Big customers can bring big revenue… and big headaches.
To take a trivial example, which of us ever undertakes laborious physical exercise, except to obtain some advantage from it?
While growing my first software services business, big companies felt like the holy grail of customers. I saw revenue potential and chased it. And it nearly killed my startup business.
I was lucky — my business survived. I eventually grew it to $10 million in annual revenue before selling my shares and pursuing better outcomes.
But many firms aren’t so lucky. At least in the US, we live in a “big is better” culture where we covet bigger revenue, and thus, bigger customers.
Large companies seem like the logical way to grow faster. I won’t try to dispute that. Yet I will say that they come with many negative qualities.
I love smaller customers. Why? I’ll share 5 reasons why smaller customers are superior to your large customers.
Top 5 reasons for preferring smaller customers
Large companies come with a mixed bag of qualities. While we tend to focus on the revenue potential, we often ignore or downplay the trade-offs that come with that massive spending power.
#1 — Many builds resilience
When any single customer represents more than 10% of your revenue, you are in trouble. You need them more than they need you. And some customers will take advantage of that fact.
Plus, big customers often have significant needs. This can put a ton of pressure on your small and growing team to keep up. More often than not, this leads to service quality issues for your other clients. I’ve seen this play out where one big customer will squeeze out your other clients… compounding your issues by making you dependent on even fewer revenue sources.
When you look at smaller clients, you can often handle many more and, when (not if) one decides to leave, you can absorb that loss.
#2 — Follow your lead
Big customers often come to you set in their ways. You need to bend to their will and that limits your ability to add value. While a definite generalization, this has played out for me more times than I can recall.
Those big customers often treat you like order takers. You are expected to do what they say and how they dictate. While not impossible to show them a better way forward, it’s often painful and hurts margins.
Yet with most smaller customers, they have less process and inertia baked into their business. They come to you for leadership and expertise. This means you have a great opportunity to add real value to their business.
#3 — Grow with you
Small customers can become bigger customers. Especially, if you help them by removing pain, reducing costs, or increasing their revenue.
I love the idea of “land and expand”. Customers often come to you for an immediate need. Yet, as you build rapport, you’ll likely discover additional challenges and opportunities. If those needs align with your unique business strengths, you can sell them more services.
If you look at this from a large customer perspective, you’d likely be growing at the expense of other clients. Just trying to keep up with their unrelenting need for more of anything you can offer.
#4 — Build both brands
As your business grows, showing who you work with and what you’ve achieved is vital for helping other potential clients find you.
Large customers are notoriously strict about using their likeness. Few would risk associating with a small firm. The upside is likely too small for them.
That’s where smaller customers can be more flexible. They are growing as well and not necessarily as strict with press releases or marketing efforts.
Co-marketing can benefit both parties. You’re both growing and associating brands with ways of adding value can have huge upsides for both parties.
#5 — Build repeatable processes
When smaller customers expect you to take the lead, they are giving you an opportunity to follow a methodology of your own making. This is your chance to build something repeatable.
Repeatable processes make you more effective. This, in turn, helps you serve more clients in the same span of time. There is a ton of upside to crafting your “way” of doing things. This is how a service firm scales… by becoming exceptional at a few, well-defined and valuable outcomes.
What you should take away ?
The underlying questions being addressed: Why are smaller customers often better than large customers?
- Many vs few. Your revenue won’t be so beholden to a few large clients. No single client will have an iron grip on your business.
- More inclined to follow. Smaller customers are often less set in their ways so you can introduce change more readily.
- Not always small. Small customers often grow and increase their spend with your business. First, you invest, then you grow with them.
- Marketing benefits both. Small customers are often more open to marketing ideas that benefit both brands.
- Build repeatable processes. Since smaller customers want to follow your lead, you can systematize your workflow. More margin.
Source : Casey Winans, sold my 8-figure software services firm in 2018 to help similar businesses align with customers for better outcomes.