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Your project deadline is today. A potential career maker. You know you’ll be pushed to your creative limits.
But rather than feel daunted, you lock in. Ideas occasionally out of reach are now firmly grasped. The task almost completes itself––you’re…
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Every year, I look at how much money I earn from each client. Some years, my earnings are very skewed toward one client (or two). If something had happened to that working relationship, my year could have looked much different.
Before I became a solopreneur, I worked in banking and then at a tech company. We had a phrase for reliance on a few clients: concentration risk.
Companies that have this type of risk have a whole system for tracking it, and often try to find ways to reduce the risk, usually by taking on more clients. That’s not always an option for a solopreneur without the ability to scale work. We have the same type of risk—lose one client, lose a large portion of income—but not the same means of managing it.
Start with the percentage
Accounting standards require a public company to disclose any single customer that accounts for 10 percent or more of its revenue, so shareholders can see when that much of the business is tied to a single relationship. But those companies have hundreds, if not thousands, of customers. A solo business with four clients faces a risk of losing 25% of its revenue if a single client leaves.
Knowing the percentage is the first step. If you don’t know off the top of your head because you work with many clients, look at a financial statement from your accountant or accounting software. Look at last year and compare it to prior years.
For you, the breakdown might be by client or by revenue stream—wherever you feel like you have the most risk if something drastically changes.
Client dependency comes at a cost
The risk shows up in how you run your business long before a client ever leaves. If you know you’re dependent on one of your clients, you might hold your rates instead of raising them to keep the client happy. You might also absorb scope creep when the client requests something additional. You find yourself rearranging your week to respond to changes in the client’s calendar, rather than protecting your time.
That’s always the risk with client dependency: you’re letting the client’s needs dictate parts of your business.
There’s another type of exposure if a single client is your only work. The Department of Labor looks at economic dependence when deciding whether someone is an employee or an independent contractor. If the Department of Labor determines that you are functionally an employee, it has tax and benefits implications (mostly for the employer, though you need to be aware of it also).
Reducing your client concentration risk
Many solopreneurs choose to work with only a few clients at a time. The work is deeper and there’s less context switching between clients. At one point, working for an employer, I was responsible for managing more than 40 client accounts. I’m much happier with only a few.
While working with only a few clients at a time is a viable business model, you should always plan for the impact of losing a client. That way, it doesn’t derail your business.
Always market yourself. Replacing a client can take weeks, sometimes months. You need to keep your pipeline active even while you’re busy, so you have options when a spot opens up on your client roster.
Look at your business model. Project-based and ad hoc work spreads revenue across more clients than one large retainer does. In addition to a few anchor clients, I take on a lot of smaller projects from clients to reduce my dependency.
Give yourself a financial cushion. Solo income is uneven month to month anyway, so let the high months fund your low ones. Set aside money when you can, so that if you lose one big client, you can tie yourself over until you find a new one.
You can also write a notice period into your contracts. If a client has to give you a 30-day notice before ending the agreement, you have time to prepare for the change in your income.
Knowing your number
A client who is responsible for a large share of your revenue isn’t necessarily a problem. It’s worth looking at the number, though, and thinking through a few “what-if” scenarios. What would you do if that client emailed tomorrow and gave notice? What would your next steps be?
If you have answers in mind, the concentration risk matters much less.
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“Don’t mess up the culture as we scale!” That’s the family-friendly version of what one of the founders of Airbnb told the employee experience specialist Mark Levy when he arrived at the company in 2013 and was cotasked with modernizing the human resources function.
I have always admired Levy’s work from afar and, recently, I was fortunate to interview him for a deep dive into how his work at Airbnb helped transform the company between 2013 and 2018.
During our conversation, Levy explained that when he joined Airbnb, the company’s HR team wasn’t exactly cohesive. Several teams supported employees in different ways—but reported to different parts of the business. The question, Levy points out, was not whether to modernize the department, but how to modernize it.
Levy notes that Airbnb was not looking for a traditional approach to HR and he had a mandate from the founders to create something unique. According to Levy, one of Airbnb’s cofounders told him that everything he had heard about HR, he didn’t like. The cofounder asked Levy whether Airbnb could do HR differently.
Levy and his team pulled all the company’s various HR functions under one roof, and added functions like wellness and social impact to create a new remit of employee experience. Airbnb renamed the department Employee Experience, a change that was more than cosmetic. The new name sent a clear message that the accumulation of all Airbnb’s HR functions should focus on a singular outcome—enhancing employee engagement. The freshly baked department played a vital role in cultivating a sense of infectious belonging among employees that spread to Airbnb’s hosts all over the globe, and in the process helped Airbnb elevate its global brand.
