Owner Hot Button No. 2: The Loss of Key Customers
In this post, we continue our description of techniques BEI Members use to help owners deal with pressing, business-related needs. Why? BEI Members know that when they discover a business need that they can help owners to resolve, they gain more than another client, they gain an Exit Planning client.
The Loss of a Key Customer
Business owner Dominic Ritengo repeated his ongoing frustration about his business to his banker, Tom O’Henry.
“You know, I’d like to get out of my business sooner rather than later, but some obstacle always seems to come up,” Dominic complained. “This time, it was a key customer – one that represented almost 15% of annual revenue – who took its business to my chief competitor. What happens if another one of my big customers follows suit?”
“That had to hurt,” Tom observed. “But I think you might be able to take a shock like that and use it to adjust your business model. I’d be happy to refer you to a financial advisor who I think could help.”
“I’ve already got a financial advisor.” Dominic pointed out. “He makes suggestions on investments and not-so-subtly lets me know that I’m a long way from retirement, I don’t need another financial advisor. I need someone who can help me keep my customers!”
“Well,” Tom started, “the financial advisor I’m thinking of works with owners like you and helps them increase business value so that they can eventually exit their businesses on their terms. She does Exit Planning. Can I arrange a meeting?”
Dominic agreed and immediately set up a meeting with Emma Broomfield, financial planner and Exit Planner.
Dominic opened their meeting by relating his tale of woe. Emma listened carefully and asked questions about Dominic’s business before suggesting a solution to his most recent hot-button issue: how to keep his remaining clients.
“Dominic, I know it’s easier to deal with just a handful of big customers than to juggle dozens or hundreds of them,” Emma sympathized. “but one of the Value Drivers most buyers demand is a diverse customer base.”
“Like not putting all your eggs in one basket, right?” Dominic responded.
“Right,” Emma answered. “It can mean having many customers rather than a few, but it also means attracting and retaining customers from different business sectors or different demographics. I think we should focus on expanding and diversifying your customer base, not just keeping your current customers. What do you think, Dominic?”
“I think it makes perfect sense,” Dominic said. “If I were looking to buy my business rather than sell it, I’d rather see revenue coming in from multiple customers in multiple industries that depend on the assurances that customers will stay on after the guy on his way out is long gone.”
“That’s exactly how buyers view a customer base,” Emma noted. “As a general rule of thumb, buyers don’t want to see more than 10% of company revenue generated by one customer or more than 25% generated by five to ten.”
“I’m listening,” Dominic said.
“I can help you develop a much broader customer base,” Emma continued. “I can also tell you about other actions we can take to increase the value of your company and protect that value.”
“Where do we start?” Dominic asked.
“Dominic, if you decide to hire me, one of the first things I think we should do,” Emma suggested, “is to recruit and motivate a top-notch sales manager to help expand and diversify your customer list.”
Dominic reached across the table, shook Emma’s hand, and said, “I’m all in. Let’s get started.”
An ideal way to grow your practice’s client base is to offer owners something they need. In this situation, Dominic didn’t think he needed services from Emma’s core practice. He needed a way to keep customers on board and help growing his customer base, and Emma was prepared to help him.
Her ability to meet Dominic’s pressing business needs differentiated her from other financial advisors. It’s unlikely Dominic would have hired Emma as his financial advisor because he was relatively satisfied with his current advisor. But, her demonstrated ability to help with business planning led Dominic to transfer his personal needs to her.
Emma also attracts referrals from other professionals like Tom (Dominic’s banker) because she does more for her owner clients than her fellow financial advisors.
- When advisors can help resolve an owner’s pressing business need, they gain more than another client, they gain an Exit Planning client.
- Advisors with Exit Planning skills not only differentiate themselves from their core practice competitors, but they also attract more referrals from advisors in other professions.
- Diversifying a customer base is only one of many solutions Exit Planners can offer when owners want to build and protect value of their companies.
To learn more on how BEI can provide you with these solutions, schedule a meeting or contact us!
Next week, we’ll dive into the last of the three hot-button topics in this blog series: overcoming the challenges of a business transfer to family members.Follow us on LinkedIn, Facebook, and Twitter to stay up to date on all current Exit Planning news and trends.