The beginning of my first business was a truly remarkable and exciting time. One of the largest chains in America with nearly a thousand stores had just taken the first urban inspired young men’s clothing company in history from twenty thousand dollars to over one hundred million dollars in revenue, and suddenly it was our turn as they were giving us the same opportunity.
The opportunity came about after becoming an ‘overnight success’ when a a ten-store test with that retailer literally blew out of the stores in a matter of days. Suddenly, we (Gary and I) were receiving orders for hundreds of stores at a time and couldn’t produce the product quick enough.
In order to keep up with demand, our main factory purchased more and more machinery just to keep up with our production needs.
A few months into yet another large production, we received a phone call from one of the buyers, although she was not calling for another re-order like I had hoped. Quite the contrary…
She called to put a hold on her T-shirt order because our store sales were on a decline… The next day our accessory buyer called to cancel her order for our hats…then the young men’s knits buyer canceled our sweatshirts…and finally, the senior VP of merchandising faxed us a letter stating all purchase orders would not be accepted by their distribution center until further notice.
As quickly as we had gotten into business, we nearly went out of business… and we never got an order from that account again.
Remember the dumb old saying “don’t put all your eggs in one basket?”…It’s not as dumb a saying as you may think.
Doing Business with David instead of Goliath
It is much better to have a hundred stores order two thousand dollars from you, than have one client order two hundred thousand for a number of reasons:
– While landing the monster account (bagging the elephant so to speak) can be great for revenue, it can put you out of business just as quickly as it can take you to the top. You must have other customers that keep your cash flow positive and your company in the black. I have had many colleagues that had very sizable businesses, only to go out of business in a course of a day when they lost an account that represented the lion’s share of their revenue. A good rule of thumb is to always make sure that, if you take on one of these ‘elephants’ so to speak, you have to look at is as if you didn’t have them and see if you would still be able to pay your bills. If you can, great. If not, start getting other accounts immediately to take the risk factor out of the equation.
– The independent customer (whether a retailer or otherwise) will be much less likely to drop you like a hot potato than the big boys will. My independent retailers would stick with me in times when they could have easily gone away. Even if my product didn’t sell one season, they would give me a chance to redeem myself. Why? Because I had established a personal relationship with them and, if you are not aware, relationships are pretty much everything there is in business (at least that is my experience).
– It’s easier to pay a smaller bill… While my biggest suppliers would place rather sizable orders, if the product didn’t perform exactly how they wanted, they would do anything they could to get out of it. For the independent customer, paying a few thousand bucks to an account that has made them money up until that point is not the biggest deal in the world. If it happens twice in a row, however, you would need to take a look at your product or service as perhaps either you are doing something wrong or maybe the product or service you have is not for them!
Independent customers give you more access. In my fashion business, when the product was not selling, the customer would allow me (or my sales person) to go into their store and work with their managers and salespeople to help re-merchandise the product and do whatever it takes to help get things moving in the right direction. Bigger accounts don’t give you the accessibility.
– With the monster account, you are hardly ever dealing with the head honcho. Many times I would have excellent relationships with the buyers and key management, however when push came to shove and sh?t hit the fan, the head honcho was never around. After all, when was the last time you had a problem with Microsoft and asked for Bill Gates? And if you did, how did you make out?
Your Insurance Policy
Always remember to build your own insurance policy in your business.
In this example, that turn of events nearly cost us our business…many of our suppliers were steamed at us because they were suddenly the proud owners of expensive machinery that was not being used, as well as unsold inventory from our cancellations…. It took us nearly two seasons to recover. What did we do?
We went on the road and started going from store to store selling our clothing. We attended tradeshows, which would get us thirty to forty customers over a few day time-span, and we started hiring sales reps that had existing relationships with several hundred additional retailers. After a full year had passed, we went from supplying one chain to over eight-hundred independently owned stores across the country. Then we had the ability to take a hit and it wasn’t until then that we approached a ‘elephant’ again.
We had learned one of the most valuable lessons in business and barely escaped bankruptcy in the process.
What is your business model? Do a few accounts or clients represent the lion’s share of your business? If you lost them today could you pay your bills tomorrow?
Have a great day!
The following is an excerpt from How To Ruin A Business Without Really Trying… To receive complimentary chapters, sign up at the top right of the page to get a download link. For more information about the book, Click Here