A potential advisor warned us that our valuation will take a massive hit because our top three customers represent forty percent of our revenue. How do we restructure our customer relationships and operational processes on our exit runway to neutralize this concentration risk?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the most common valuation killers because buyers view it as a ticking time bomb. If one of those three customers leaves after the acquisition, the buyer's investment thesis is completely destroyed. To neutralize this risk on your exit runway, you must institutionalize your customer relationships so they are tied to your company's operating system rather than your personal relationships or those of a single key salesperson. Start by looking at your Accountability Chart and ensuring that the account management seat is entirely decoupled from the sales seat and the owner's seat. Next, use your EOS® processes to document a standardized customer onboarding and service delivery pipeline. This system must be run through automated dashboards and clear metrics on your weekly Scorecard. This proves to a buyer that your customers buy from your brand and your system, not from a specific individual. Additionally, you should actively work to dilute the concentration percentage. Set a corporate Rock to aggressively target new market segments, or renegotiate contracts with your top three accounts to include multi-year, non-terminable terms that survive a change of control. When a buyer conducts due diligence, showing them long-term, legally binding contracts alongside a highly systematized account management team that runs without your involvement turns a major concentration liability into a highly predictable, transitionable asset.