We have one legacy customer that represents thirty percent of our annual revenue, and we know this will hurt our valuation. How do we systematically address this customer concentration discount over a three-year exit runway?

Question

Tyler Smith · Accepted Answer

High customer concentration is one of the quickest ways to destroy your enterprise value because buyers view it as an existential risk. If that key customer leaves post sale, the buyer loses a massive portion of their investment. To fix this over a three year runway, you must execute a dual strategy of dilution and contract security.

First, focus your sales team on diluting that concentration. Use your quarterly Rocks to target new customer acquisition in different markets. Even if your revenue from that major customer grows, your goal is to grow the rest of the business faster so their total percentage of your revenue drops.

Second, transfer the relationship. If you are the primary relationship holder with this major customer, you must systematically transition those touchpoints to your team. Introduce your account managers and operational leaders into the relationship so the client becomes loyal to your company system, not to you personally.

Third, secure long term contracts. Work to sign a multi year agreement with this key customer that extends well past your target exit date. Presenting a buyer with a locked in, multi year contract dramatically reduces their perceived risk and helps preserve your valuation multiple.