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Watch Your Egg Basket!

June 6, 1998
by Pat McClellan

Lessons in financial diversity.

"I've got it great," you say. "My best client loves me so much that they've kept me busy solid for the last 8 months!"

Whether you're a freelancer or a thriving business, if you've had the fortune to utter those words, you could be in a precarious situation. It's really a good news/bad news connundrum: the good news is that you've got steady business; the bad news is that you've now become dependent on that one client.

As a business person, you must maintain a relatively steady flow of revenue. One of the biggest challenges here (unless you have a sales staff) is that it's difficult to market yourself while you're busy working on a project. Of course, in a sense, all the time that you're working with a client on a project can be an indirect but highly effective sales effort toward the "next job" with that client. Since you're getting sales results out of your production effort, this is the most efficient way to sell. That's why you always hear that it's easier to keep an existing client than it is to find new ones.

Don't get me wrong. I love repeat customers. There are tremendous advantages to working with a client on many jobs: you know what to expect from the client; you know better how to budget the jobs; you develop comfortable working relationships and processes. Plus, there's the ego gratification that comes from knowing that you have satified a customer enough that they want you to work on their next project.

So why am I worried?

Would you invest your entire life savings in a single stock? Probably not. But what if that stock was a steady, dependable, blue-chip stock... a company with a great reputation and decades of dependable earnings? Nope. Still too risky for all of your savings. Now, if you won't do that with your life savings, why do it with your primary revenue stream?

Back in business school, I learned a key concept about managing risk in an investment portfolio. I found it particularly interesting because of its counter-intuitiveness. The general concept is that it is safer to invest in 2 or more risky (but different) companies than just 1 "safe" company. Example: instead of investing in big "safe" company like Microsoft only, it would be safer to invest in several smaller, and perhaps, riskier companies which are involved in different industries from each other. The security comes from the fact that if the "unforeseeable" happens, it probably won't affect all of your investment. In fact, the more companies you add to your portfolio, and the more diverse they are, the more secure your portfolio becomes.

Now let's bring this concept back to your business. Even if your biggest client works for a rock-solid company, even if they love your work and would never consider hiring anyone else, even if they've got tons of work for your foreseeable future.... things happen. Companies go bankrupt. Industries go extinct. People (client contacts) leave for other jobs.

Ask yourself: what would happen if I lost all business from my biggest client? If you are comfortable with that prospect, then maybe you'll be ok. But if that means you would have little or no income for an unknown period of time, you need to diversify your client list.

Sure, it's hard to do. I know. Projects last for several months, during which you've got no time to market your services elsewhere. And clients are possessive. They don't really want you to be marketing yourself elsewhere. They want you dependent on them for business because that's a source of economic power -- they can negotiate better prices from you that way.

Some guidelines

In any given 3 month period, you should look to work for at least 2 diverse clients. If they can't be in different companies, perhaps you can find other clients or divisions within the same corporation.

If a project is going to last for more than 2 months, budget time in that project timeline for marketing activities. (You don't have to show this to your current client.) You'll need to maintain contact with old or potential clients, and 2 months is long enough for them to forget you and find someone else.

Try to overlap projects and alternate clients. As one project is nearing completion, look to begin the early stages of the next one -- even if it is just preliminary meetings. If you are able to alternate clients, this gives you more power in your relationships with all of these clients. They know you are in demand by others, and therefore, they'll be more willing to work with your availability.

Finally, understand that I called them "guidelines" because they are very difficult to maintain. One, big, all-consuming project lasting 6 months can blow your best intentions and marketing plan. I struggle with it constantly. Don't be discouraged, just be vigilent and understand that your financial security depends on it.

Patrick McClellan is Director Online's co-founder. Pat is Vice President, Managing Director for Jack Morton Worldwide, a global experiential marketing company. He is responsible for the San Francisco office, which helps major technology clients to develop marketing communications programs to reach enterprise and consumer audiences.

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