Many businesses are unknowingly built as inverted pyramids, relying heavily on a few high value clients at the narrow tip to support the broader foundation of their operations. This model might seem lucrative at first: after all, landing big contracts with big margins feels like hitting the jackpot (in reality it’s more like winning a tiger as a pet), but it carries hidden risks that can lead to instability, unhealthy practices, and ultimately failure.
The core problem (that is, walking on a tightrope is not a good business strategy)
1. Over reliance on key clients
When a few big clients represent the majority of your revenue, losing even one can crack your business. This over reliance violates the basic principle of diversification: "Don't put all your eggs in one basket." The same applies to your revenue streams, unless you enjoy playing Russian roulette with your mortgage payments.
2. The pricing spiral
To squeeze as much money as possible from these big clients, businesses often feel forced to inflate prices. This resembles a price squeezing strategy, but instead of optimizing for market conditions it's driven by desperation (like trying to get blood from a stone, but the stone has a legal team). As Keynes said, "inflation is taxation without legislation"; overpricing is, in effect, taxing your largest clients for the inefficiencies of your business model. This destroys trust, creates friction, and ultimately drive those clients away faster than bananas attracts monkeys.
3. Compromised power dynamics
High value clients demand more customization, attention, and negotiation leverage, further reducing profitability. The inflated prices may barely cover the cost of serving their demands, stretching resources thin and leaving little room for innovation. It’s like being a butler to a handful of demanding aristocrats: exhausting and not particularly profitable. As Adam Smith wrote in The Wealth of Nations, "The real tragedy of the poor is the poverty of their aspirations." Here, businesses impoverished by their narrow client base lose the capacity to aspire to better systems and growth.
4. Growth limitation
Scaling a business reliant on a few big clients is precarious. Adding another "whale" might take years (and possibly a harpoon made of pure gold), and losing one could destroy all prior growth. This feast or famine cycle reflects the implicit instability of relying on a narrow revenue stream, which echoes Taleb's theory of antifragility: resilience comes from diversity and adaptability, not from putting all your chips on red and crossing your fingers.
The right side up alternative (gravity is actually your friend)
Flip the model. Build a wide, solid base of smaller, lower-value clients with reliable margins to sustain your operations. These clients act as the foundation, ensuring steady cash flow and reducing risk. From there, selectively add larger, high value clients at the tip, those who bring both profitability and strategic value without destabilizing the core. Think of it as building a proper pyramid, not a circus act.
Key benefits (no alien species required for the construction)
- Stability: diversified revenue streams protect your business from losing any single client (no more cold sweats when a big client's email arrives)
- Fair pricing: a broader client base allows you to set sustainable, honest prices that reflect true value, not panic induced mathematics
- Scalability: acquiring smaller clients is often faster and more predictable than whale hunting in a business suit
- Enhanced leverage: with a healthy base, you can negotiate with big clients on your terms
Strategic Vision (ie how to sleep better at night)
The goal isn't to avoid big clients altogether: they can be transformative (like finding a golden ticket, minus the weird factory tour). But ensure they complement, rather than dominate, your business. A healthy pyramid rests on a wide foundation of smaller clients, creating room for sustainable growth and innovation.
In Warren Buffett’s words, "Price is what you pay, value is what you get." In the case of an inverted pyramid, you might be paying with your business's long term stability and getting short term gains that feel about as secure as a house of cards in a wind tunnel.
If your business is starting to look like an inverted pyramid, it's time to rethink your strategy. Inflating prices to keep things afloat isn't a solution: it's about as effective as using a Band-Aid to fix a broken dam. Flip the pyramid, stabilize your foundation, and as Peter Drucker reminds us, "Do what is right, not what is easy."
After all, Egyptian pyramids have stood for thousands of years, and you don't see them trying to balance on their tips. Maybe those ancient builders knew something about stable business structures that we're still trying to figure out (minus the alien conspiracy theories and the monkeys).
The core problem (that is, walking on a tightrope is not a good business strategy)
1. Over reliance on key clients
When a few big clients represent the majority of your revenue, losing even one can crack your business. This over reliance violates the basic principle of diversification: "Don't put all your eggs in one basket." The same applies to your revenue streams, unless you enjoy playing Russian roulette with your mortgage payments.
2. The pricing spiral
To squeeze as much money as possible from these big clients, businesses often feel forced to inflate prices. This resembles a price squeezing strategy, but instead of optimizing for market conditions it's driven by desperation (like trying to get blood from a stone, but the stone has a legal team). As Keynes said, "inflation is taxation without legislation"; overpricing is, in effect, taxing your largest clients for the inefficiencies of your business model. This destroys trust, creates friction, and ultimately drive those clients away faster than bananas attracts monkeys.
3. Compromised power dynamics
High value clients demand more customization, attention, and negotiation leverage, further reducing profitability. The inflated prices may barely cover the cost of serving their demands, stretching resources thin and leaving little room for innovation. It’s like being a butler to a handful of demanding aristocrats: exhausting and not particularly profitable. As Adam Smith wrote in The Wealth of Nations, "The real tragedy of the poor is the poverty of their aspirations." Here, businesses impoverished by their narrow client base lose the capacity to aspire to better systems and growth.
4. Growth limitation
Scaling a business reliant on a few big clients is precarious. Adding another "whale" might take years (and possibly a harpoon made of pure gold), and losing one could destroy all prior growth. This feast or famine cycle reflects the implicit instability of relying on a narrow revenue stream, which echoes Taleb's theory of antifragility: resilience comes from diversity and adaptability, not from putting all your chips on red and crossing your fingers.
The right side up alternative (gravity is actually your friend)
Flip the model. Build a wide, solid base of smaller, lower-value clients with reliable margins to sustain your operations. These clients act as the foundation, ensuring steady cash flow and reducing risk. From there, selectively add larger, high value clients at the tip, those who bring both profitability and strategic value without destabilizing the core. Think of it as building a proper pyramid, not a circus act.
Key benefits (no alien species required for the construction)
- Stability: diversified revenue streams protect your business from losing any single client (no more cold sweats when a big client's email arrives)
- Fair pricing: a broader client base allows you to set sustainable, honest prices that reflect true value, not panic induced mathematics
- Scalability: acquiring smaller clients is often faster and more predictable than whale hunting in a business suit
- Enhanced leverage: with a healthy base, you can negotiate with big clients on your terms
Strategic Vision (ie how to sleep better at night)
The goal isn't to avoid big clients altogether: they can be transformative (like finding a golden ticket, minus the weird factory tour). But ensure they complement, rather than dominate, your business. A healthy pyramid rests on a wide foundation of smaller clients, creating room for sustainable growth and innovation.
In Warren Buffett’s words, "Price is what you pay, value is what you get." In the case of an inverted pyramid, you might be paying with your business's long term stability and getting short term gains that feel about as secure as a house of cards in a wind tunnel.
If your business is starting to look like an inverted pyramid, it's time to rethink your strategy. Inflating prices to keep things afloat isn't a solution: it's about as effective as using a Band-Aid to fix a broken dam. Flip the pyramid, stabilize your foundation, and as Peter Drucker reminds us, "Do what is right, not what is easy."
After all, Egyptian pyramids have stood for thousands of years, and you don't see them trying to balance on their tips. Maybe those ancient builders knew something about stable business structures that we're still trying to figure out (minus the alien conspiracy theories and the monkeys).
