The Titanic effect: When your biggest customer becomes your biggest risk

In the first article, I discussed why businesses should be more selective about the customers they invest in winning. But there is another side to that strategy. What happens when one customer becomes so important that the entire business depends on the relationship? It is an issue I have experienced first-hand.

Three times in my career, I have experienced one thing bringing down a company I worked for.

Not necessarily poor technology.

Not necessarily a lack of capabilities.

And not because the business lacked customers in the traditional sense.

The problem was overdependence on one customer.

It is one of the most serious commercial risks I have personally experienced.

And the strange thing is that it often develops during a period when the business appears to be successful.

Revenue is growing. The customer is satisfied. Collaboration becomes closer, and the business invests more and more in the relationship.

Everything looks sensible.

Until something changes.

Then it turns out that the greatest commercial success was also the company's greatest vulnerability.

Like the Titanic, the company sails ahead at full speed while the iceberg approaches.

And the problem is not necessarily that no one can see the customer.

It is that no one has seriously considered what happens if it disappears.

The biggest customer is often the most important. And the most dangerous.

Large customers are attractive.

They can generate significant revenue, stability, access to new capabilities and opportunities to develop solutions that can later be sold to others.

In some industries, close relationships with a few large customers are a natural part of the business model.

There is not necessarily anything wrong with that.

But there is a big difference between having an important customer and being dependent on it.

An important customer contributes substantially to the company's development.

Customer dependency arises when the customer's decisions become so consequential that the business no longer has sufficient freedom to adapt.

This can happen, for example, if the customer changes its procurement strategy, reduces its budget, changes management, completes a merger or decides to use a different supplier.

None of these decisions need to result from dissatisfaction with the business.

They may be entirely rational from the customer's perspective.

But the consequences for the supplier can be dramatic.

Research shows that customer dependency comes at a cost

A study published in the Journal of Corporate Finance in 2023 analysed the relationship between customer concentration and financing constraints.

The researchers found that large customers' bargaining power can create less favourable financing conditions for suppliers with a concentrated customer portfolio.

This is interesting because dependency is not only about the risk of losing revenue.

It can also affect the company's financial room for manoeuvre while the collaboration is still working.

Another study in Accounting & Finance from 2023 found that companies with concentrated customer portfolios adjusted their capital structure more slowly. The researchers linked this, among other factors, to greater cash flow volatility and investments specifically tied to particular customer relationships.

This is consistent with a commercial mechanism that I believe management teams should take seriously.

The more of the business is organised around one customer, the harder it can become to respond when the relationship changes.

But there is also an important nuance.

Research by Patatoukas in 2012 found a positive relationship between customer concentration and certain measures of suppliers' operational efficiency and profitability.

Close collaboration can therefore create real efficiency gains.

The problem is not concentration in itself.

The problem is concentration that the business has not considered and that its finances cannot withstand.

When does a good customer become a bad risk?

There is no single universal limit to the share of revenue one customer should represent.

But the risk is relevant enough to also form part of financial reporting.

Under the US accounting standard ASC 280, listed companies subject to the standard must disclose customers that individually account for at least 10% of the company's total revenue.

This is a reporting requirement, not a recommended risk threshold.

By comparison, Teradyne's annual report for 2025 states that its five largest direct customers together represented 44% of revenue. The company also explicitly states that the loss of a significant customer or a substantial reduction in that customer's purchases could adversely affect the business.

This shows that customer concentration is not only an issue for small and medium-sized businesses.

Even large, established companies must address it.

But when I assess risk in a customer portfolio, I am not only interested in the customer's share of revenue.

I also want to know how much of the company's earnings, capacity and future development is tied to that customer.

A customer may, for example, represent 25% of revenue but a much larger share of the contribution margin.

Or the company may have invested in special equipment, dedicated specialists or a solution that only this customer uses.

The risk is then greater than the revenue figure immediately reveals.

The iceberg lies beneath the surface

A business can easily look healthy on traditional commercial metrics.

Revenue is growing.

The pipeline looks sound.

Customer satisfaction is high.

But beneath the surface there may be a range of dependencies that are not discussed sufficiently.

Revenue dependency.

One customer accounts for a substantial share of the company's income.

Earnings dependency.

