How do you get comfortable with customer concentration?

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October 10, 2025

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

How do you get comfortable with customer concentration in a deal?
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Reply by an intermediary
from Texas A&M University in Austin, TX, USA
Many don't...
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Reply by a searcher
from Harvard University in NYC, NY, USA
Depends on the particulars, but I'd want to at least know the following: 1) that customer has a resilient business (looking at the industry in which it operates and its positioning in that industry). To that end, I'd even try and get comfortable around who that customer's customers are and are they likely to be around in the long term and maintain their relationship with your customer (which in turn drives demand for your product/services). 2) customer's switching costs significantly outweigh benefits of moving to a better quality provider and/or lower cost provider. Do you provide 'mission critical' product or service? Does this business provide any differentiation from others in terms of service quality and/or price. There are some businesses where having worked together for 30 years with your customer means you have immense amount of knowledge about their needs that a new competitor would really struggle to provide the same level service, and there are businesses where a new competitor can fully ramp up within 2 weeks or less. Most importantly, how negligible are you in the customers expense list? If you're 1% of their budget no one is making it their mission to check the market for competitors unless you drop the ball and screw up generally. Long terms contracts etc. and long term buying history (ie. renewal of contracts if there are contracts or frequent repeat purchase behavior) 3) relationship is deeply entrenched. You ideally don't want a situation where the old owner knows one person at client and tightly managed that relationship themselves. You run the very real risk of their personal relationship not carrying over for you. Even if their PoC at the customer's company likes you, should they get canned/leave you jeopardize the entire account. You ideally want a situation where multiple people within your company are closely engaged with multiple people at the customer's company so there is no key person risk on either side. And as some others have suggested, after doing the above also protect yourself with heavy deal structuring. At the end of the day the old owner knows the customer best, so if they're not willing to ride a significant portion of the deal on the simple caveat the customer (eg. who is >30% of rev) stays for a period of time I'd have major red flags
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