Security

One big consulting client: The risks and the rewards

Chip Camden likes to keep no more than three regular heavy-hitters in his client base. See if it might be time for you to diversify your client base.

 When first starting out as a consultant, having business already lined up helps make the financial transition less jarring. Some consultants begin part-time while still employed; others may land one big client who will insure them of a steady revenue stream. I was fortunate to belong to the latter group.

My first client gave me enough work to keep me busy full-time. Nineteen years later, they're still my biggest client in terms of billable hours; but about six years into our engagement, I had to cut them down to half-time. Why? Because I needed time to develop other business.

Was I crazy? Actually, it was my wife's idea. She told me that I should avoid becoming a "one-hit wonder," and that I'd never be able to branch out as long as one client consumed all my time. I already had a few other clients, but I could only give them an hour here and there.

You may ask, "What's wrong with being a one-hit wonder? As long as one client is keeping you afloat, why rock the boat?" I can think of several good reasons.

Cannot build your business. As was my case, you can't focus on expanding your relationship with multiple clients if all your time is allocated to one. That limits your opportunities more than you might think, because you aren't just missing out on the business that's currently being offered, but also on anything that might develop out of that new client relationship. Too dependent. Independent consultants are much easier to fire than employees. Even though we usually land an annual contract, once that runs out, the client can cut us loose without any of the messiness involved in firing employees -- that is, no severance pay, no paying unemployment benefits, no risk of being sued for discrimination or harassment or any of the other three million reasons why an ex-employee sues an ex-employer. Since consultants assume that additional risk, we need to compensate for it in various ways. Certainly we should charge more, but we should also mitigate the risk by diversifying our client base. Taken for granted. When you work full-time for one client, they may begin to think of you as an employee. They may expect you to be available at all times, ignoring your other clients. They can also leverage your dependence on their volume of work to squeeze you into a lower rate than you might get elsewhere. May be viewed as employee status. Especially in the technology industry, having just one big client raises a red flag for taxing authorities that you might be a statutory employee. That can result in costly penalties for your client, and can also force you into either accepting employee status or losing the relationship with your client. Reduced chances to broaden skills. Working for one client limits the technologies in which you can build deep practical experience. On the other hand, each additional client brings new challenges that expand your abilities. The art of taking on new engagements also requires business skills that you can only grow from that experience. Don't let yourself become narrowed into working only with one set of people on one set of problems in one set of technologies.

However, having lots of recurring business from a few clients does have its advantages.

Steady income stream. If you don't let it make you lazy, having a reliable pipeline-filler can actually help you build your business. Since you aren't desperate for work, you can keep an eye open for the projects that you'd like to work on, and use your spare time to develop skills in those areas. You don't have to accept every bit of work you can find, so your career doesn't get defined by chance. Focus on long-term solutions. An extended project or a series of projects in one technology can help you to become an expert in that niche. Don't waste that opportunity by skimming over the surface looking only for immediate solutions. Dig deep, with an eye towards how you could build this knowledge into a broader business than just for the one client. That also benefits your current client, because you will undoubtedly learn better ways of approaching their problem. Strong relationships. One of the great rewards of this industry is getting to know a variety of people, but many of those relationships can remain shallow unless you get to work with the same individuals over an extended period. Strong personal bonds also strengthen your business. People come to know what they can expect from you, and what you expect from them.

As with most areas of life, the answer is to maintain a balance. Becoming overly dependent on one or two clients can spell sudden disaster, but spreading yourself too thin can waste too much of your time switching context and beating the bushes for new business. I like to keep no more than three regular heavy-hitters in my client base; then I fill in the rest of my time with various smaller projects and self-education. Your mileage may vary.

