20% OF MY REVENUE

Steven Cesare, Ph.D.

A startled business owner from Virigina called the other day to tell me his biggest customer has decided to end their business relationship. His business has been successful for several years, with a consistent growth curve now over $5,000,000 in annual revenue with a staff of 45. The cessation of this client’s contract at the end of the current month will reduce the Company’s overall revenue by 20%. Naturally, there was no inkling of service dissatisfaction, complaints of unfair pricing, or lack of interpersonal rapport.

Some of us have experienced this type of fiscal shock first-hand and can’t forget about it.

Everyone else has considered it at some time or another. And can’t not think about it.

I have been told by innumerable owners, CFOs, and consultants, that the rule of thumb is to never have more than 10% of your company revenue tied to a single job, property manager, home builder, etc.

That is easier said than done, notably for small businesses. Despite potential vulnerability, small business owners must continually work to diversify their client mix, market segment, and territorial presence.

By way of analogy, do you have more than 10% of your personal retirement account, 401(k), or Roth IRA in a single stock? Hmm.

During our conversation, the Virginia business owner and I developed a three-step plan to address this unfortunate event. First, as a capitalist, I told the owner to develop an overtly aggressive sales plan to replenish lost revenue. The plan must be conceived out of diversification, not desperation. The Company is still solvent, viable, and respected, and as such, there is no need for puerile panic. I told the owner, the work is out there. Someone is going to do it. Why not us?

Second, I told the business owner I viewed this event as a blessing in disguise; an opportunity to reassess resources, priorities, and accountabilities. Accordingly, I tasked the owner to develop a cost reduction plan aimed at a 25% decrease in expenses beginning on the first day of the next month. A balanced plan incorporating aggressive growth (e.g., higher commission rates, more weekly contract sales proposals, increased change orders) with explicit cost targets (e.g., staff, benefits, unused resources) is the key to this turnaround. Growth without cost containment is denial. Cost containment without growth is delusion.

Fortunately for the business owner, he completed the Performance Planning Matrix (e.g., Deadwood, Problem Employees, Work Horses, Stars) on his entire team in March, just ahead of the landscape season kickoff. That assessment serves as the fundamental resource for exactly this type of unsuspecting event. Keep the value; layoff the variant. At first glance, the business owner identified the need for six employee dismissals: one Deadwood, three Problem Employees, and lamentably, two Work Horses.

Naturally, he will review the three-year Profit and Loss statements to identify cost trends which increased beyond necessary levels, providing comfort in place of efficiency. While difficult decisions remain, he is convinced that underutilized equipment, inventory, and support functions can be reduced to aid in the cost cutting effort.

Third, and most importantly, I told him he must remain positive, focused, and resilient in the eyes of his team when he shares the current challenge facing the team, when he proposes the revised budget, modified strategic plan, and new tactical initiatives to them, and when he role models his confident spirit every day after the communication meeting occurs. The culture will be tested; he must lead with integrity.

Many companies can talk about organizational culture, esprit de corps, and teamwork when good times are present. Successful companies leverage their organizational culture, esprit de corps, and teamwork when difficult times are present. The same can be said for leadership.

As a leader in your company, how would you approach a 20% revenue reduction at the end of this month?

Or do you just not want to think about it?

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