Dr Jeff Cornwall

Landing a big corporation as a customer can put a small business on the map. It can provide the kind of infusion of sales that can make a start-up become viable or help an already thriving small business to grow. But, as with so many things, with all of the good that comes with such a breakthrough, comes new challenges. StartupJournal has several stories of the headaches and heartaches created by a big corporate customer.
Here are a few that I warn small business owners about:
– Dependence. Many small businesses can become almost totally dependent on their large corporate customer. This can make your business vulnerable to the whims of corporate strategy. Corporations think nothing of shutting down a product line or moving their purchasing to an overseas supplier. There is no loyalty when you are feeding at the corporate trough. What is there today, can be gone tomorrow with no warnings or apologies. That is why I urge small businesses to never have one customer that generates more sales than you have profit margin. If your profit margins are 10%, then your biggest client should be no more than 10% of your sales. That way, you can survive the loss of that biggest client and move on. Realistically you cannot always have this ratio. But the moment you land a big customer you should move to make sure that you reach this ratio as soon as possible. Don’t get lazy. As my father likes to say, “Pigs get fat, and hogs get slaughtered.”
– Culture and Ethics. Remember when your mother told you that you will be known by the people you hang out with? Make sure you understand how a potential big corporate client does business. Your ethics, and your character, are shaped by the people you choose to do business with. If you sign on with a sleazy corporation, your ethics will be challenged and eventually you may be forced to compromise. You cannot isolate you and your employees from this, either. Their culture will infect your culture.
– Cash Flow. Big customers can mean big headaches for cash flow. We ran into several situations in our small health care business when big health insurance companies or governmental agencies used us to manage their cash flow issues. Some large corporations routinely push their accounts payable out to 90 days just because they can.
– But Will They Still Love You Tomorrow? If a large company decides they need quantities that you can’t provide, or need just in time orders you cannot possible supply, or lower prices that would force you to sell to them for a loss, they won’t care what that means for your business. If you can’t meet their needs today, you will be history tomorrow. It doesn’t matter if you have sold to them for twenty weeks or twenty years.
So think through very carefully any decision to get into a business relationship with a large corporation. Run it through your business plan to make sure you understand the financial, operational, and cultural implications for your business. And remember to be careful of what you pray for. You may just get it.