Jacques Mattheij

Technology, Coding and Business

A chair needs at least three legs, so does your business

A chair needs three legs to be stable. On two (or less) it can’t stand by itself, and it’s funny but the same seems to hold true for businesses.

When you’re relying on only one ‘line of business’, or even worse, just a single or only two big customers for your survival then the first hickup will immediately bowl you over.

It’s possible to survive a hit to your income stream, but how much of a hit you can survive depends on how much cash you have in the bank and how big a portion of your total income that hit represents.

Anything over 50% and you are looking at having to significantly restructure your operation, whatever it is (from a one man show to a mid sized company). The clock will be ticking from the moment you’re aware of it and any time wasted will significantly decrease your options and your chances for survival.

The question you will be asking yourself afterwards, regardless of whether or not you will survive, is how did I let it get this far.

So don’t!

At a minimum you need:

  • three sources of income at any one time

  • to keep an eye out for deals that will require you to neglect other customers because they are ‘big’

  • monitor the dependence you’ve got on your customers so that if one gets too large that you either grow another or diversify to decrease that dependence

Easier said than done!

Imagine, you’re running a small, maybe one or two people company, and one day a big order comes in, do you take it (money in the bank!) or do you walk away from it and pursue smaller deals, potentially less lucrative ?

That’s a tricky situation to be in, as with all these things, it depends. If you estimate your chances are large to find a bunch of smaller jobs then you’d be better of doing that, if you estimate that it will be very hard to find other work then you might still have to go for the big job. But I’d make a provision that you reserve the right to spend a certain amount of time on other work, just in case a smaller customer comes by and wants you to do something for them. You can’t say ‘no’ to your smaller customers for the duration of the larger job, if you do that you may have lost a significant portion of your customers by the time you’re done.

In a business-to-business situation, or when selling goods or having a website that earns you money the situation is completely different, but most of the same rules still apply. Don’t take all your income from a single source. If you have a profitable website, don’t lean back and count your money, make another one! And preferably two.

That way, if something unforeseen happens you’re not right away in crisis mode, but you can fix things properly by cutting back a bit and using the remaining 23 of your income to buy you time.

Like that you can weather most crisis. A lot of little dripping taps are a lot more reliable as a source of income than a single firehose. For one a firehose can be turned of by a single event, it also makes you vulnerable to a competitor offering that single source of income a better deal.

Another way of achieving this is to split the income of your website in to two streams, say advertising and a freemium plan.

That way you are already a bit more stable, if you lose the advertising income or if you lose your card merchant services (this happens with some regularity, unfortunately) then you can limp along while looking for a replacement.

More is better, but 3 sources of income really is a minimum!

And to have several months of operating capital in the bank is another healthy reserve, it can mean the difference between end-of-story or a successful restart or pivot.

Just like that chair, lest you fall over when one source temporarily or permanently dries up.

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