Nov 4, 2022 | Starting a Business

With one huge client, I’ll be vulnerable. Should I go for it?

Q. Dear Zenagos, I worked for several years doing big data analysis for a large company, and I went out on my own last year. Now, my big data outsourcing firm has two small clients, and things are going pretty well. My former company offered to give me a huge project for a new product line, but I’m worried about hiring that many new people and being vulnerable to just one huge client. Should I just go for it?
–Roy

When you are nurturing your own service business, it can be hard to say “no” to good work. You have been taught to “make hay while the sun shines” and take work when you can get it, even if you are overworked for a little while. You never know how long your luck will last, and you are always working to book future work.

What is the best way to grow a business?
The best way to grow a business is steadily. Whether the pace of growth is fast or slow, it is easiest to grow by adding a little more work in each time period. When you can grow steadily, you can hire full-time people at a regular rate, maintain a consistent contractor buffer, and feel confident that you are not getting overextended. Barring some kind of global shock (such as the recent pandemic), you are in good shape.

It is much harder to grow in varying steps. When you suddenly take on a huge job, you need to bring on talent at a rapid pace and suddenly assume a lot more payroll risk. You are right to have second thoughts about taking on a huge project that will require a lot of rapid hiring.

How do you know when to say “no”?
If you are struggling and need work, then you take the work you can get. In that case, your market may be telling you that they don’t value the work you want to sell, and you should consider pivoting to the work that they want you to do. However, if you are selling the work you want to do consistently, there are at least two good reasons to turn down a particular piece of work:

Say “No” in Order to Stay Focused
One of the best reasons to say “no” is to stay focused on your area of strongest expertise (your “wheelhouse”). If you have something that you do well, can deliver with confidence, and are able to sell at a steady rate, be wary of requests to do something too far outside that comfort zone. Unless the new work is in a rapidly growing field – where developing the expertise will increase your future value – it is generally better to refer tangential work to someone else and continue to sell the work that you do best. Taking on custom projects can cost you a lot of extra time for learning and dealing with unanticipated challenges.

Say “No” in Order to Reduce Your Risk
Another time it can be good to say “no” is when taking on the project could put your whole company at risk. If you take on a huge project (getting paid Net 30 or Net 60), and the client suddenly shuts down the project after you have hired a lot of people and completed a lot of work for which you haven been paid yet, you could be in deep trouble. If you have to let the employees go without notice, then your reputation will suffer, and you may not be able to recover financially. If you’re not certain you could handle the consequences if the project fell through, then it’s smart to let someone else take that job and continue to pursue work that you know you can manage.

Are there other options?
If you have landed a fantastic client who really wants you to do the work, then see if they can help you to mitigate the risk. Are they willing to pay an up-front retainer, so you would have a buffer if the project suddenly shut down? Are they willing to take the additional employees on their payroll? Maybe you can work with a staffing agency to use contractors. (In this kind of arrangement, you accept a higher overall hourly rate, in exchange for passing some of the risk to the agency and/or contractors.) Maybe you can bring in another firm as a partner, so you are only accountable for the slice of the work that you can handle? Think creatively, and see if you can find a compromise that enables you to take the work without taking all of the risk.

When you refer good work to someone else, you may feel a twinge of regret as you wonder “What if I had taken on that work?” However, if you turn down work for the right reasons, you will reap the primary reward of having a steady, predictable business: sleeping well at night.

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