All Your Eggs in One Basket

Much has been heard and written about businesses that have too much of their revenue tied to one customer. If the customer goes elsewhere, you lose your business.

In fact, a friend of mine who shall remain nameless for confidentiality purposes was just about to submit a letter of intent to buy a business that had 90% of its revenue coming from one customer. During his due diligence, my friend heard a rumour that the customer representing 90% of the business had recently decided move to single sourcing for this product and the target company apparently was not going to be the single source. Yikes.

Another example of having all one's egg is one basket involved my client Auctionwire Inc. This is a supply side situation. Auctionwire is the leading auction agency for top brand companies and non-profit organizations. Historically, they ran all of their high end auctions exclusively on the ebay platform. Ebay was effectively their sole supplier of the back end of their auctions. A number of months ago, Auctionwire had a dispute with one of their customers when the customer failed to deliver the auction item and Auctionwire refused to forward the purchase price opting to protect the buyer. A complaint was lodged with ebay, who rather that ajudicating whether the complaint was valid, began to arbitrarily suspending some of Auctionwire's other auctions even though they had nothing to do with the dispute.

Auctionwire began to realize that it had all of its eggs in ebay's basket and that their entire business was at risk. Ebay could arbitrarily and unilaterally put Auctionwire out of business because of the onerous terms of their standard form user agreement. Because of the near monopolistic position that ebay has in the market, Auctionwire has no ability to negotiate the terms of the user agreement. They have to take it or leave it.

Auctionwire decided to leave it. They took immediate action to diversify their suppliers of the online auction back end. Auctionwire successful found another platform and was able to secure the exclusive licence to use this online auction software. Now Auctionwire controls their own destiny because they have complete control over their online auction back end systems and no longer are dependent on ebay.

Be very careful if you have all of your eggs in one basket, whether it is on the supplier or the customer side. Being so dependent on someone puts your business in a very vulnerable position. Whether they have greater bargaining power, end up going out of business or being bought by one of your competitors, having all of your eggs in one basket could result in the death of your business.