Why Avoid Single Customer Syndrome? Part One

The current challenges with the US and global economies have affected most companies large and small in a variety of ways. 

• On the positive side, well-run and diversified companies have been able to survive and even grow because they have not been overly reliant on any single market sector or small group of customers.  These companies have also had the opportunity to take market share and customers from their competitors, particularly if their competitors are struggling.
• On the negative side, companies reliant on one or two major customers are in deep trouble.  For example, think about lower tier automotive suppliers.  Most of these suppliers have been heavily affected by a drop in orders from automotive OEMs or Tier One suppliers.  During the last three years, many of these companies have closed, been sold or are hanging on by a thread.  I call this “Single Customer Syndrome”.

If your company relies on less than three customers for 80 percent% of its total revenue, then your company may be affected by this syndrome.  Why is it a concern?  The answer should be fairly obvious, if your main customer has a problem with the demand for their products, then your company will likely be one of the first to know.  Put another way, “if your main customer sneezes, you are likely to catch the flu”.

Take this simple five question test:

1. Are most your sales reliant on three or less customers?
2. Are they all in the same or similar industrial market segments?
3. Are these market segments or are the primary segments you serve trending downward in terms of growth?
4. Is your sales team largely “inside sales” and mostly responsible for the care and feeding of your main customers?
5. Is your company’s history largely based on serving these customers and market segments?

How to Avoid Single Customer Syndrome

• The first step is acknowledge your company has a problem and take the five question test. 
• List the weaknesses your company has that inhibit the ability to find and develop new customers in new markets.
• Now reverse the process and identify the strengths your business has that can potentially be leveraged to help find new customers.  If you are an automotive supplier, you are in better condition than you might think compared to potential competitors because you probably have an ISO 9000-2000 certification, have begun implementing some of the elements of Lean to take waste out of your processes and use other procedures that you have been required to adopt.

Stay tuned for part two next week and learn what you can do to begin growing profitably again and diversify your business.

Charlie Alter owns Bentbrook Advisors LLC based in Sylvania, Ohio.  He specializes in Business Growth Strategy, Innovation, and Coaching and can be reached at . Visit https://bentbrookadvisors.com for more information on his business advisory practice.

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