With small client base, a backup plan needed
NEW YORK – It’s a scary but sometimes necessary way to operate – with only a few clients, and perhaps just one. But what if any of those customers leave in a short time span, erasing a significant chunk of revenue?
“We are reliant on a few large clients, and it is the key concern that keeps me up at a night,” says Brian Cairns, CEO of ProStrategix, a management consulting group and Cairns Consulting, a marketing company, based in New York.
Cairns was a subcontractor several years ago to his biggest marketing client, who would funnel business to him. But when her company ran into problems, his work dropped off.
Many small business owners, including consultants, publicists and architects, have only a handful of customers or clients at a time. If they work solo or have just a few employees, they can’t take on more work. And small manufacturers that turn out custom products for other companies or for the government may have just those few customers.
Vulnerability: There are upsides: It’s less complicated when an owner doesn’t have a lot of accounts to juggle. But it makes a business more vulnerable. Owners find they need strategies to be sure they survive a revenue dip. Cairns’ solution was to launch ProStrategix, so he’d be less dependent on one customer.
Having a few clients gives Joanne Sonenshine’s consulting group time to focus on their specific needs, but “there is a fear that if one or two go away, we are in a serious financial conundrum,” she says. Sonenshine’s company, Connective Impact, works with nonprofits on projects that can last from a few months to a few years. She takes on three to six at a time.
But because Sonenshine’s concerned about losing business, she networks, blogs, uses social media and attends conferences. “I am constantly in business development mode,” says Sonenshine, whose company is based in Arlington, Virginia.
When Gayle Bu networks, she offers potential clients a free 30-minute consultation – but not necessarily with the expectation of being hired. Bu, who’s based in Atlanta, is an online business manager, working with companies and individual entrepreneurs.
“Even if you’re not the right fit, they will tell their network about you,” Bu says. She’s most comfortable with four to six clients – and knows what it’s like to lose two, one right after the other.
Backup plan: “It was a pain in the neck, but it wasn’t devastating because I knew I just needed to call a couple of people and fill those slots next week,” Bu says.
That approach is the key to surviving, says Gene Marks, owner of The Marks Group, a small business consulting firm in Bala Cynwyd, Pennsylvania.
“You should be thinking all the time, ‘If I were fired on Friday, what is Plan B,’” he says.
Owners may not have to look too far for more work, he says. Those who have contracts with one office or division of a large business can do some prospecting in other parts of the company. Marks also recommends that owners keep overhead low and cash flow strong, giving themselves a cushion if a customer suddenly leaves.
Volatility: Staying alert to both positive and negative changes with customers is also key. When Toys R Us said in March it was shutting its stores, for instance, it didn’t come as a surprise to vendors, Marks says. “They knew where things were going six months ahead,” he says.
Business owners who focus on government work deal with the occasional unpredictability of getting paid. When the federal government shut for 16 days in 2013, contractors including many small business owners faced a cash flow nightmare.
Psychologist Ashley Hampton has run into that doing evaluations of children and adults for a state agency in Alabama. When agencies approach the Sept. 30 end of their fiscal year, they start running out of money.
“What typically happens is in mid-July or mid-August it starts slowing down and then in August it becomes a trickle and in September, non-existent,” says Hampton, who’s located in Trussville.
To help make up for the shortfall, Hampton has expanded her geographic reach to 15 counties. She’s also building a separate coaching business for other owners who are trying to build companies.
Development: Some owners start out with many customers, then realize they would work better with just a few. Brian Foley used to rely on thousands of people who used his app, Buddytruk, which he describes as an Uber for people who need trucks for pickups and deliveries. But advertising costs to reach the general public ran too high, especially since individual customers tended to use it once in a while at most.
Two years ago, Foley began focusing on deliveries for shoppers at stores like Costco in Southern California and Austin, Texas. People who buy big items like patio furniture can get a truck to deliver their purchases.
Foley, whose company is based in Santa Monica, California, develops and maintains relationships with store managers and employees so he can advertise Buddytruk to customers while they’re shopping. If a manager were to leave, there’s a chance he could lose his company’s presence in a store and in turn, thousands of dollars in revenue each month.
“That’s definitely a worry of ours. The longer the relationship lasts, the more of a moat you create around yourself,” Foley says.