Learning from City Link - The Missing Business Dimension

Posted: 2015-03-23 08:19:34


There is much coverage in the media today about the demise of City Link and the plight of employees and subcontractors who lost out badly when the company went bust over Christmas 2014.

In particular, there has been calls for the bias of protection to be swung less in favour of investors and more in favour of employees.

It is difficult to argue too strongly against this call when large City based investment firms are concerned, but things are a little more nuanced when you go down the evolutionary scale a bit into the small business world.

Not All Businesses Are Equal

Here it is more likely that both employees and employers will lose out badly when the firm goes bust and often the small business employer takes a very heavy hit when the business fails.

This has been true of the small business employers who were acting as subcontractors for City Link, many of whom were running small fleets of vehicles on City Link's behalf.

As the City Link business is liquidated, these small businesses have been told they will get between 0 and 2p in the pound for everything they are owed - which I think we all know really means nothing.

One of these subcontractors was on the radio this morning - he was a running small fleet of 20 vans. They have all gone now along with his employees and he is facing personal bankruptcy.

If the bias was swung more in favour of his employees he would be in a very bad place indeed now - through no fault of his own.

This is not a black and white issue. However, while I am sympathetic to the plight of the subcontractors I have to point to another uncomfortable truth which is the missing dimension to their business which has culminated in making a very bad situation disastrous.

Like so many businesses they have made the crucial mistake of relying too heavily on one customer.

The Missing Dimension

With all eggs in one basket situations, when the basket goes, all eggs will be broken. But this is not the missing dimension.

The missing dimension is sales and marketing. Businesses that thrive by simply taking orders from one, or two customers have no sales and marketing dimension to their business.

This means that when the basket falls, not only do they lose all of their eggs, but they have no means to get new ones - certainly not quick enough to save the business in the majority of cases.

It seems like an obvious thing to say after the fact, but as a general rule no one customer should ever account for more than 20% of the business.

This is a really important fundamental that is so often forgotten when things are going well and are perhaps going so well that the number one priority is operations to make sure the money just keeps on coming in.

Even simple stuff can be neglected like a small website, or an updating of a current website. I have actually heard people say "we do not want to waste time turning down business we cannot handle".

A Vital Insurance Policy

Turning down business you cannot handle is responsible, but not creating a vital insurance policy for you business is not.

Often the reason for going it alone and setting up a new business is autonomy - to have control of your own destiny. Tying the new business to one customer is just another sort of employment with all the risk that come with single employers: being sacked, made redundant, held to ransom, etc.

This high risk strategy is more common than you might think and is often found in the construction, food, oil, car manufacturing industries plus many other service industries.

An up-to-date website is a fundamental cornerstone of any sales and marketing activity these days.

It can take little time, costs next to nothing and represents a realistic small scale insurance policy if your business is over committed to a single, or restricted number, of customers in a similar industry.

Why wouldn't you have one, or keep it up to date?

Final Word

This insurance policy does not have to be hugely expensive or take up a lot of time. Why not contact us for a free, no obligation consultation on the best options for your business?