Is a Business Model Dependent on a Single Contract Bad?

Most contracts are competitive, but sometimes there are exceptions to this rule. Sole-source contracts are a kind of contract that can be issued without a competitive bidding process.

In managing customer relationships — or relationships with any key stakeholders — it is critical to manage the balance of power between the company and any one customer. This can be done by diversifying the customer base, understanding (and be willing to use) customer pressure points, and (in the case where a company is locked into a single key relationship) to ensure that the customer is as dependent on the company as the company is dependent on the customer.

Predictable revenue: Large enterprise contracts often have multi-year terms, providing revenue visibility (though creating concentration risk). Reference value: Marquee customers can serve as powerful case studies and sales tools for acquiring similar customers. ... Related entities: Count all revenue from related entities (subsidiaries, divisions of the same parent company) as a single customer for concentration purposes.

As co-ops get larger, they do institute some form of leadership or management. Park Slope has a general manager who leads the 80 or so employees. The largest network of worker and consumer co-ops in the world, Mondragon, has a president and managers who lead the roughly 30,000 worker-owners ...

When your business depends on one client, you lose the leverage to negotiate terms. If they request changes to your contract, such as extended payment terms, you may feel obligated to comply, even if it harms your cash flow.

You dedicate most of your resources to this client, and you have to sell to them on price because you can’t risk losing even a sliver of their business. You beef up your resources to operate as “A $3 Million Company” and hire all the staff — technicians, project managers, warehouse crew — you think you need to run $3 million worth of business. In short, you load up on overhead and expenses. Before you know it, you’re caught in a vicious cycle that haunts you year after year. You’re completely dependent on your $2 million customer to pay for all these people, resources, and equipment.

A business where a single client represents more than 30 to 40 per cent of revenue will typically be valued at a discount relative to a comparable business with a more diversified client base.

Big companies find that it’s cheaper to hire out their labor, and small companies find that working for large clients will increase their revenue and let them grow quickly, right from the beginning. One such example is Treblig Inc, a machine-tooling company owned by Estlean Cook. They are ...

Businesses say networking and branding of their business are responsible for snagging the large contracts. Fifty-four percent of the respondents relied on both online and offline networking. Almost half or 47% say personal relationships with procurement officials for their success did the job. More than four in 10 of the 501 SMB companies are using their company websites and other marketing materials.