If you want to sell your business one day, I'd encourage you to consider selling one thing to lots of people. In fact, if any one of your customers represents more than 15 percent of your revenue, it may be time to diversify. Being overly reliant on one customer is not just risky now, but it will also discount the value of your business when you're ready to sell it down the road.
So how do you diversify your customer base?
Instead of selling lots of stuff you are good at to a few customers, focus on selling a smaller list of things you're world class at to a broader group of customers.
In my research company, we used to get the bulk of our business from just three companies: a bank, a phone company and a software maker. We would do focus groups, telephone surveys, consulting, workshops -- I'm surprised we didn't end up offering window-cleaning services.
When I decided to position my company to sell, I needed to dramatically decrease our reliance on the loyalty of my three best customers. I decided to pick a couple of our best-selling services, bundle them up and sell one thing to more companies. We went from serving three customers to having more than 100, with no one customer worth more than 5 percent of our revenue. The diversity of our customers was an important reason we were acquired in 2008.
In his book The Dip, Seth Godin argues that to get past the inevitable lull a business suffers after the startup honeymoon, you need to do some strategic quitting to become the world's best at one thing.
I spoke with Seth this week, and he shared the example of the Candy Shoppe, a fantastically successful retailer just north of Toronto. Each week in the summer, Torontonians evacuate the humidity of Toronto and head for a region sprinkled with hundreds of lakes a couple of hours north of the city. The Candy Shoppe is strategically located on Highway 11 about 90 minutes north of the city and perfectly situated to intercept weary travelers on their way north with a carful of restless kids.
Hundreds of other Highway 11 retailers each try to hawk a lot of stuff -- everything from propane to wild blueberries to butter tarts -- to the small number of customers who happen to stop. As a result of their sell-lots-of-stuff-to-a-few-people strategy, they are totally forgettable businesses.
At the Candy Shoppe, though, all they sell is candy. You can get salted liquorice, Bassett's Sherbet Lemons, Turkish delight -- just about anything to satisfy your sweet tooth but nothing other than candy.
The Candy Shoppe sells one thing to lots of people and has become one of the most successful candy retailers in the world with the average customer spending $60 per visit.
If you feel as though you're overly reliant on a handful of customers, it's time to pick one or two things you can be among the best in the world at and start selling less stuff to more people.
How about you? Are you focused on share of wallet or share of market?
Re Read more:
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- When Profit Is The Enemy of Value
John Warrillow is the author of Built to Sell: Turn Your Business into One You Can Sell. He has started and exited four companies and was named one of America's most influential marketers by BtoB Magazine in 2008. Think you can sell your business? Take the Sellability Index Quiz.
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