Not all Clients are for You

June 09, 2005

Case categories include: Marketing   Operations   Sales   

By Robert Sher 

They thought it was normal.  That all clients would be like their first – fair, experienced, paid their bills on time, and sent the volume of work they had promised.  The fairytale start changed as the experienced architects (but new as businessmen) learned that some clients did not fit their business model.


Today, MBH Architects is a large, diversified architectural firm with two locations and 170 employees.  But it started with a few architects leaving their jobs and starting up on their own.  Founders Dennis Heath and John McNulty started the firm doing a high percentage of their work for The Gap as the chain expanded eastward into the large East Coast cities.   The steady business and excellent working relationship with The Gap was critical and educational to MBH in its formative years.  The Gap was like MBH, they treated people the way they wanted to be treated.


Controlled growth was the plan, and John, whose focus is business development, brought more clients in.  But some of those clients weren’t cut from the same cloth as The Gap.  Some had no experienced internal staff and as a result, were difficult to work with.  Others just wanted low price fees — a type of service MBH wasn’t interested in providing.  Others weren’t communicative enough, would waste precious weeks, but still forced MBH to scramble to meet the original deadline.  Some just didn’t feel they had to pay their bills.


One client even threatened litigation as a tactic to get a very large bill reduction.  As the firm grew in experience, they began to see commonalities between their good clients and patterns with the problem clients.  These observations formed the basis of an ideal customer profile.  Before long, they began to develop methods for assessing prospective clients against that profile before beginning any major work.  Today, MBH looks for large established clients who have a growth plan, preferably a publicly traded firm, experienced staff working in house, a trusting approach, and an understanding of contracts structured to be fair to both parties.


Early meetings and negotiations are a testing ground to see how the prospective client behaves.  Often smaller jobs are a starting point, to see if the client will be a good match. .  The bigger the client, the more MBH involves its senior people early on to get a gut feeling about the client’s attitudes and behavior that may become red flags.


The MBH client screening process isn’t perfect, and occasionally, a new client starts causing problems.  In these cases, MBH works hard to wrap up the work that was already started to preserve MBH’s reputation.  Sometimes this means sacrificing profits so they can move beyond the pain.


Most everyone knows that adage that 20% of our customers or clients bring in 80% of our revenue/profits, and so we strive to identify that 20% and find more clients like them.  But the reverse is true for the worst 20%.  They account for 80% of our losses, problems, and headaches.  If we can understand the commonalities of those problem and find a way to avoid them, we minimize the damage from them.


The problems with having clients that don’t fit are as follows:


It is a massive waste of a top executive’s time bailing the firm out.  It can become days each week, and precious talent is wasted on clients with no positive future.  Top executives should be focused on growing the business with ideal clients.


Clients can often blame you for their shortcomings, and smudge your reputation in the industry because you did not meet their unrealistic expectations.


Your good people can often burn out dealing with the headaches of a client who does not fit and feel their only way out is to quit.  Too often we move our best people onto the problem clients to “save” the situation.  This takes our best talent away from our best opportunities further compounding the financial headaches.


You can lose money needed for investments in staff and company infrastructure and perhaps even damage your credit rating.


Turning clients away is tough medicine for the sales team.  The natural born salespeople in your firm have a can-do attitude, and hate walking away from business.  It is vitally important to take the time to teach them the companywide effects of problem customers, and be sure they are not rewarded for bringing those types of clients on board.


Be sure to understand the cost of a problem client.  For some businesses, they just risk the return freight on a refused shipment.  Other businesses, like MBH, commit big up front investments and work very interactively with their clients.  The bigger the risk and cost, the more diligent the new client screening must be.


Develop and refine the ideal client profile, as MBH did.  Develop a list of processes that have proven to be useful in identifying problem prospective clients early, and require the process in all prospecting activities.  Just as dating before marriage seems logical, so too does finding a smaller project to work on first to confirm that the two companies are a fit.


Maybe it is unfair to call some clients “bad."  So let’s just say that we’ll consider the bad ones good if they are working with our closest competitor, damaging their bottom line and distracting them from chasing the customers we want.

Takeaways:
• Recognize that some clients can hurt your business.
• Choose your clients carefully, and turn away those that won’t be good for you.
• Create a system for your team that institutionalizes the process.


Robert Sher is principal of CEO to CEO, specializing in assisting CEOs and business leaders as they navigate critical passages.  He is the author of The Feel of the Deal; How I Built a Business through Acquisitions.  He may be reached at Robert@ceotoceo.biz.