Step 6 in Avoiding Bankruptcy – Ensure Close Relationships with Top 10 Customers
Ensuring Close Relationships with your Top 10 Customers is one of my favorite topics in The KGI System™™. Customers are the lifeline of a business. When the economy is strong there is a tendency to take them for granted, but it is too late to begin to establish close relationships after the meltdown begins. We have experienced many cases where the past relationship meant the difference between survival and bankruptcy.
This closeness with customers provides many other important benefits that may not be as obvious. In my years working with executives of companies in distress, I’ve seen where customers:
- Provide an early warning system if the economy is beginning to slow down
- Are an excellent source of competitive information
- Provide liquidity by paying their accounts receivable promptly
- Identify quality-control problems in the early stages
- Alert you to potential pricing problems
- Communicate changes in consumer preferences
- Alert you to demand for new products
The notion that Cash is King is paramount in a crisis. By making the long-term investment in developing customer loyalty, a company can increase its short-term cash flow by paying promptly and then stretching beyond normal terms during the crisis. Similarly, companies that establish close relationships can help ensure quicker collections on their accounts receivable and generate additional cash flow.
Customer loyalty can provide benefits far beyond the immediate cash flow. In 2008 we had a situation with a manufacturing client that highlighted this. Our client worked diligently through the years and successfully established exceptional relationships with its customers. When the economic downturn finally took its toll on the business, one of our client’s top customers stepped forward and purchased $3.0 million of raw materials directly from the supplier on their behalf. This was a huge source of liquidity that helped our client get through a severe cash flow and set it on the path to viability.
There are a number of motivations for a customer to help an ailing supplier, ranging from self-interest in maintaining a breadth of suppliers to altruistic and emotional reasons. Regardless of the reason, my experience is that no one will act on it without a close relationship built on a foundation established over the years.
While it may be possible to stay close with all customers, we recommend that you have an organized process of staying connected with the top ten customers at the highest levels. Generating customer loyalty can be important but this requires close personal contact with the decision makers in your customers’ organizations. It involves identifying the decision makers in the customers’ organizations and tracking any top-level organizational changes. The connection must be with the President, CEO and/or owner of your company. Your entire management and sales teams need to understand that these relationships are a key part of their job.
A few examples of a structured process to staying close with the top customers might include:
- Scheduling lunches or dinners at least once per quarter
- Maintaining a database with highlights on their family, interests and similar information
- Sending them birthday cards with handwritten, personal notes
One of the best things to do is always seek opportunities to help them personally; this should be something that is discussed every time you meet. Maybe they:
- Need a referral for a home remodeling project
- Would like help getting their child accepted into a private school and you can offer a connection
- Have taken a leadership role in a charitable organization and seek key introductions
The idea is to generate loyalty. When the economy is weak, you may need to call on them for help and response will depend a great deal on the past relationship.
For companies facing bankruptcy, time is a key constraint; there is limited time to take decisive action while the clock ticks down towards liquidation. By establishing a program to foster close relationships with the Top 10 customers during the good times, companies will be able to immediately leverage these critical relationships should they ever face a crisis.
Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.