🏴‍☠️ Your biggest customer might be your biggest exit risk

Hey, it’s Kinza! In today’s issue.

1. Why your biggest customer could kill your exit

2. The simple math buyers use to walk away

3. A 24-month diversification plan to protect your valuation

4. And more…

Best Links

💰Sales Methods We’re Loving:
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🌟 Industry Trends:
AI is causing “techstipation” (tech + constipation)…where we spend hours prompting back-and-forth only to realize we wasted a bunch of time inside our brains instead of actual traction. Here’s an amazingly simple Notion template to get crap off your plate, thank you Eisenhower matrix!

🍏 Extra Credit:
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Deep Dive

So here's what I've been seeing a lot lately. Business owners call me and they're convinced their biggest customer is actually their biggest asset. I mean, I get it.

When someone's been with you for eight years and represents 68% of your revenue, that feels like stability, right?

But from a buyer's perspective, that's actually your biggest risk factor.

I just finished working with a client who had what looked like a beautiful business on paper. Strong margins, growing revenue, clean books.

But when buyers discovered that one customer made up 68% of revenue, everything changed. The deal didn't just get harder.

It basically became impossible.

Why Buyers Get Nervous About Customer Concentration

Look, I've been on both sides of these transactions, and I can tell you exactly what goes through a buyer's mind when they see heavy customer concentration:

• What happens if that customer leaves?

• Do we have any pricing power, or are we stuck taking whatever they'll pay?

• Can we actually grow this business, or are we maxed out?

• Will this customer even like working with new ownership?

The founder kept saying "But they love us! They've been loyal for years!" And that's exactly the problem. In M&A, customer dependence equals valuation destruction.

The Reality Check Framework

Here's what I tell business owners: your largest customer should never exceed 40% of revenue. Your top three customers shouldn't exceed 60%.

If you're above those thresholds, we need to work on diversification before you even think about an exit. And honestly, this takes time - usually 18-24 months minimum.

The Fix

Step 1: Get the real numbers. Pull your customer revenue report for the last 24 months. Rank everyone by total contribution. If any single customer is above 25%, you've got work to do.

Step 2: Build your diversification timeline. Don't just fire your big customer… that's business suicide. 

Instead:

• Months 1-6: Focus on expanding services with existing smaller customers

• Months 7-12: Launch targeted campaigns for mid-size prospects

• Months 13-18: Develop new service lines to attract different customer types

• Months 19-24: Optimize your diversified revenue base

Step 3: Have the conversation. Talk to your large customer about your growth plans. Most of the time, they'll actually support diversification because it makes you a stronger vendor. Sometimes they'll even give you referrals.

Takeaways

Why This Matters for Your Exit

If you're planning to exit in 12 months and 60% of your revenue comes from one customer, you're probably looking at a 30-40% valuation hit.

But if you start this process 3-5 years before your target exit? You'll get premium multiples because buyers see sustainable, diversified cash flow.

Your action items this week:

1. Run that customer concentration analysis

2. Identify your top 10 prospects to reduce concentration

3. Calculate what 40% of current revenue looks like in dollars

4. Set monthly targets for new customer acquisition

Remember, buyers pay for predictable, transferable cash flow.

Concentration kills both.

Need help building your diversification strategy?

Reply if you want to discuss your specific situation and get a detailed customer concentration analysis and roadmap.

-Kinza