Exclusively Serve a Single Cost-Breakthrough Customer to Provide the Minimum Business Model

Now consider how to obtain one customer that changes the economic potential of your enterprise so much that it becomes practical to accomplish an overall 96 percent cost reduction after gaining just that one customer.

I chose this topic after thinking about how often the conventional wisdom about business strategy is wrong. Almost every businessperson I've ever met wanted to have as many different customers as possible and to sell them the widest possible variety of offerings. Why? The businesspeople felt very vulnerable to their organizations losing their biggest customers or the bulk of the huge volume such customers represent.

I often noticed the opposite opportunity: attract a customer whose needs were so special and whose purchase volume was so valuable that you could dominate an industry simply by gaining that customer. The Martin-Brower Company, which zoomed to national preeminence through serving McDonald's (the fast-food company) as its sole distributor of paper goods, is a good example of this focused approach.

McDonald's wanted to have a consistent image from restaurant to restaurant, and that meant using the same type of printed paper items (such as French fry containers, soft drink and milkshake cups, and hamburger wrappers) everywhere. Because there was no national paper goods supplier for restaurants at the time, McDonald's decided to create one by asking Martin-Brower to match the hamburger chain's expansion across the United States and into Canada.

McDonald's later asked Martin-Brower to increase its distribution capabilities to handle other dry (as well as frozen) items that McDonald's wanted to be uniform from restaurant to restaurant. Ultimately, Martin-Brower delivered all of the supplies to most McDonald's restaurants in the United States, Canada, and Latin America.

Today, many consumer goods manufacturers take a similar approach by seeking distribution at Wal-Mart, the world's largest retailer. When such distribution success occurs, the organization will suddenly have much larger sales and the ability to spread overhead and other fixed costs while seeing production and shipping costs plunge on a per-unit basis.

Imagine instead that you have a training product. If your country requires compulsory secondary education or military service, a similar breakthrough would be to obtain a contract to provide such training to all the young people who go through schools or the military. Then, having made a whole generation aware of what you do, you would have an opportunity, years later, to sell add-on training to the young people after they gained responsible positions in various organizations.

Here are some of the many ways that an industry-dominating strategic customer can slash your costs on a per-unit basis:

• Provides much larger volume than any other combination of customers so that your per-unit costs immediately drop below those of your competitors. The effect is to create a price umbrella that will let you set your prices relative to much higher-cost organizations that could potentially substitute for you, but can't match your costs and capabilities due to exclusively serving the strategic customer.

• Delivers credibility that makes your organization the one other customers want to work with based on knowing how fussy the strategic customer is in choosing suppliers. The incremental volume you gain from other customers often helps reduce costs almost as much as if you had instead gained all of the increased volume from the strategic customer.

• Allows your organization to access lower-cost financing. Small and unknown organizations often find themselves paying double or more the cost of larger and well-known organizations for the equity and debt capital they need to operate and to expand. While serving the strategic customer, your credit rating and attractiveness will improve toward the level enjoyed by your customer.

• By focusing in just a few offering areas, your per-unit operating costs to provide such offerings can go down even faster than overall costs. This focusing of your activities will also simplify your operations so that you will be able to streamline your processes in ways that further reduce costs. In addition, your quality should improve, allowing you to better satisfy customers and end users.

• Provides a base load of volume that permits you to increase marketing activity to higher levels than that of competitors. When that happens, customers and end users mostly remember all industry marketing activities in terms of your offerings. Thus, your marketing expenditures become two or three times more effective. Any added volume you gain then also helps to reduce overhead and fixed costs on a per-unit basis.

• With increased scale, you may find that the ratio of sales-to-net assets increases so that you can invest less capital to grow revenues. This increased asset utilization will greatly expand the cash flow generated.

• If you have a long-term relationship with the strategic customer, you have opportunities to help that customer optimize the relationship so that any alternative supplier would be much more expensive to use. The effect of drawing closer together can be to reduce your competitive risk, even though your volume is highly concentrated.

• Your customer won't need as many aspects of the offerings and related activities as you have been providing. You can then eliminate such costs unless another customer will pay enough to make such offerings and activities financially worthwhile.

• You may be able to shift your specifications and operating methods so that fewer items have to be scrapped, reworked, or provided again... further lowering costs.

• The customer may have unique knowledge that can help you operate more effectively and at a lower cost.

Naturally, many people will still worry about only having one customer. But if all you do is think about providing for that customer and act appropriately, isn't it likely that you won't make a mistake that will cost you that customer's business?

What's the key cost-reducing point of gaining exclusive access of the industry's most strategic customer? You can help reduce costs by 96 percent for your organization and all stakeholders in ways that will expand your profits after implementation through revising your business model to the minimum best practice by gaining, serving, and retaining your industry's most valuable strategic customer in the most effective and efficient ways.