What Levy and his team also did differently was facilitate a culture of cocreation where, in Levy’s words, HR does things with employees (not to them) and where employees help determine priorities and design solutions to problems. For example, when Levy’s team redesigned performance management, he engaged with the head of engineering, then designed and piloted a new process with the engineering team as a test group before introducing it to the rest of the company. Rather than being designed in isolation, the new process was codesigned with employees to ensure performance management was creating solutions that employees valued.
Throughout my conversation with Levy, who is the coauthor of the book, Employee Experience Design: How to Co-Create Work Where People and Organizations Thrive, I listened for nuggets of wisdom that other business leaders could use to modernize their HR departments. Here is what I took away:
Be intentional about what you want out of HR
Airbnb wanted to ensure that its mission to “create a world where anyone can belong anywhere” and its values of “Champion the mission,” “Be a host,” “Embrace the adventure,” and “Be a cereal entrepreneur” were preserved as the company expanded. [The latter slogan derives from the time in Airbnb’s early stages when the founders sold collector cereal boxes for $40 apiece to pay down debt.] If you want your HR team to help anchor your culture as you grow, be intentional about what you want, letting the team know in no uncertain terms what your expectations are when it comes to the areas you want them to focus on, and the outcomes you expect your organization to achieve as a result of HR’s work.
Embrace nontraditional approaches to HR
Airbnb knew that a traditional approach to HR wouldn’t align with its unique culture, and the company could benefit from a nontraditional approach. One of the elements of this approach at Airbnb was Ground Control—a self-organizing team of employees who focused on two-way internal communications between employees and senior leadership, creating opportunities for employee recognition and celebration, helping embed the company’s mission and values into its culture, and assessing how company initiatives would impact employees. Empowering employees to organize this function instead of taking a command and control approach allowed them to play an important role in shaping the culture and HR’s contribution. The lesson for senior leaders? Don’t be afraid to configure your HR team in new and innovative ways to meet the organization’s needs.
Reposition your HR Department in the eyes of employees
Many business leaders, as well as employees, have a poor view of HR—especially when it’s limited to transactional roles where HR is considered to be the organization’s “policy police” or “compliance cops.” If you want to set your HR team up for success, you need to reposition the importance of HR to your organization. Your employees need, and deserve, to understand what modern HR is all about, how it has evolved from its origins as an administrative function, and the value it brings to the organization—especially in developing and maintaining a workplace culture where employees are highly engaged and excited by the work they are doing.
Airbnb helped reposition HR’s role by having employees involved in designing and owning the culture. One notable example: Employees were enlisted to help design the physical workplace, choosing a listing from one of Airbnb’s hosts and creating a living room that replicated a home environment to be used at the Airbnb office for meetings.
This simple but meaningful activity helped HR reposition itself in the eyes of Airbnb employees as being more than the department responsible for compliance and policy observance. If you want your HR department to be effective and respected by employees, find ways to demonstrate to employees—not just tell them—that HR is interested not only in enforcing policies, but also in company culture, employee engagement, internal communications, and the overall employee experience.
Evolving your HR Department requires support from the very top
Levy’s mandate to create something different from what might typically be expected of HR at other companies came straight from the top. If you want your HR department to evolve, you need to provide it with the support and resources required to carry out its mandate.
Have a singular focus
When it comes to outcomes, your HR department should have a singular focus. Even though modern HR can comprise several roles—recruitment, onboarding, talent nurturing, etc.—the collective outcome of HR’s day-to-day tasks should result in engagement that nudges your employees to love the organization they work for and the work they do on a daily basis.
Airbnb revolutionized its HR function, ensuring that it brought tangible and measurable results, by cocreating a workplace environment where employees feel valued, engaged, and inspired to help the company achieve its long-term strategic goals. You can too!
Empower your employees by allowing them to have a say in how HR goes about building its ecosystem in the workplace. Employees are in an ideal position to know what type of support and leadership they need from their HR team—so, rather than projecting what you think your employees need, ask them directly. Your employees are more likely to embrace initiatives that they helped to create. By allowing your employees to cocreate your HR landscape, you increase the chances of developing an HR function that is not just effective in carrying out its role, but is also embraced and trusted by employees.
The ex-CEO was previously forced to resign from Lockheed Martin after a 2012 ethics investigation confirmed he had a personal relationship with a subordinate.
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