Is running your business fun? If your business were for sale, would you buy it? Is your profit margin higher than it was five years ago?
If you answered "no" to any of the above, you should think hard about who your customers are. Maybe you need to fire a whole segment of them—and take charge of your future.
If you're not having fun, ask why. Your employees are only part of what turns your company into a business—your customers are the rest of it.
If your business were for sale and you wouldn't want to purchase it, why would anyone else? If you're a family company, why would the next generation come on board? Your company's appeal depends in large part on your customers. Great companies work with great clients.
Shrinking profit margins mean your buyers don't value what you offer. Maybe competitors are selling products or services that are essentially clones of yours. Or maybe people are taking advantage of you. Many business owners agree to any request from practically anyone willing to pay. They exhaust themselves answering their clients' every beck and call, but they don't make any money. Then they mistakenly think the answer lies in expanding their company. The alternative is to fire unprofitable customers and replace them with profitable ones.
An outstanding buyer/seller pairing is a long-term, two-way relationship. In his classic book Out of the Crisis, W. Edwards Deming, an American statistician and management guru who helped postwar Japanese companies produce higher-quality goods, asked: "How can a supplier be innovative and develop economy in his production process when he can only look forward to short-term business with a purchaser?"
Your business, like a tree, grows best when the dead limbs are pruned. To decide where to cut, make up a customer balance sheet. On the asset side, list your customers and the revenue from each. On the cost side, list their profit margins. Then think toward the future. Is the profit margin going up or down? Is the customer a true partner? If you received a message that he or she had called for you, would you look forward to returning the call, or would you dread it?
When I ask business owners to complete such a balance sheet, they come to the obvious conclusion that they should lose the bottom 20% of their clients. If they replaced them with others of merely average profitability, they'd make a lot more money, their day-to-day lives would be less stressful, and they'd have a lot more fun.
What prevents them from taking action? Fear—of what will happen if they can't find replacement business. But if you can't acquire new clients that are more profitable than the hangers-on you have now, there's a deeper problem. It's time to reboot, rebuild, and restart your business.
Over the years I've fired many customers. Some were big business for me, but they didn't have the right attitude toward change—or, in one case, wouldn't let my team do its job. In other cases they were simply not profitable to work with. In all cases I can tell you that my short-term anxiety soon became joy. The pain was gone, and the new customers were more profitable and more appropriate. The dead weight was quickly forgotten—we felt lighter without it. Most important, as a business owner and as a company, we're having more fun.
Back to BWSmallBiz June/July 2008 Table of Contents