experience was more along the lines of an 80/20 split though 90/10 is not uncommon.

    Again, agree with diversification, particularly across industry if you are able to do so, such that if your biggest 2 clients are in Telecom (for example) and the Telecom industry has a pull back, you are more likely to loose 2 whales than one, but if one is Enegry you are likely in better shape.

    Consultants and entrepreneurs should also recognize that the level of effort and cost of acquisition of new business with a current (and happy) customer is much lower than acquiring a net new client, so business men and women should continue to put a great deal of emphasis on those customers. Hands down, it’s tough with only 24 hrs in the day to chase both but I would caution people about focusing too much on net new if it comes at the expense of the whale they currently have.

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