Did Your One Big Customer Disappear? Poor You!

(This post originally appeared on Entrepreneur)

This is a story about a friend of mine who almost, very nearly, went out of business.

Her name is Tammy. OK, that’s not her real name because if I told you her real name she’d kill me. But she’s a real person and she owns a company with her brother that specializes in manufacturing specialized parts that go into custom machines used in the food processing industry. Boring stuff – but it’s a good business. Basically, it’s a job shop started by their parents after World War II and employs about 30 people. Tammy and her brother work very hard and the company had been very profitable…up until about three years ago. That’s when KSI pulled out.

Who’s KSI? That’s another made up name for another real company that was Tammy’s biggest customer at the time. When I say biggest, I mean that KSI accounted for about two-thirds of her sales. They’ve been that way since her dad landed the contract when Tammy was just a toddler.

 And it was all good for both parties until one day KSI was bought out by a much larger company that had their own supplier for the exact same parts that Tammy’s company made. Tammy received notice from the new owners that their contract would be terminated within just a few months. Did I mention that KSI was two-thirds of Tammy’s business?

I think of Tammy because just last week a British company named Imagination Technologies ran into the same problem. Their biggest customer disappeared. That was Apple, which decided to bring in-house the services that Imagination Technologies was providing. Now the executives at Imagination are crossing their fingers, praying to the almighty and putting their company up for sale in the hopes that some benevolent party will rescue them. This is not a business plan. This is just bad management.

Tammy’s no different. She’s a nice person. I’m sure the owners of Imagination Technologies are also nice. But these are not good, forward-thinking managers. These are people who, under the guise of running their own businesses, were in reality little different from the employees of their corporate customers. They didn’t even get the benefits, retirement plans or generous health insurance offered by their benefactors!

When the loss of just one customer can bring down your business, you don’t have a business. You’re just running a division of that customer’s business, without the perks. You may be a hard worker, but you’re a terrible leader.

Did Tammy and the management of Imagination Technologies realize that their entire livelihood, and the livelihood of their employees (and their families) were in the hands of just one customer? That the loss of this customer would likely mean the demise of their company? Of course they did. These are not ignorant people. These are just irresponsible people.

Tammy saw the numbers. She knew how reliant her company was on KSI. Yet year after year, she did nothing to mitigate this liability. She’ll tell you she was “very busy” and that she was “doing her best” but she wasn’t. She worked hard but she was just fat and happy. She had her cow and she was milking it.

Worst of all, Tammy had no Plan B. She never thought seriously what her actions would be if, God forbid, KSI were to disappear. So when KSI did indeed disappear her actions were reactive. In desperation, she and her brother cut two-thirds of their staff and scrambled to find new customers to make up for lost revenues. The good news is that they did. It took a while. Unfortunately they’re still not back to where they where when KSI was paying them three years ago. Imagination Technologies, meanwhile, is punting the ball down field. Hey, stuff happens, right?

No, stuff doesn’t “just happen,” so stop crying. If your business is mostly reliant on one customer then here’s a promise: you’re going to lose that customer one day. This will happen. Things will change. New people will get involved. Different strategies will evolve. Banking on just one customer for the long term is a disastrous plan.

You’re not too busy, you’re just too lazy. Don’t make this mistake. Take the profits you’re making now and invest them in sales and marketing resources to ensure you’ll generate those same profits later…from different sources. Diversify. Or die.