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Beware Overly Dependent Business Relationships

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Leaving aside the question of whether a freelancer can ever truly be unemployed, I have noticed an increasing number of my fellow travellers reporting a dearth of work at present. Those who seem to be suffering most however, are those who rely on one or two large clients for the bulk of their income. This only serves to illustrate the folly in being dependent on any entity for business survival, whether as a customer or a supplier.

Large clients are wonderful: not only do they tend to give better rates of pay, but they can also provide regular, predictable amounts of work, and to (generally) pay on time. But this cosy arrangement can be a double-edged sword. They also have the resources to move their business elsewhere, and are not above demanding price cuts when their bottom line is feeling the pinch, or from expecting preferential treatment because of all the business they have sent your way in the past.

Suppliers are just as bad: if they know that your fortunes are tied to them, they can impose arbitrary price increases, or threaten to cut you off should you displease them in some way. In these troubled times, there is also the danger of them downsizing, discontinuing production or even going out of business, leaving those of us dependent on them twisting in the breeze.

Business orthodoxy has it that those who succeed do so by fostering close relationships with both their suppliers and their customers. I’m not going to argue with that, but I would say that it is still important to diversify; to have a Plan B, if you will. For the one thing, your business plan can’t take into account is what another independent business will do; for another, the only thing that is predictable is the unpredictable occurring.

For suppliers, it is absolutely imperative that you identify potential alternatives before you begin a business relationship. Identifying these not only provides you with some leverage when negotiating payments, but will also give you a good idea of how much you should expect to pay should you have to switch suppliers at short notice. While it may be more complicated for those involved in manufacturing, the facts remain the same: you must make sure you have somewhere else to go. This will ensure that you are less likely to be held to ransom subject to the whims of somebody else’s strategy. If you still don’t think it’s worth it, consider this: imagine your supplier doubled their prices tomorrow. Obviously, this would wreak merry havoc on your cash flow projections. What would you rather do: pay up or switch to a different company?

Customers need to be treated differently. After all, unless you are supplying a truly unique product or service, they can already go elsewhere. The trick, I suppose, is to be like a flirtatious paramour: make it clear that you are willing to work, but be clear that they are not your only prospect. It is perfectly acceptable to prioritise those customers who provide the best pay, or the most regular orders, but you need to take care not to neglect the customers who may provide less lucrative or frequent revenue streams. Generally, if more than 15% of your income is coming from one customer, you’re not working hard enough to attract new business. Imagine if that fifteen percent disappeared overnight; what would you do then? Better to be a friend to many than a confidant to one. It’s nice to feel needed, but it is also a very precarious position to be in.

With the economy on the skids and greater competition for every contract and tender going, it might be tempting to dig in and stick to those you know best. But remember: one of your business relationships could be the next casualty. Don’t make yourself collateral damage: today, it is important to diversify to survive.

[Image by Moon Rhythm]

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