How I became too reliant on one client – and recovered

Aqualogical was started five years ago by partners Anthony Freeman and Doug Neufeld, who wanted to innovate a new method of design in the water pumping and hydraulics engineering sector. The business has been hired by governments private sector clients, and turns over about $2 million.

But a year into the business, the pair were stopped in their tracks when a major project fell over – and they had no back-up plan. Neufeld immediately hired a business development manager and introduced a policy limiting the effect any one client would have on overall revenue.

So how’s the business travelling?

To be honest, not terrific. Things have slowed down in Queensland, and at the end of last year we were looking at perhaps half a dozen major projects with about $200,000 each in fees, and we didn’t win any of them. We’ve been working on the Gold Coast hospital which is great, and another really big one in a defence base, but both of those are coming to an end.

We want to get more work for the guys on those teams, but as it’s turning out there aren’t large jobs for them to be replaced with. We’re really busy with lots of medium-sized jobs and smaller jobs, which is keeping the doors open, but it’s definitely slowed down.

Is this a general trend you’re seeing in the industry?

A lot of our competitors are being slowed down as well, and architecture work has slowed down too. The real strategy for this year is to just sustain ourselves and keep everybody’s jobs secure.

So what happened when this major project fell over?

We were just in our first year, and we had a major client that gave us a job. We were getting along with it, and it was a huge water recycling job with fees in excess of $400,000. At that point it was such a huge job we didn’t do any marketing, and we didn’t go out and look for other work either. We couldn’t really take any more on.

How big was this client?

We were hiring staff, put on some senior workers, and we were able to do the project by putting on about five guys. The biggest problem, however, was that we weren’t trying to get other work. We didn’t need any inventory or any stock, or anything like that, but it was still a number of hires.

We were wrapping ourselves in this project and dedicating all this time to it, because we were all expecting to go forward. We were working on it for about two months. And then after that I had to put off some people, which was unfortunate.

And who told you when it fell over?

We were advised the project wasn’t going forward by the client, and we were pretty screwed. We didn’t have any other work on the books, other than a few shop fit outs.

Did they say why?

It was a very innovative style that was going to cost a bit too much money, and I guess they decided it just cost a bit too much for them.

We were crushed, and didn’t know what to do at first.

So what was your response?

The first thing we decided to do was hire a full-time business development manager. The purpose of this was to quickly expand our client base, because we clearly didn’t have enough.

What was the thought process there?

The thought process was just that we had too many eggs in one basket. We needed to expand our client base to have that security if another one fell over.

What was this person hired to do?

Exposure, branding, looking at other business opportunities and so on. It was also at this point that we decided to introduce a policy that any one project would not provide more than 20% of our revenue so we wouldn’t be behind if one falls over.

Did it pay off?

Absolutely. This is what allowed us to achieve pretty significant growth, because the manager ramped up all this activity and we started hiring. We hired about six people per year for four years in a row, and our turnover increased by $200,000 per year as well for each of those years. It’s only slowed down in the past year or so.

Do you follow through with that policy now?

All the projects we have now are with completely different clients, although it has happened again. But because they are less than 20% of our turnover it doesn’t affect the entire business. For one big project I had to hire six more people, so they were definitely big additions to the business.

Now I’ve taken over that role myself, although that business development manager was with us for two and half to three years. I’ve stopped the designing process now and am putting more attention on that side of the business.

Would you recommend this process to other businesses?

I think so, yes. I would recommend having someone in that role if you plan on growing your business. You also need to limit the amount of work you take in from one client as best you can, because you need to secure yourself if the worst happens.