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About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

26 comments
techytype
techytype

Almost 5 years ago I relocated from the "big city" where over 20 years I had built up a substantial client base. Two of these clients represented 60% of my income. A big component of the planning to relocate was to ensure my clients were not left "holding the bag". I was unable to find a qualified technician/consultant willing to take over my clients. Why? Like me, they had all the work they could handle and were not seeking new clients. I was not going to recommend anyone not qualified or competent to replace me. In talking with my two major clients I learned that one of them was planning on merging with a larger company. We both agreed my time with them was limited. The other client was being promised by his major client that their IT department would take over everything. On this basis I notified all of my customers that I was closing down my coastal company and relocating to the interior. They were provided contact information to reach me for emergencies. If you have one, or two major clients, any changes in your business (such as relocating) can leave the client in a very unhappy place. Fast forward....The first major client had to have me back on one occasion to deal with a major upgrade to their accounting software after the merger had occurred. Since then they have changed platforms. I have fielded a number of inquiries assisting a number of my "small" customers since then. I'm still available although not as conveniently as when I was local. The other major client found out his clients IT department was unable to handle his operation. This IT department uses a "cookie cutter" approach to EVERYTHING and is unable/willing to incorporate a different business model. They also sub-contracted all hardware repairs to an outside company. I travel to the coast on average once a year to perform upgrades/replacements and major maintenance. The vast majority of of minor maintenance is automated. When systems fail, they are sent to me for repair. The primary systems (his workstation, home computer and server) are identical in the hardware with removable hard drive enclosures. Swapping the systems for a catastrophic failure gets him up and running again in a couple of hours. I handle most problems providing direction over the phone. For those times when a techy mindset is required they put me on with one of the brighter members of his clients IT department. Oh yeah, spare parts are kept on site by my client for when needed. ------------------------------------------------ One or two clients representing all your business, very bad. 15 years ago I had one client that represented 40% of my business. When that client fell upon financial hard times that loss of business hurt really bad, almost sinking me. My point is simply this, yes, losing a big client can hurt but we have chosen to be independent contractors, that is part of the business. We also have an ethical and moral obligation to plan for continuity and smoothing out problems if we are unable to work for clients. I am not seeing any of this consideration being given the discussion it deserves. Using the excuse the client isn't required to keep us so I will operate on the same basis. WRONG! It is that kind of thinking which has landed us (and I mean everybody) in the economic quagmire we are currently "enjoying".

Ian Thurston
Ian Thurston

...is the government. I've twice had government contracts that demanded the lion's share of my time. When the political wind shifted, they dried up literally overnight.

JLVFR
JLVFR

In any business, having just one cliente (big or small) is very dangerous. If anything happens to that client (sickness,bankrupcy, etc) you're done... You also run the risk of becoming a "slave" of that client. You'll do anything he/she wants, because the alternative is ending up with no clients... Personally I think it's better to have a few small clients who pay less that to be "hanging" from just a big one...

jefferyp2100
jefferyp2100

RE: Steady income stream But you lose it all if you lose that one client!

JohnMcGrew
JohnMcGrew

Although big, regular and dependable checks in the mail make me feel good and secure, being completely dependent upon too few clients can be catastrophic, and is likely the #1 reason that many of the peers I have known have moved on from independent consulting. I lost a 20-year client representing at least 1/3rd of my billing a few years ago due to a merger. It was painful in an emotional sense, but I knew it was coming and it didn't take long to replace that business with other more diversified work. But I can imagine how financially painful it might have been if they had represented 50% or more of my work. Over the last 2 years, I've been very grateful to have lots of smaller jobs that have more than filled the hole. They are not as consistent as their needs vary and some come and go. But in the current economic environment, it's actually far more secure than having 1 or 2 "big" clients would be.

MikeG3b
MikeG3b

A few years back I hooked up with "one big client" on a project that lasted about two years. It was really nice while it lasted, but the abrupt ending really hurt my business. They'd suffered the loss of one or two big clients, and just couldn't afford me any longer and cut me loose with zero day's notice. I literally had to pack up my stuff and leave that day. In my case, the damage to my business is that I'd devoted full time to one client, and had not cultivated relationships with anyone else. When the checks stopped coming I had no fallback. "Cannot build your business", "too dependent" and "taken for granted" all fit my situation. (In fact, my business never recovered, and I had to return to salaried employment, which is -- for me at least -- a miserable experience.) Even when times are good, it pays to diversify and work with multiple clients. You'll never know when a "part time" client will pay off big time, or lead to other, more exciting and rewarding, opportunities.

