Mark Twain said, “Put all of your eggs in one basket and WATCH THAT BASKET.” Well, that’s obviously the contrary of the more prudent common wisdom say “don’t put all your eggs in a single basket“! Who is right? What are the situations where it might be worthwhile follow Mark Twain’s recommendation and what are other situations where we might better follow common wisdom?
In terms of risk management, having several egg baskets spreads the risk – there is less risk that the entire egg supply disappears, while at the same time there is a higher probability that some of it will be damaged. When you put all your eggs in a single basket, there is more focus.
Large companies will tend to follow common wisdom – they diversify their risk to enhance long term survival. This leads to average performance as some activities will be under-performing. Small companies don’t have this luxury – they put all their eggs in a single basket, and watching closely and fostering these eggs, with the help of some luck, they might be much better performing. This is what allows small companies to thrive and develop (together with the typical lack of reactivity that plagues larger companies).
Typical entrepreneurs need focus. They have to put all their eggs in a single basket and focus seriously on preserving it and having it grow. Still you can’t exercise such a focus on all areas of your life. Other areas (such as your savings for retirement) need more common risk management approaches.
You need to be choosy on those areas where you put all your eggs in a single basket, but that can be very worthwhile provided you exercise a right level of attention and focus. Choose the area where you will do that and stick to it!
