Putting all your eggs into one basket
If you’re a small business acting as aservice provider, you have to make a choice. Will you court other small businesses as your clients or will you try to land a “big fish” corporate client.
Experienced business owners know that landing the “big projects” takes time… time and money. Landing a big contract can take months, even years and the small business owner who chases those big fish can find maintaining cash flow to be a significant challenge.
But in addition to the time it takes to land a big client, you’re faced with another problem when you choose to fill your practice with one or two large clients vs 10 smaller clients. It’s what I refer to as the “Primate Pen” theory of client management.
As you build your business, you have a choice of which primates you want to include in your “Primate Pen.” If you choose to focus on smaller clients, then you’re choosing to fill your “Primate Pen” with smaller species… such as chimpanzees. You might be able to have 8-10 100 lb chimps living comfortably within your “Primate Pen”.
On the other hand, you might choose to fill your “Primate Pen” with a single 800 lb gorilla.
In both cases, all of your time and resources are consumed caring for your “Primate Pen”.
Without a doubt, the single great ape would be “easier” to care for once acquired. It would receive all of your time and attention and, upon recruiting such a specimen, you could focus exclusively on the care and feeding of the single specimen.
However, should the great ape die or escape, you’ll find yourself in a sticky situation.
This is the situation faced by Walmart’s advertising agency of record Bernstein-Rein back in 2006. During the 32 year relationship, Bernstein-Rein ads played a critical role in shaping Wal-Mart’s public image as it morphed from a small-time retailer in Bentonville, AR, to the nation’s No. 1 mass merchandiser. It created the smiley face character and also the low-prices tag line which appeared on everything Wal-Mart from ads to employee smocks and even was painted on the trailers which hauled Wal-Mart products up and down the highways as traveling billboards.
Bernstein-Rein reported a gross income last year of $59.3 million. While Wal-Mart’s contribution to that is not disclosed, it is known that the Wal-mart is considered to be a $578 million ad account. Since standard agency commissions are 15%… it doesn’t take a math wiz to figure out that the loss of that great ape dealt a significant blow to the income generated by the Bernstein-Rein “Primate Pen”.
Of course it’s more difficult to capture and maintain 10 chimps than it is to capture a single giant ape. However, it’s possible to have a 10% reduction in chimps while with the single ape, it’s all or nothing.
David Wallace over at the search engine guide provides a more recent case study. In his post, Why you should not put all of your eggs in one basket, David reports that IncrediMail learned this lesson the hard way.
In early 2008, Google suspended the IncrediMail AdSense account. Google Adsense is a program where web site owners allow Google to display ads on their web site in exchange for a portion of the revenue generated. For sites with heavy traffic, Google AdSense provides a cheap and easy way to earn revenue.
While IncrediMail also had income from products sales, offering subscriptions to their content database, and by selling paid advertising on their Web site and e-mail client, the company admits that Adsense made a significant contribution to the company’s income. When Google decided to suspend their account, IncrediMail’s stock dropped 45% to a new 52 week low. They definitely had too many eggs in the Google AdSense basket.
As you build your service based business, remember that it’s far easier to capture and care for one great ape, but if that is your strategy then be prepared for the time when the great ape escapes or dies.
This lesson applies not only to revenue but also to marketing tactics as well, as anyone who has foolishly placed all of the marketing eggs into the Google search engine basket will tell you.
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