Jenny Sutton
Jenny Sutton

Couldnt agree more... and it is also not in your clients interests for them to be your sole client. Jenny Sutton - Author "Extract Value from Consultants"

Sterling chip Camden
Sterling chip Camden

Have you ever had one client who defined your business for you? What was the outcome?

HAL 9000
HAL 9000

OK so I have one Government Department [i]hopefully not for much longer as they will be moving to 7 shortly[/i] and they drive me crazy. But previously having worked for a Boss I used to do a lot of Government work and on every occasion it was Mind Numbing Slow and backward. Not to mention at one of the places 2 years after we stopped that work we where still receiving payments for submitted Invoices before we stopped doing the work. That's not slow payment it's positively backward and will break all but the biggest places very quickly. But my biggest bugbear with Government work is the idiot way that they do things and the Insane Safety Rules that they put in place which sound great to a Bureaucrat with no direct knowledge of the technicalities involved. I can remember offering to melt down a Cyclotron and not breach one of the safety rules or to create a Nuclear Incident again without breaching or even coming close to breaking one Safety Rule. However the constant need to save money at the expense of good long term planning is the worst thing about Government work. They expect a Solution Now which has to be cheap to implement and when you suggest something slightly more expensive they cut you down. I can remember one instance where I suggested adding an extra 4 million to a job to get Dedicated Optical Fiber country wide in an existing roll out which they would need within a few years only to be told that I was over engineering the solution. Now they are int he process of rolling out their own Dedicated Optical Fiber at the Bargain Basement Price of 40 Billion $. Just a slight bit more than the estimated 4 Million that I had suggested and even though there have been several years difference the costs of Inflation have been no where near the differences in price of rolling this out. Oh and I've been told that the company who I was working for at the time when I made that suggestion still hasn't been paid for my time 10 years latter. :^0 The only good thing in my experience with any Government Work is that it stops hurting when you eventually finish it. Hitting your head against a Brick Wall is far less painful than attempting to drag that lot Kicking and Screaming into good management practices. ;) Even the one Government Department that I have has caused me no end of grief and they are so bad that the Governments IT Department refuses to deal with them as they know better than anyone else. During the 6 or so years that I've had them on the books I have been reported to M$ for selling Pirate Software 3 times all over the same Volume License Product that they have which was bought directly from M$ by them at Government Prices. They constantly move new people in who do not know enough and they go off half cocked because they couldn't possible be doing the wrong thing and much more importantly their predecessor was Perfect and could do no Wrong. :D Not to mention the weeks of wasted time spent will all my staff in there picking up the pieces after they set something that just can not work. Perhaps I should shut up as I have not heard from them for about 12 months now and I'm likely to get a call out to them if I complain too much. :( Col

techytype
techytype

Your point and... - They are slow payers. - What you recommend is not what is approved YET you still have liability. - So many are chasing the (supposed) "easy" government work it is definitely not easy. - You must be super duper "politically correct" unable to state when changes are needed but unpopular. Liability still rests with you though.

Sterling chip Camden
Sterling chip Camden

Another reason is because government agencies generally move very slowly -- slow to commit, slow to sign off, slow to pay. But when they need something, it has to be now!

JohnMcGrew
JohnMcGrew

...except that they're known as "employees". If anything happens to their "employer", they are done. And they frequently are, in fact, slaves to that "employer", especially if they depend upon certain benefits such as health insurance. If you have but a single client, you are, for all practical purposes, and "employee". Actually, you're less than that. At least employees get legal protections and benefits.

Sterling chip Camden
Sterling chip Camden

Which is why, despite the benefits of one big one, you always need to have multiple clients.

Sterling chip Camden
Sterling chip Camden

She was in sales, so that probably explains her acumen in this area. You're right about this economy. You used to be able to count on certain companies to always be around, but nowadays even if the government thinks they're "too big to fail" it doesn't mean they won't cut back drastically.

Sterling chip Camden
Sterling chip Camden

... that I'm hoping to help people avoid with this post. I've had something similar happen to me a couple of times, fortunately never anyone who was more than 50% of my income but still a big and sudden drop.

