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Moving Up-Market? How to Transition Smoothly to Larger Customers
It happens in every growing business. We evolve beyond our initial customer base or our initial business model. When we launch, we have a small infrastructure, and are testing the waters. We don’t want to bite off more than we can chew. We take on smaller projects to create our processes, define our service offerings, and get our business moving.
If we’re successful, we develop momentum. We reach a state of “flow” in which we begin to start functioning like a well-oiled machine. We figure out what we don’t like. We know what we’re doing, we know how we’re doing it, and we know who we’re serving.
We get to a point where we realize our value. We’ve developed the confidence to reach for bigger opportunities. We know this will take more time, more money, more resources, more risk. But we’ve got a track record, and we’re ready.
Different Industries, Same Challenges
In the government contracting world, this often happens when an independent contractor moves to a subcontractor position, and then to a prime contractor position. In the private sector world, this happens when a company launches by serving other small companies, and then is ready to move upmarket to larger companies and compete with the bigger firms. In the nonprofit world, this happens when an organization is ready to evolve from perhaps a national focus to a global focus. In the world of real estate, agents or developers may evolve from small property representation (rental units or condos) to larger units. In all environments, the companies must be prepared to shift everything: people, processes, products/services, pricing, and culture.
Moving up can be daunting, even for the most confident business owner. We are emotionally and financially invested in our market, our models, and our customers. We’re comfortable. Like any other business change, moving up requires a strategy, and is a transitional process.
For one of my CEO coaching clients, we evaluated the sources of his revenue. 71% of his revenue was coming from a single large client. This is incredibly risky. The remaining 29% came from a split between mid-sized and small businesses. Often, small projects constitute the same level of effort. While they require additional manpower to deliver a solution, the level of effort is the same for the project management and client management. Further, the projects end much more quickly so we have to scramble to keep resources billable with new work.
My client created a growth goal to move from $8 million to $12 million. He wants the additional $4 million to come from mid-sized and large projects, rather than small projects. This will result in a smarter use of resources, greater stability, and greater growth opportunities. This additional revenue will also reduce the company’s dependency on a single project from 71% to about 50% – much less risky.
Deciding Which Small Projects Work
Currently my client has several small projects, and opportunities keep coming. We created a decision matrix to determine when it makes sense to pursue or accept smaller opportunities. It’s important to define this criteria because these choices will impact the marketing materials, and will provide direction for the business development/sales team.
Here are the criteria we identified:
- Profitability. My client can’t take on any “loss-leaders” as the company returns to profitability. All projects must have healthy margins at regular market rates and no discounts.
- High profile name that is good for the client list. Some small projects come with big names. If a company can leverage the name for a PR opportunity, it’s worth considering.
- Access to additional potential clients. Some companies are a gateway to additional clients.
- Strong likelihood of follow-on work/ability to evolve into a mid-sized client. Small companies that are healthy and rapidly growing are good prospects.
- Ability to showcase marketing efforts/results publicly. If you can publicly showcase your work, it may be worth pursuing.
Here are some deal-breakers regarding small projects for companies interested in moving up market:
- Conflict of interest with any other clients. Never take on work that is a conflict of interest with another client, unless you can create a complete firewall of assigned resources, and a technological firewall.
- Dilutes the mission/brand. Stick to your core competency. Protect your brand equity and reputation.
- Profitability compromised. Avoid low-margin projects.
- Little promise of growth. Stay away from slow-growing firms.
If you’re still comfortable with smaller projects, then simply file this column for future reading. Wherever you are in your growth, it’s important to have a strong/intentional client acquisition strategy, and also know your deal-breakers. I wrote a previous column on the six questions to identify your deal-breakers. You can find it here.
Your Call To Action
Do you need help identifying your decision criteria as you move up-market? Do you need assistance assessing your readiness for moving up-market? Successful Culture would love to help. Please reach out to me at [email protected] and we can schedule a 15-minute skype call to discuss it.
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About Successful Culture
We work with business owners, CEOs, and leadership teams that want to achieve their greatest personal & organizational potential. Through coaching, strategic consulting, retreat facilitation, and workshops, we equip leaders & emerging leaders with the mindset, tools, strategies, and processes they need to excel.
Ready to move forward? Email us today at [email protected]
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Please check out my Inc. Magazine columns on my Author Page too.
– In my latest Inc, article, I share The Essential Guide to Avoiding Workplace Text, Email, & Social Media Disasters.
– Learn about the 9 Leadership Behaviors that Lose Employee Trust & Respect here.
CEO, Successful Culture
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