I once worked in a distribution business where the customer was the end consumer. Leaders in that business often said, “Depth equals profitability and breadth equals stability.”

By “depth equals profitability,” they meant that more volume delivered to an existing customer directly led to greater profitability. This makes sense, of course. Delivery efficiencies increase and selling costs are lower than when securing new customers.

If the saying had stopped there, however, the business would have been very vulnerable. If you focus entirely on selling more to existing customers, what happens if one of those customers suddenly stops doing business with you? Lack of diversification in revenue stream is a glaring risk for any business – particularly small ones. That is why “breadth equals stability.” Customer attrition will happen, so broadening your customer base is extremely important to improve your ability to survive it.

In short, the long-term health and stability of your business depends on a balance between depth (share of customer) and breadth (share of market).

This principle applies just as well for advisory businesses as anything else.

• Depth = Profitability: The deeper your relationship with a client (the more you do for them), the more fees you can generate. Referrals are also more likely. Furthermore, greater knowledge of the client makes you more valuable to them, leading to efficiencies in delivery.
• Breadth = Stability: The more clients you serve at one time, the more stable your revenue stream will be. A certain percentage of your clients will disengage at some point for one reason or another. The larger your client base, the less you will feel the consequences of losing a client.

There is definitely a trade-off between depth and breadth. The more time you invest in a client (depth), the fewer clients you are able to serve (breadth), and vice versa. Over time, you will want to increase both depth and breadth in order to build a vibrant advisory business.

A recent Wall Street Journal article (“How to Succeed in the Age of Going Solo”) further confirms an emerging trend that Peter Drucker noted years ago: we are entering the Age of the Advisor. More companies are looking to freelancers in lieu of full-time employees, but the more things change, the more they remain the same. The form of service delivery may be changing, but the essence of what is being offered has not.

All of us are hired for the services we provide and the value we create – whether that comes in the form of full-time employment, part-time work, or project-based consulting. In that sense, we are all entrepreneurs. The most productive workers are those who realize it.

As people lose their jobs in this economy, we see more and more “consultants” who approach their work as a temporary bridge to their next “real” job. This is a mistake. What is a “fake” job anyway? The person who reports to an office each morning to get orders from his supervisor is really not very different from the independent consultant looking for his next project. Both are individuals trading their skills for income. They are entrepreneurs. The more people think that way, the easier any work transition will be.

Business professionals – particularly those who have served in an executive role – possess tremendous ability in areas that can benefit a wide variety of organizations. They need to think more like entrepreneurs when looking for ways to share their expertise. In doing so, they will find that advising can be much more than a temporary step; it can be a very successful career!

Read “11 Steps to Effective Client Delivery” to learn more about how you can thrive in the Age of the Advisor.