The customer contributes a disproportionate share of the company's contribution margin.

Capacity dependency.

Employees, equipment and specialised capabilities are tied to the customer's needs.

Relationship dependency.

The customer relationship may be carried by very few people on both the customer's and the supplier's side.

Dependency on future growth.

The company's budgets and growth plans assume that the biggest customer will continue to increase its purchases.

Each individual dependency may be manageable.

But when they occur together, the business becomes vulnerable.

And it is often precisely because the collaboration has historically worked well that the organisation underestimates the risk.

The most dangerous dependency is the one we dare not challenge

There is also an organisational consequence.

When one customer becomes decisive for the company's finances, that customer's interests naturally start to carry more weight in management decisions.

Investments are prioritised according to the customer's wishes.

Product development is adapted to the customer's needs.

Resources are moved away from other opportunities to secure delivery.

And in some situations, the business may become less willing to challenge prices, contract terms or unreasonable expectations.

That may be rational in the short term.

But in the longer term, the business risks becoming increasingly dependent on the collaboration it is trying to protect.

If the business can no longer afford to say no to its biggest customer, the nature of the relationship has changed.

The customer is then not merely an important commercial partner.

It has also become a significant part of the company's strategic risk.

The customer portfolio should be a board-level issue

I believe customer portfolio concentration should be discussed far more systematically at executive and board level.

Not just as a list of the ten biggest customers.

But as a genuine risk assessment.

If I were assessing a company's commercial resilience, I would start with five questions.

1. How dependent are we on our biggest customers?

Measure concentration in revenue, contribution margin and expected future earnings — not only invoiced revenue.

2. What happens if our biggest customer substantially reduces its purchases?

How does this affect liquidity, staffing, capacity utilisation and our ability to finance operations?

3. How quickly can we replace the revenue?

Do we have a sufficiently qualified pipeline and access to other attractive customer groups?

4. Are our customers genuinely independent of one another?

Ten customers do not necessarily provide good diversification if they all depend on the same industry, investment cycle or corporate group.

5. Do we have a deliberate plan to reduce unwanted dependency?

Not necessarily by reducing business with the biggest customer, but by developing other customers and markets faster.

That last point is important.

A strong customer should not be penalised for being large.

But the business must ensure that the customer's success does not become a threat to its own survival.

Diversification is a commercial management discipline

It is tempting to view customer portfolio risk as a financial issue.

Something for the CFO or the board to monitor.

But the most important opportunity to reduce risk often lies in commercial strategy.

Do we have a clear ICP that gives us access to more attractive customers?

Do we have a functioning new-business engine, or does growth primarily come from the same existing customers?

Are we deliberately working to develop a broader portfolio of Key Accounts?

Are our sales roles and resources organised both to protect existing revenue and to create new customer relationships?

And do we have the management discipline to maintain these priorities, even when the biggest customer demands attention?

For me, this is precisely where the connection between strategy, people and execution becomes clear.

The composition of the customer portfolio is not only a result of historical sales.

It is also a result of the commercial choices management has made — or failed to make.

Three times was enough

Three times in my career, I have experienced what overdependence on one customer can mean for a business.

It has made me very aware of the difference between strong growth and resilient growth.

A large order is a success.

A strategic customer can be invaluable.

But if the company's future depends on one particular customer continuing to make the right decisions for us, we have created a risk we do not control ourselves.

And that may be one of the most dangerous things in commercial management.

The Titanic was an impressive ship.

But it was not the ship's size that could protect it from the iceberg.

Likewise, high revenue, large customers and impressive growth rates are not in themselves evidence of a healthy commercial business.

A large customer can make the business strong. But if the business becomes too dependent on that customer, the same relationship can also bring it down.

We should therefore not only discuss how much our biggest customers contribute.

We should also discuss how much we risk losing.

And what we will do about it before the iceberg hits.

Read the first article too

A small sale can take just as long as a large one. So why do we treat customers the same?

The first article examines how businesses should prioritise customers based on sales effort, CAC and long-term economic potential.

Together, the articles underline a central principle: We should win customers who create value. But we should develop a customer portfolio that makes us less vulnerable — not more dependent.

The personal experiences are the article's narrative starting point. Research documents risk mechanisms, but not that customer concentration is generally the biggest cause of business failure.