The client concentration sum

One client can quietly cost you two-thirds of your agency's value. The arithmetic takes thirty seconds.

Say you run a $3m agency producing $600k of profit, and your biggest client is $1m of the revenue. You go to market expecting, at four times, something like $2.4m. The buyer looks at the same numbers and does a different sum. The big client is a risk, so they price you as the $2m agency you would be without it: $400k of profit. And because smaller agencies carry lower multiples, that $400k gets a multiple of two, not four. Your $2.4m just became $800k. A two-thirds haircut, from one line on your client list.

Founders experience this as being low-balled by everyone at once. It is nothing of the kind. It is the same risk calculation, run by every competent buyer, producing the same answer.

And the buyer's caution is justified, because the concentration is worse than the spreadsheet suggests. When a whale leaves, profit does not fall proportionally. You carry the dedicated team for months while you unwind it, so $600k of profit goes to roughly break even, along with most of the morale in the building.

The repair is a deliberate, unglamorous programme: rebalance the portfolio, grow the mid-tier, put an account plan under every client that matters. It takes a year or so, and it is worth more than almost anything else you could do with that year. This is board-level work, and it is what I do.