Whenever one customer wields too much influence over your business, your value in the eyes of investors and buyers will be reduced.
If that customer happens to be a government, some investors may shun your company altogether.
First Solar, a manufacturer of solar panels, was ranked by Fortune magazine as one of the top 100 fastest-growing companies in the United States in 2010. First Solar has exploited the government’s willingness to subsidize green energy through various tax credits and incentives.
The company has declared that its long-term goal is to compete without government help, but it is a long way from being able to do that. For example, in an attempt to cut expenses, the Spanish government reduced its incentives for solar energy last year, and consequently First Solar’s revenue in that country dropped 90 per cent.
One decision by a bureaucrat an ocean away, and First Solar’s business in Spain was worth one-tenth of what it was the day before.
Buyers pay a premium for predictability in your business and they slash its value when it is dependent on a single customer, or worse — the mood of a bureaucrat or his or her constituency.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company. Follow him on Twitter @JohnWarrillow.