I watched a video interview recently with Steve Wynn who owned the Golden Nugget in Atlantic City, N.J., from 1978 to 1987. When asked why he ripped an entire hotel down to build a new one, only to pull out of the market entirely inside of one decade, his answer was the local government. He said it had a small-minded view of Atlantic City as opposed to his big picture plan. The government was determined to keep it a weekend getaway casino town.
Wynn, on the other hand, saw that as being too vulnerable long term. He believed in diversifying and having Atlantic City become the East Coast resort destination of choice. He predicted that without diversification, Atlantic City would fall down. Competition for weekend gaming would creep up through Indian casinos and state-sponsored gaming resorts. But, shy of vision, the local government pushed him away. So he packed up his things and worked on Las Vegas instead. He bought property from Howard Hughes’ nephew and built the Mirage, followed by Treasure Island. He was instrumental in turning Las Vegas into a recession-proof entertainment and family destination, with all the bells and whistles attached. Here is a visionary and a calculated risk taker.
In his interview, when asked about longevity, he said entrepreneurs who withstand the test of time make calculated risks and are very careful with their money and their investors’ money. They always have a plan, and a safety net.
Does your limousine business rely too much on one key customer or affiliate/network? If that revenue source vanished, would your business come to a screeching halt? The rule of thumb I’ve always heard is no customer should be more than 25% of your business (and the same holds true for your referral work). If you’ve never thought much about this topic (or even if you have), you need to understand the true risks involved in not diversifying. Understand why it’s hard to diversify, and use some practical methods to achieve the diversification goal.
Risks of Not Being Diversified
Some of the risks are obvious. If your primary client goes out of business, changes strategy, or severely curtails spending, your revenue stream narrows considerably. These things can happen at the whim of a new executive team that wants to use their favorite supplier instead of you. This revenue risk is the easiest one to understand.
The deeper risk is what I call absorption risk. That’s where you do so much work for one customer that you begin customizing your processes and services to meet that customer’s needs. You change hiring and training practices. You change marketing strategies. Then one day you realize you’re simply a subsidiary of that customer or network.
How To Kick the Habit
- Set explicit new customer acquisition goals and dedicate resources to that plan. You must be unwavering in your commitment to that new customer acquisition strategy. If you aren’t going to do that, simply stop reading now and go service your big customer because that’s clearly more important to you.
- Push back on customization. If the big customer wants something customized, question whether it really needs to be. At least ask yourself if that customization is a true product improvement that others in the market will want.
- Build new services that target a different market (like bus, van pooling, etc.) Find something your big customer won’t be interested in (but that’s still consistent with your strategy and capabilities). Ever heard the phrase “innovate or die” before? Diversification is tough. It’s even tougher if you’re not out front on it and focused on driving the result. If you don’t do it, you only have yourself to blame when the impending implosion occurs. Go take care of your business long term and diversify.
Take a cue from the recent sad woes of a once promising Eastern seaboard town. Maybe after all this, Atlantic City will regroup and reinvent itself. Hopefully, it’s not too late. The iconic Revel hotel and casino that opened two years ago at a cost of $2.4 billion was supposed to lead a revival of the city’s fortunes. It sold last month for $110 million. Ouch, a tough lesson learned.