Buyers are heavily scrutinizing our customer concentration and geographic risk. How do we use our quarterly Rocks to systematically diversify our client base and revenue streams on our exit runway?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the most common valuation killers in middle market transactions. If a single client accounts for more than ten percent of your revenue, buyers see a high risk investment and will discount your purchase price accordingly. You must aggressively dismantle this risk on your exit runway.

To solve this problem, you cannot rely on casual sales efforts. You must turn diversification into a disciplined execution process using quarterly Rocks. Start by bringing this issue to your weekly Level 10 Meeting™ and identifying the root causes of your concentration.

Once you have identified the issues, assign specific, measurable Rocks to your leadership team over several quarters to systematically expand your market presence.

To drive diversification on your runway, structure your Rocks around these key activities:
- Develop a marketing Rock to launch a targeted outbound campaign aimed at new industries or geographic regions.
- Set a sales Rock to establish strategic partnerships or channel relationships that bring in a steady stream of diversified leads.
- Create an operational Rock to package your core service into a standardized, low cost offering that appeals to a broader client base.
- Use your Scorecard to track customer concentration percentages weekly, keeping the team focused on this vital metric.

By using the discipline of quarterly Rocks to expand your customer base, you prove to prospective buyers that your revenue stream is stable, resilient, and highly transferable.