The risk hiding inside a great customer relationship
Imagine you’re sitting in a leadership meeting reviewing your business. Revenue is strong. Your biggest customer is happy. They’ve been with you for years. You know their senior leadership, your teams work well together, and maybe they represent 25%, 30%, or even 40% of your revenue.
You feel pretty good. Then someone asks:
“What would happen if they left tomorrow?”
Your immediate reaction might be: “They wouldn’t.”
Maybe you’re right. But what if you’re not?
The best time to prepare for losing your biggest customer is when you can’t imagine losing them.
I’ve Been There
At one point during my career as CEO, our company lost two large customers in the same week. Yes, the same week. These weren’t small accounts we could easily replace. They represented significant revenue, and their departure had an immediate impact on our business. I remember the feeling clearly.
As CEO, I couldn’t just think about the lost sales. I had to think about employees, fixed costs, inventory, commitments we’d already made, and plans we’d developed assuming that revenue would continue.
And, of course, the biggest question:
How are we going to replace this business?
When you have a long-term customer relationship, it’s easy to believe that customer will always be there. Until they aren’t.
They Don’t Have to Be Unhappy to Leave You
One of the biggest mistakes we can make is assuming that if we take great care of our customers, we’ll never lose them. Exceptional service matters. Strong relationships matter. Delivering value matters.
But sometimes customers leave for reasons that have absolutely nothing to do with you.
- They get acquired.
- A new CEO or purchasing executive arrives and has different relationships.
- They consolidate vendors.
- Their strategy changes.
- They decide to bring something in-house.
- Their own business declines.
- Or a competitor makes them an offer you simply can’t—or shouldn’t—match.
You can do everything right and still lose the business.
A strong customer relationship reduces risk. It doesn’t eliminate it.
Success Can Make Us Comfortable
Here’s the irony. The better things are going, the easier it is to stop worrying about where future business will come from. Your team is busy servicing existing customers. Revenue is growing. Everyone has more than enough to do. Why spend time pursuing new customers when business is already good? Because business may not always be this good.
Business development shouldn’t become urgent only when you’ve lost a major account. By then, you’re selling from a position of need instead of strength.
Don’t let today’s biggest customer become tomorrow’s biggest vulnerability.
Ask the Uncomfortable Questions Now
This is a conversation every leadership team should have before there’s a problem.
Ask:
- What percentage of our revenue comes from our top five customers?
- What would happen to profitability and cash flow if our largest customer disappeared?
- How quickly could we adjust expenses?
- How long would it realistically take to replace that revenue?
- Is our new-business pipeline strong enough?
And here’s one of my favorites:
Are we actively developing new business—or have we become comfortable because business is good?
These aren’t questions designed to make your team paranoid. They’re designed to make you prepared.
Protect the Customer—and Protect the Company
Of course you should do everything you can to retain your best customers. Know their business. Build relationships with multiple people in their organization. Understand what’s changing for them. Continually look for ways to create more value.
But protecting the company requires something more.
- Keep developing new relationships.
- Keep strengthening your sales pipeline.
- Keep diversifying your customer base.
- And don’t allow one customer—no matter how wonderful the relationship—to determine the future of your company.
Three Things to Remember
1. Great customer relationships aren’t guarantees they will stay with you. Customers can leave for reasons completely outside your control.
2. Know your exposure. Understand exactly what losing a major customer would mean to your revenue, profitability, cash flow, and people.
3. Develop new business before you need it. The worst time to start looking for customers is the week after your largest one leaves.
Losing two significant customers in one week was not an experience I would want to repeat. But it taught me something I’ve never forgotten:
Never assume today’s revenue belongs to you tomorrow. It’s always good business to be a little paranoid.
At your next leadership meeting, ask your team one uncomfortable question:
“What would we do if our biggest customer called tomorrow and said they were leaving?”
If you don’t have a good answer, that’s valuable information. Because leadership isn’t about expecting the worst. It’s about building a company strong enough to handle it if it happens.
Onward and upward,
Karen Caplan
Executive Coaching and Consulting for Business CEOs, Owners and Presidents
