Self Employed Business Academy

 

Don’t Put All Your Eggs in One Basket

 

Business failure caused by relying on too few customers

 

Recently, while researching information on the reasons why small business fail, I came across a paper that had some very interesting analysis on this issue. You will find it at: http://www.moyak.com/papers/small-business-failure.html. In fact, I related quite personally to one reason they gave for small business failure. That reason was simply “don’t put all your eggs in one basket”.

The following two stories happened to two of my friends. In both cases, their businesses started smoothly, they maintained financial growth and, in most cases, would have been looked at as successful startup businesses.

And then the following happened to each business.

Case Study 1: Stan’s printing business

My friend Stan owned a printing company. His first customer was also a new business and if hindsight is 20/20 like they say, it could be said that taking on the customer was the worst thing he could have done.

Now that may sound extreme, so let me explain. Stan’s customer hit the ground running with their business and had so much work for Stan, that Stan had to hire more staff. This continued. Stan was happy. Money kept coming in and Stan’s business was busy. So busy in fact that he didn’t have time, nor the perceived need to search for more business.

Sounds great right?

Well the truth was that the roof was about to cave in on Stan. He had just gone and purchased 2 new state of the art printing presses, when one morning he received a letter from his customer stating that within 30 days all their accounts with Stan would be paid up and no future business would be carried out. They went on to say that in order to streamline their costs they had decided to bring all printing projects in house.

There was nothing Stan could do. He had invested all his eggs into one basket and while things were good, life was great, but in one foul swoop, it was all over for Stan.

Yes, he could go out and find more business, but his growth and expenses we’re too much and within three months, Stan’s company closed down.

Case Study 2: Adam’s marketing business

Then there was my friend Adam who had almost the same thing happen to his marketing company.

He landed a huge contract with a national company. After a three year growth spurt with this company Adam woke up to the fact that 80% of his company’s revenue was coming from one source.

He started to be cotrolled by his customer who knew that they had Adam between a rock and a hard place, so to speak.

The end to this story is the very same as it was for Stan’s company. The call came, and Adam’s business went.

So the moral of these two examples is simply “do not put all your eggs into one basket”. It may feel good to capture a big client but do not find yourself in an “exclusive” arrangement as when it goes sour, it will leave you stranded.

Mix it up! DO NOT get too dependent on just one or two customers and put your business at risk.

For more, click here to check out the 4 Pillars of Business Success.

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