A Founder's Fable: would you fire your biggest customer?

In the continuing spirit of last week’s Founder Fables event, here’s one that came up today in a great meeting with a couple of young aspiring entrepreneurs who took honors at Startup Riot.

In January of 2008, my company began creating a service relationship with a very large telecom/wi-fi vendor. It was what you’d call a ‘win-win’: they wanted us to build a custom version of a service we already had rolling, and we wanted to get into that business. We moved fast…really fast, like 30 days from “yes!” to the first delivery of service. And we had to create a new corporate entity to do it!  By May, we were delivering on 3 continents, shipping lots of gear all over the place. (side note: use FedEx, and not DHL. Lesson learned the hard way.)

Things were clicking. The service we were providing was being very well received at the customer end by the end users and their management. Results were being FELT in the field with their customers. And the payments were rolling in nicely. Winner winner chicken dinner.

By the end of 2008, we had nearly doubled our YoY revenue as a business (including the newly created entity), despite the economy, the financial crisis, and the failure of Lehman Bros. that fall. Didn’t affect us! The bucks were rolling in.  We were feverishly planning 2009’s service rollout to even more continents and more users.

On Jan 5, 2009, our customer laid off 15,000 employees and announced that it would eventually split into two separate companies.  Hmmm…that can’t be good.  We got on the phone with our liaison at the customer side. “No, no, we’re still a go.  We’ve got a contract and our side is still growing and we need your service. Nothing’s changing.”

Whew. That was close.  Now, what would YOU do?

We kept wearing the rose colored glasses. We pushed forward, assuming our liaison knew what he was talking about and was correct in his analysis of his company’s bad news.  We didn’t let anyone go. We didn’t change anything at all.  After all, our guy said everything was alright!

In 2009, revenue from this customer stopped, our revenue dropped by more than 50%, 3 of our 4 principal owners left.  I (no longer “we”) laid off all but 4 employees.

There’s a silver lining here, though it was painful to find.  We four employees – that 4 included me – turned the company around, paid off every penny of debt, returned to profitability, and the company was acquired just over 2 years later.

So here’s the lesson, and it applies to both sides of that transaction.  First, if I could reach back through time and telephone and get our customer to tell us the cold hard truth, I would.  In the face of massive layoffs, they just said, “Oh, it’s ok, everything’s gonna be fine. You’ll see. Don’t change anything.”  They lied.  Maybe they didn’t mean to lie, but that’s what it was. It was not the truth.

On our side, we should have been more intellectually honest with ourselves.  This is where advisers and mentors are paramount.  Anyone with any sense outside of our doors would have screamed “GET OUT!!!” and rightfully so.  We waited far too long, did far to little, and basically stuck our heads in the sand and pretended our guy on the client side was right.  Bad decision. We should have fired this customer, by which I mean cut WAY back on our services and let them know exactly what we were doing and why.

There are more ‘fables’ where this one came from.  I’m enjoying revisiting my adventures, because it keeps the pain fresh in my mind so I don’t make those same mistakes again.

Remember: the only bad mistake is the one you don’t learn from.  In starting your business, you are going to make mistakes. Write them down. Learn from them.

What do you think?