You went into business for yourself so you could be the master of your own fate. However, if you are not careful you can end up becoming someone’s puppet. Many business owners have lost control of what work they do, how they do it, when they do it and even at times, how much they charge, get charged, be paid or have to pay. They went into business in the pursuit of the lifestyle that every courageous entrepreneur deserves however along the way they have lost control and in some cases are worse off than if they still had a job.
Key Takeaways
- Business owners can become puppets to suppliers or customers without realising it
- Over-dependence on one supplier or customer creates massive business risk
- Having formal agreements in place protects your business interests
- Constantly growing your customer base reduces dependency risks
- Small changes today can make a massive difference in years to come
What Does It Mean to Be a Business Puppet?
Being a business owner is exciting. You have the opportunity to make your own decisions and secure your future whilst doing what you love. However, the perception is that business owners are in control when in fact many are busy dancing to someone else’s tune.
The other day we were at a fete and I was watching this amazing puppet show. Most of the audience was focused on the puppet and as I watched the puppeteer it made me think. How many business owners are puppets but don’t realise it?
How Jane Became a Puppet to Her Supplier
Jane had a thriving importing business that had gone from strength to strength by selling a premium product. The challenge was that over 90% of her sales came from just one supplier. At the time Jane didn’t think it was a problem until the supplier changed how they manufactured their products and started using inferior quality parts and employing cheaper, less experienced labour.
Literally overnight the quality of the product dropped. Over 50% of the stock in the next container was faulty and there were suddenly loads and loads of returns. Worse still, when she ordered her next container almost all the stock was faulty and she couldn’t sell it.
Not paying for the stock didn’t solve the problem, sure it helped but the sales of the product was crucial to her making money so she could pay her now growing expenses. Because her business had been growing rapidly she had moved to a larger premise, employed more staff and made some bigger long term commitments. Without the sales of this particular product she would go from a thriving profitable business to a business making a loss and about to lose everything.
Jane had become too dependent on just one supplier and the sales of one product. Jane had become a puppet.
How Kevin Became a Customer’s Puppet
Bill had a carpet fitting business. Just after he had started, he landed a contract with a large retail store to install carpets as a contractor. It was great to have the support of a large retailer, who paid reasonable rates and also paid quickly. Providing great service and doing a good job, they started to get more and more work from the retail store.
However, Bill realised that this retail store was making up almost 80% of their sales and was growing rapidly. He identified this as a risk and decided to focus on marketing and finding more customers. He mentioned it to another friend of his, Kevin who also had a carpet fitting business and Kevin told Bill he was mad and that he would take all the work he could, besides it was easy and marketing was expensive and time consuming.
Kevin had just invested in more vehicles and a bigger premises to be able to handle the work load from this large retailer. Bill informed the large retailer that he was getting busy and would only be able to take on a set number of jobs per week. They first encouraged him to grow his business like Kevin and when he politely declined the additional work they dropped him like a hot potato.
For a couple of months Bill did it really tough, hustling for business, while Kevin seemed to be busier than ever and Bill wondered whether he had made the right decision. A couple of months later Bill got a call from Kevin, he was in trouble, the big retailer was squeezing him on price and on payment terms. He was caught between a rock and a hard place.
He had to accept their conditions because he now had massive overheads and commitments he needed to meet. Kevin was in fact making less money than before and was quickly going broke. I wonder whether this was the strategy of the big retailer or just coincidence, either way the reality was Kevin had become a puppet and ultimately paid the price.
How Can You Avoid Becoming a Business Puppet?
Don’t become a puppet, by making sure your business is not dependent on only a few suppliers or customers. Developing a strong, profitable business requires strategic thinking about dependencies and risks.
Here are a few things to consider:
- Identifying other suppliers for key products and be aware of the risks
- Have a mix of products that make up your sales, ideally not all from the same supplier
- If you are dependent on only a few suppliers or customers have formal agreements in place
- When making longer term commitments like renting a new premises, make sure it matches the time frame of your agreements
- Constantly be growing your customer base, so that your biggest customers over time make up a smaller percentage of your overall sales and profits
- When you are making good money, put some of it aside for a rainy day
According to the Australian Bureau of Statistics, businesses with diversified revenue streams are significantly more likely to survive economic downturns compared to those dependent on single customers or suppliers.
Why Diversification Protects Your Business
When the sun is shining, is when you should repair the leak in your roof, don’t wait until it starts raining! This principle applies perfectly to business dependencies. The time to diversify is when business is good, not when you’re facing a crisis.
Many service businesses and tradies fall into the trap of accepting all work from a single large client because it seems easier than marketing and finding new customers. However, this approach puts your entire business at risk. The Australian Government’s business advisory services consistently recommend maintaining diverse customer bases to ensure business sustainability.
Building multiple revenue streams and maintaining supplier alternatives takes time and effort, but it’s essential for long-term business success. Consider implementing a strategic approach to business development that prioritises independence and control.
Frequently Asked Questions
How do I know if I’m too dependent on one customer?
If any single customer makes up more than 30% of your revenue, you’re at risk. Ideally, no customer should represent more than 20% of your total sales to maintain healthy independence.
What should I do if my biggest customer wants to reduce their rates?
Don’t panic, but don’t automatically accept either. Evaluate whether you can maintain profitability at the new rates. If not, it’s better to lose that customer than operate at a loss while seeking new clients.
How many suppliers should I have for critical products?
Aim for at least two reliable suppliers for any product that makes up more than 50% of your sales. This gives you options if one supplier has quality issues or changes their terms.
Should I turn down work from a big customer if they want exclusivity?
Only if they’re willing to guarantee work volume and payment terms in a formal contract. Otherwise, maintaining your ability to work with other customers protects your business independence.
How can I reduce dependency on my biggest customers?
Invest in marketing and business development to continuously find new customers. Set a goal that your largest customer should represent a smaller percentage of your revenue each year through business growth.
Be aware and understand that small changes today can make a massive difference in years to come. If you’re ready to take control of your business destiny and avoid becoming a puppet, let’s discuss your situation and develop a strategy for true business independence.