When to Follow Clients Into New Markets

You can't always afford to piggyback your way into unknown territory. How to decide if it's worth it

Written by Advisory Board

Welcome to Advisory Board, a weekly department in which a panel of experts—made up of entrepreneurs and professionals—answer questions you have about how to run your business better.

This week, a reader asks:

“My biggest client is expanding into a new market, and wants my services business to do the same. But setting up new operations and hiring new staff would stretch resources very thin. Should I make the move over my misgivings, or refuse and risk losing the client?”

Here’s what the experts have to say.

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“If the margins are good on your particular business then this should be seen as a growth opportunity. See if your client will share some of the financial risk with you by committing a minimum sales projection for the first year, and pre-paying some of those sales to give you the investment capital you need.”
Randall Litchfield, CEO, Inbox Marketer Corp., Guelph, Ont.

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“Growth of this kind can be hard to manage and costly, and often requires local human capital who are unfamiliar with your business and processes. I would highly recommend determining if the costs to expand outweigh the costs of losing the client. However, if this was part of an original growth plan, then this could be the push the business needed to grow into new markets and target new clients.”
—Christine Faulhaber, President and CEO, Faulhaber Communications, Toronto

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“Your biggest client is not necessarily your most profitable client. You need to ask yourself what the impact would be on your business if you lose this client. If the profit from this client is marginal at best, you might want to think twice before moving forward. But if they are a profitable client, this could develop into a profitable situation for you, as it presents an opportunity to take your own business into a new market—you grow as they grow.”
John Wilson, founder and CEO, CEO Global Network, Toronto

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“Clients do business with you because you offer value for the service you provide. If you offer a service for which your relationship with the client is important, then you are probably not exposed to losing your current business if you say no to expansion. If, however you, provide a commodity service and your relationship is not important, then saying no does create a risk. Switching vendors always comes at a cost. Finding new vendors is no different. Trust and comfort are typically factors that favour the status quo. Make a business judgement on the expansion risk that is right for your company, and consider the potential loss of your clients business only if your service is easily replaced. Having said that, servicing new markets isn’t necessarily an all or nothing proposition. Consider whether you can service the market remotely in the early stages to delay a full entry, or form a loose partnership with another vendor already in the market.”
Charlie Reid, Charlie Reid & Associates, Kingston, Ont.

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Originally appeared on PROFITguide.com