Always Try to Diversify
April 28, 2009
A long time ago, I worked at a firm that had a major telecommunications client. Over 50% of our monthly billings were derived from creating logos and names for new product launches, helping to brainstorm print ads and direct mailers, and otherwise serving as a creative sounding board. There was no retainer agreement, only projects that were opened with a rough time estimate and hourly rate.
It was creative nirvana. You could spend as little or as much time as you wanted on a project, as long as you had a range of thinking in your comps. Our clients trusted us, and we trusted them.
My wife and I had been discussing moving to Seattle for some time, and the final decision to make the move was very difficult -- mainly because this firm was such a great place to work. I gave my notice, my wife and I packed up our place and hopped in our car for a month-long cross-country jaunt. One morning in Chicago, while staying at a family member's place, I saw in the paper that my client's company had misstated earnings across all of their financial statements and was going to declare Chapter 11 bankruptcy.
Client goes poof, at least in the short- to mid-term. My former job vanished as well; they never rehired for the position. There's no way our clients in marketing or my boss could have ever known that would happen... and the client never recovered.
It's easy to be optimistic about what you can control in your designer/client relationship. You can make your clients happy and keep the bucks rolling in. But you can't control their business decisions beyond what you design and the observed impact of your designs in the world.
You can inform them and provide insight. You can educate them regarding what their options are strategically and tactically. You can even be Chief Design Officer and sit at the big polished mahogany table powering up your big presentation on how you'll optimize their customer experience and rethink their brand and make amazing new products that will bring in billions.
But you aren't the CEO. You aren't the Chairman of the Board. You control your domain, and unless you're the honcho who's dealing with the shareholders and making the tough decisions on critical business issues, you're SOL.
This is why you need to diversify.
And it isn't just about money. There are many sound reasons to pursue a more diverse client base, starting now...
Diversification encourages a range of industries, styles, and types of deliverables in your portfolio. If you want to just be the designer who makes logos for one pet food company, go right ahead. But chances are there are only so many similar clients you'll be able to find.
Diversification allows you to sustain the loss of a client while protecting your overhead. If you hire a bunch of people to service that client that provides 60% of your business, when that client suddenly vanishes, so do all those jobs. This is common practice at very big agencies that seek retainer relationships. This is a weak business model for a small firm and can't be sustained without giving blood.
Diversification protects you from cash-flow fluctuations due to client business decisions beyond your control. If you aren't asking for payment up front for each design phase, and instead offering credit and Net 15/30/45 billing, you've lived through this problem. If a client needs to choke down on accounts payable, you pay for it in the short term. Often, asking for interest on the late payment won't make up for your scramble to assess the impact to your business's pipeline. (You do keep track of that, right?)
But the most important reason I'm aware of for diversification of your client base is as follows:
It is not a safe position in any design negotiation to be beholden to your benefactor. You are in a service industry, and providing an important product as a result of your services. But that doesn't mean that because you do 80% work for one client, all of a sudden you are their company and can be treated like they're your boss and you're their subordinate. There must be a clear boundary around what you feel comfortable providing them. When a client knows that you are dependent on their business, it offers a space for negotiations that can verge into the downright unprofessional. Every agency I've worked at with a lopsided portfolio has suffered due to this.
Here's a good rule of thumb for diagnosing your exposure to risk due to your client makeup. Once any one client is providing more than 40% of your business, you should move into action to protect your business. Some people say 30%, others 50%. The number, however, isn't quite important once it breaks more than one-third of your per-capita income.
And the antidote to lack of diversification is easy, in theory. Even when you get frighteningly busy due to all the work on your plate, keep calling potential clients and new business leads. Continue your networking. Always explore new areas to try your hand at designing. If you close down and focus all your attention on making your sole client happy, in the short term you may profit -- but your risk of harming your business in the long term will only increase.
Then again, it's only when the rug is pulled out from under you that you can gain a new perspective -- from lying on the floor...