Sterling chip Camden
Sterling chip Camden

25% is a pretty low number, and I can't say that I've ever had a month or year in which no client exceeded that mark.

mmassimino
mmassimino

I've been an independent IT Consultant for about 6 years and for most of that time I've only had one client that I focus my energies on. I've gotten burned by sudden contract cancellations but because of my skill set I'm in high demand so I always seem to have another gig to roll on to. That said, in the words of Michael Gerber I'd much rather work on the business than in the business. My business partner and I have struggled with that part because when you're locked into 40-50 hours a week dedicated to servicing the client there's not much time for business development. Anyone here successfully break out of the single client conundrum?

damunzy
damunzy

To service part of the calls to this client? That would free up your time to expand the business.

JLVFR
JLVFR

I'm one of those "employees" :) I can take vacations, time off for illness, etc. Try that working solo with a single big client...

Sterling chip Camden
Sterling chip Camden

... it's far too easy to tunnel in on one, especially if they have plenty of work for you. It takes a conscious effort to stay diversified.

MikeG3b
MikeG3b

But, I do believe, in many cases, employees enjoy significant protection in the event of illness or other issues in many European countries. You're absolutely correct -- most clients wouldn't want to wait a month for a contractor to return to work. In the US, you can buy disability insurance that'll help support you in the event of a long-term illness, but it's yet another expense associated with self-employment. Back when I was fully self-employed I had a small network of people that I could have, if needed, sub-contract work to keep things moving along. Even then, of course, a lot depended on their availability and the chance that they'd steal the client away from me. Even full-time employees in the US can be dismissed "for any reason, or no reason at all". There is virtually no true job security these days. My perspective is that the rewards of self-employment are significantly greater than a salaried job, but the risks (as you point out) are correspondingly much greater.

MikeG3b
MikeG3b

I agree with your notion that one big client is, basically, no different than full-time employment. This is especially true in situations as Chip describes in his post. (Didn't he say 19 years with the same client?) I just wanted to point out that the rewards of self-employment can be very nice, espeically if a flexible schedule is meaningful to you. Chip's post really struck a note with me because (as I posted elsewhere) I lost my "one big client", and the loss essentially wrecked my business. I found it extremely difficult to start over again -- I'd lost touch with former clients, had allowed my marketing skills (as poor as they were) decline, etc. It was a miserable experience. I'd never return to self-employment where I was devoted to a single client, no matter how rewarding it might seem.

JLVFR
JLVFR

I still find the idea too risky. 2 years ago I went sick at Xmas. Was forced to to go bed for 25 days, completey forbiden from moving unless strictly necessary (aka, go to toilet...). If I'd been an independent contractor, I'd probably losse clients and/or jobs. I may not have a fatter check at end of the month, but I have a far better "safety net". I was once self-employed. The stress of trying to get clients, keeping tabs on all, checkign out the competition trying to undercut me, the uncertain future... I don't miss that... Then again, I'm for Europe. I'm well aware that our work-related laws and costums are far diferent from the US. Specifically, I believe (am I wrong?) that workers are more protected in Europe that in the US, making it harder for us to be dismissed. If so, this does make the whole "safety net" issue a lot easier for us to think about.

JohnMcGrew
JohnMcGrew

If you have a single "client", you might be better off as an "employee". At least then you get defined vacations, sick days, unemployment insurance, etc. But you still have all of the downsides you listed above in terms of dependency. Personally, I prefer the freedom.

MikeG3b
MikeG3b

Back in the good ol' days I could take a couple hours off during the day to go watch my son's grade-school awards program, take a nap, wash the car, etc. as needed. Because of my flexible schedule (back then I was a software developer working from home) I'd often be at work before sunrise, or working well after midnight. Everything depended on the client's required schedule, so I'd work to accommodate their needs. As a salaried employee, there's no direct correlation between hard work and financial rewards. I agree paid benefits and vacations are nice, but -- believe me -- you're paying for those things. You'd be surprised how much bigger your paycheck would be if the employer applied your employee benefits directly to your paycheck, and let you buy your own insurance, retirement plan, etc.

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