One of the most important lessons of key account management: having a single account take up more than 20 percent of your profit and loss statement (P/L) is business suicide. Unfortunately, many executives don’t follow this sage advice – which results in broken businesses, laid-off employees, and the loss of entrepreneurial dreams.
We get it, it’s hard to turn down a big pot of gold from a big name account. That said, executives are paid to make the tough decisions. Make sure that you have enough accounts to responsibly support your business and avoid these common key account management fallacies:
- You can have it all.
- Any revenue is good revenue.
- If you don’t take it now, a competitor will get the business.
- You can always grow revenue from your other accounts to balance things out – later.
- They’ve been good to us; we can’t stop now.
- The easiest sale is to sell the key account you already have.
Fallacy #1: You Can Have It All
Many business owners take any amount of revenue that comes in the door, as long as it lines up with the services and products the company offers to the marketplace. These same business leaders spend very little time thinking about their client mix, and where that revenue is coming from on an account-by-account basis. Doing so is a fatal mistake.
Without the proper analysis and the courage to make tough calls, business leaders can quickly end up being “wholly owned” by a key account. Key account management becomes being managed by a key account.
I’ve been here before, and it’s not a great place to be. At one point in the first five years of business ownership (2000 to 2005), I realized I had two big names as accounts: Microsoft & Intel. I was energized by the fact that I was working with two household names in tech. It was exciting and fascinating to work with a new product or marketing team each month in these accounts. Plus, in that era, these two organizations were pushing more new tech than anyone else. So, I saw the future on a regular basis. It’s hard to believe now, but at one point, Microsoft was cooler than a drone tech startup is today.
But the stress was overwhelming. I knew the risks we were taking. Every time someone in Microsoft or Intel hiccupped, we had to respond right away, regardless of whether it was a weekend or holiday, or 11 p.m. at night. And that went on for years. We knew we were living or dying based on whether people in those accounts liked us. So responding to any concern or question immediately was key.
Eventually, I realized that was no way to live. We needed to expand the account base.
Fallacy #2: Any Revenue is Good Revenue
The idea that all revenue is good revenue is questionable advice. This fallacy is particularly popular with new business owners and leaders of businesses that are rapidly growing.
New Business Owners
When a business has been alive for less than 12 months, the idea that all revenue is good revenue has some merit.
You have to balance a belief in the work you were made to do vs. keeping the bank account full. In those first 12 months, you might take on work that’s less interesting than you hoped or engage with clients that aren’t a perfect fit.
You also might take on a large amount of work from a single key account. This organization could even be the company you previously worked for that is now your first (and only) client.
Just remember to keep an eye on the clock. After no more than 12 months, and preferably less, you need to diversify and make sure you aren’t setting yourself up for business suicide.
Businesses That Are Growing Rapidly
You will also hear the advice “no revenue is bad revenue” from business leaders in organizations who are on a growth spurt. The argument here is simple. “Right now, we just need growth.”
With the “right now, we just need growth” logic, it becomes easy to grow a company to 2x, 5x, or 10x its original size on the back of one key account.
In many cases, when that client disappears, so does the business. Or, at a minimum, a large amount of the employee base. Isn’t building a more sustainable business, built on balanced revenue from multiple clients a much better idea?
Fallacy #3: If You Don’t Take It Now, A Competitor Will Steal Your Key Account
If the previous discussion was about optimistic projections, this section is about fear. Fear that you’ll lose the account. Fear that turning down one project will lead to the loss of several.
I’ve lived this experience too, and it gets very personal. Fear can do that to you. I used to constantly worry about the competition. Would they steal the account? Would they build a better relationship with our key contacts in the account? I don’t fear these kinds of things anymore. I do look for trends of course, is a competitor name appearing in deals more frequently than before, are we losing to a given competitor all of the sudden, and I deal with these insights.
What I don’t do is let this kind of intelligence drive the mix of revenue we want from our accounts. Why? Two reasons.
First, throughout the entire relationship with a key account they’ve been shopping you. That’s just good business. That key account has been pitched, perhaps several times, by your competition.
You are still standing.
Yes, your competitor might do a better job than you if they get a shot. But if that’s true, shouldn’t you worry less about them and worry about getting better instead?
Two, if you take on a ton of work all at once, and you’re not ready to scale, you’re likely to give the competition an opening. Simply because your work quality suffers as you try to do it all.
Why would you do that?
Fallacy #4: You Can Balance the Books Next Year
Perhaps the worst advice you can hear at times like this is, “we’ll fix it later.” Typically offered by someone who has never owned a business before.
Yes, the future is always bright. In the future, you can change many things. Unfortunately, most things can’t change much overnight.
Once you’ve invested in that new client, they are 50 percent or even 75 percent of your revenue, and you’ve staffed up to meet that demand, how long is it going to take you to find the same amount of business from not just one client but 5, 10, or 20? A long time.
Therefore, “wait until next year” isn’t a good strategy.
Fallacy #5: They’ve Been Good To Us
“How can we turn them down? They’ve been great, they trust us, and we love working with them.” So says your entire team.
In my early years of business ownership, I fell into this trap quite a bit.
I own a business for a few primary reasons. One of which is I love giving great service. Once that had happened a few times with someone, I didn’t want to let them down. I wanted to keep helping them.
The problem with this is simple: if you don’t take care of yourself (the business) you can’t take care of others (your clients). Key account management comes after managing yourself well.
Just remember, they like you because they trust you. Taking on too much violates that trust.
Fallacy #6: The Easiest Sale is to Your Current Customers
Ah, how many times I’ve heard this advice – typically offered by someone whose Kindle reading list is filled with business best sellers written by Venture Capitalists and Business School Professors.
Is it true? Absolutely. Given the choice, who wouldn’t want to sell to a happy customer who knows your work, knows your pricing, can see the ROI you’ve brought before, and more?
Is it smart? No. Like a few things in life, this is one of those times where the advice is true and dumb at the same time.
So many things go wrong when you follow this advice.
First, you are no longer diversified because you keep selling to the same companies, and perhaps to the same people in those companies. Two, you have lost all of your muscle memory for doing any prospecting. Third, when you attempt to do any prospecting your skills have atrophied, the rejections come fast and furious, and you are tempted to go back to those “easy to sell” folks.
Smart business owners make time for prospecting. As someone once said, “salespeople who don’t prospect have skinny kids.” To make time for prospecting, you have to assume that selling a new client is going to take some time. The goal here is balance. Don’t stuff your week with meetings with your key accounts and don’t just prospect. Keep it healthy.
Key Account Management: Don’t Follow Bad Advice
So, what happens if you get trapped by some of this bad key account management advice?
First off, you’re going to lose employees on the same day you lose that big account. Two, you quickly get so upside-down expense vs. revenue-wise, that when you look at your savings, it’s just about time to close your doors.
Finally, it was all avoidable. Just remember, “The Answer is Still No” when your key account offers you a magical project that takes them over 25 percent (or better yet 15 percent) of your revenue.
They’ll get over it, and you’ll be glad you did. Maybe not today, but certainly tomorrow.
As the Oracle said to Neo in the Matrix, “You’ll be right as rain in the morning.”