Create a Sticky Business

Building a successful business from the ground up should be the chief goal of an entrepreneur. As a founder, you go in with your eyes wide open, fixating on the problem you are trying to solve, anticipating challenges as you grow your company, and doing whatever it takes to get the job done. There are lots of moving parts to manage.

Early on, don’t lose focus on the quality of the client and your relationship with them - that is, find good clients with whom you can grow with you and provide differentiated value to them. Also, keep an eye on client concentration issues. Set a goal for your largest client to be less than 15% of your revenue. You may find this challenging initially, but if you are intentional about it, your client concentration issues will resolve as you take on more clients. You can then focus on delivering value, increasing client stickiness, and becoming indispensable. You will see the relationship: the greater the value, the more the stickiness.

In 1999, I returned to the United States after doing as much as possible to rescue a family business that ultimately failed. At the time, I did not have the clearest vision of my future. I was a newlywed and felt the pressure to provide and prove myself. I needed to do something, start somewhere. Necessity is the mother of invention.?

I rented a studio apartment in Fort Lee, New Jersey, for $650 per month. Each morning, I would wake up, sit on a table by my sofa bed, grab the white pages, and start calling prospective clients, asking if they needed IT consulting and programming services.

I faithfully put in 50-60 dials per day for months. Finally, I found my first client, Borders Group, Inc. in Ann Harbor, Michigan, that needed software development support. I brought in two programmers from India on H1 visas to undertake the work. Once they arrived, I did not want to spend $400 to fly them to Michigan. Instead, I drove them to Ann Harbor, MI, dropped them off, and returned home the next day, stopping to party with a high school buddy in Akron, OH, on the way back.

I landed Borders as a consulting client in a business spawned from my studio apartment with no capital and no formal strategic plan. I moved into a business center seven months later, a small room with no windows. I sat there for 12 hours a day and called people like crazy. I moved into another business center with a window (which helps) to one with a bigger window (even better) and then into an office in Fort Lee with multiple windows and eight employees.

The late ’90s was a great time for IT consulting and staffing businesses. We were in the middle of the dot.com boom, and funding was plentiful. Startups were raising and spending millions on technology. Good clients had partnered with larger companies that provided real value, leaving me to pursue the bottom-feeders, smaller companies without a sustainable business model or the right management teams.

A rising tide lifts all boats.

I thought we had built a successful business with a differentiated and defensible value proposition with sticky clients. I had 400 employees in India, 200 employees in the United States, and $20 million in revenue, and I felt like I had arrived.

I was wrong.

The dot-com bubble burst in 2000 (remember irrational exuberance.). The business lost half of its revenue in six months, accumulated bad debt, and struggled to survive. IT budgets dried up, and 1/3 of my clients went belly up within three months.

Suddenly, my business was utterly dispensable to my clients.

During this period, I also learned the importance of transparency to my business partners, suppliers, and employees. When I could not pay my bills or make payroll, I engaged honestly instead of running away from the problem. Most appreciated that I was transparent and agreed to keep working with me until I could pay them.

This experience underscores the importance of having good clients and providing value to them. Fundamentally, we are only as strong as our value proposition, especially during a downturn. If you provide real value to your clients, you will survive when budgets are tight, and your clients will realize they cannot do without you.

Carpe Diem.?