The Customer Concentration Conversation Advisors Keep Postponing
There is a conversation that shows up in almost every founder-owned sale process, and it almost never shows up early. The founder has one customer worth forty percent of revenue. Everyone in the room knows it. The advisor knows it in the first meeting, because it is visible on the first revenue schedule they are handed. And yet the conversation about what that customer does to the price gets deferred, politely and repeatedly, until a buyer raises it in diligence and reprices the deal.
I want to be precise about why that happens, because the usual explanation is wrong. Advisors do not miss concentration. They see it immediately. The delay is not an oversight. It is a commercial choice, and it is usually made unconsciously.
Here is the mechanism. The pitch meeting is a competitive moment. The founder is talking to three advisors. Two of them talk about the multiple and the buyer list. The third one talks about the customer that is going to cost the founder two turns of EBITDA unless something changes in the next year. Guess which one is harder to hire. The market rewards advisors for optimism at exactly the moment the founder most needs pessimism, and the engagement letter gets signed before anyone has said the difficult thing out loud.
So the concentration conversation gets pushed to month four, or month seven, or to the diligence call where a buyer's analyst asks what happens if that contract does not renew and the room goes quiet. At that point the conversation is no longer advice. It is damage control, and the buyer is the one holding the pen.
The cost of the delay is not theoretical. Across the transactions we studied, post-LOI price adjustments occurred in roughly two-thirds of deals, and the median adjustment was close to ten percent downward. Concentration is not the only driver of that number, but it is one of the most common, and it is one of the few that is genuinely fixable given enough runway. That is what makes the postponement so expensive. It converts a solvable problem into a discount.
What a buyer is actually pricing is not the concentration itself. It is the durability of the relationship underneath it. A customer at forty percent of revenue on a rolling thirty-day handshake is a different asset from a customer at forty percent on a multi-year contract with a stated renewal mechanism, switching costs, and a relationship that runs through six people at the customer rather than through the founder's cell phone. Same percentage. Very different risk. Buyers know this, and they price the difference. Sellers usually learn it late.
Which means the advisor's job is not to make the concentration go away. In the time available before a sale, it usually cannot. Telling a founder to go win eight new customers of similar size in twelve months is not advice, it is a wish. The job is to change what the concentration means when a buyer looks at it.
That work is specific. Get the relationship papered, if it is not. Move the contract from an annual handshake to a term with real notice provisions. Broaden the contact surface so the relationship survives the founder's departure, and document that it has. Show a renewal history rather than asserting one. Understand where you sit in the customer's own cost structure and whether you are switchable at all, and if you are not switchable, prove it with something a buyer can verify. Build the same picture for customers two through five, because a buyer who is worried about the first one will immediately ask about the rest.
None of that reduces the percentage. All of it reduces the discount. A buyer who can see a documented, contracted, multi-threaded relationship with a renewal record is pricing a concentrated business. A buyer who can see a large number on a revenue schedule and nothing behind it is pricing a founder-dependent business with an undisclosed cliff, and they will price it that way whether or not the cliff exists.
This is why the timing question matters more than the technique. Every item on that list takes quarters, not weeks. Papering a relationship that has run on trust for eleven years is a delicate conversation with the customer, and it goes badly if it happens under visible deal pressure. Customers can tell when they are being converted into a diligence artifact. Done a year out, it reads as good governance. Done six weeks before a management meeting, it reads as a company being dressed for sale, and sophisticated customers respond to that by asking questions you do not want asked.
So the concentration conversation belongs in the first meeting, before the engagement letter, when it is still expensive to have. An advisor who raises it then is telling the founder something true at the moment it costs them the most to say it. That is a signal worth more than a track record slide. I have written elsewhere about how advisors should stage diligence readiness across twelve months, and about why most sellers pick the wrong buyer before diligence starts. Concentration sits at the intersection of both, because it changes which buyers should be in the room at all.
That last point deserves its own weight. Concentration does not read the same to every buyer. A strategic already selling into that customer may treat the relationship as the reason to buy rather than the reason to discount. A sponsor building a platform will underwrite it as risk and price it accordingly. A family office with a longer hold may care more about the relationship's durability than its size. The same forty percent produces three different numbers depending on who is looking. An advisor who has done the documentation work has the option of running a process that finds the buyer for whom the concentration is an asset. An advisor who waits until diligence has no options left, because by then there is one buyer and they have already decided what it means.
The founder cannot fix this. They do not know the conversation is missing, because nothing in the pitch meeting tells them it should be there. The advisor does know. That asymmetry is exactly what the founder is paying for, and it is the part of the engagement that gets quietly skipped most often. Raising it early costs the advisor some chance of winning the mandate. Not raising it costs the founder ten percent of the number they are actually selling for. That is the trade, and it should not be a close call. It is the standard we hold ourselves to at Cordis Group.