When your business is still beginning to develop, yourprimary worry is probably to create fast revenue and to pay the expenses and the staff. With just a tiny number of early adopters for buyers, the priority is to get as many new customers as possible. This all makes fundamental business sense. Nevertheless, from time to time having a flood of new clients or a handful of very large new clients can be a mixed blessing. This is specifically true with big early customers that require a lot from your business.

I contemplated on this after looking through an article on Inc Magazine about Chocomize, which early on had to refuse a major order even though they desperately needed more revenue. The business did refuse the order for the proper reason: they did not yet have the production capacity to fulfill it, and subcontracting would be too risky.

Some commenters were critical of that choice, taking note that they had let go a wonderful opportunity for branding that seriously meant a lot for a new business. Having said that, personally I believe that the organization did the proper thing. They ensured that they could truly provide for their buyers and their needs at the very same standard of quality they had supplied their consumers.

This circumstance is actually very typical in our world of expansion stage technology firms. Numerous software startups start out as exclusive projects or consulting engagements with major clientele, from which a product is developed and commercialized. Quite a few startups are also enticed by the guarantee of a big deal in exchange for special customizations and specific features. The choice of whether or not to take on a big client early on is a case by case circumstance due to the fact it has both major pros and cons:

Advantages:

+ Get customers to create funding for growth, consequently bootstrapping your growth and minimizing the need for exterior funding.

+ Having major buyers aid with brand building and credibility development

+ Winning a major deal is a wonderful morale boost for the organization and its staff and stakeholders

+ Last but not least, having large buyers opens the door to far more credit facilities, far better cash flow and overall improved financial stability.

Drawbacks:

+ Major contracts generally call for minimal margin professional services. You have to take into account if you can have access to professional services resources, and the abilities to handle that well, even at lower margins

+ Large clients have rigid requirements and sluggish procedures which might slow or corrupt your business’ product and development process

+ It is quite risky to start out with too much customization due to the fact you will end up developing a project-driven, bespoke programming agency instead of a product-driven software organization

+ Lastly, having relied on major clients too early on might not set you up well for future funding. Venture capital firms do not like to see earnings that are led by one or even two large clientele, mainly because they are searching for risk factors, and dependence on few customers is definitely a major concern.

Tien Anh Nguyen heads up the Research and Analytics team.

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