Tuesday, March 4, 2008

Managing Growth – Defining “Keeper” Clients

Anyone that has spent time fishing has experienced at least one day when the fish are really biting. No sooner is your line and bait in the water before a fish grabs hold and you are reeling it into the boat. During this period of fish feeding frenzy, it seems as though the fish are literally jumping into the boat.

Whether your fishing good fortune is a result of a large number of hungry fish, the right lures and bait, or just being in the right place at the right time, there exist some parallels when it comes to running a high growth business.

In these fishing situations, the avid fisherman is adept at practicing “catch & release,” whereby they let go of some fish after they catch them so as to stay within the limits set by the local wildlife authority or game wardens. For the managers of high-growth businesses, however, how do you make the decision about which projects to take on, or which clients to keep? Which ones should be thrown back? The answer to this question is related, in some ways, to the tried and tested Pareto Principle – more commonly known as the 80/20 rule. If 80% of your revenue, profits, value, etc. come from 20% of your clients, then how do you determine your best clients?

While having more clients than you can handle might not seem like a bad problem to have, knowing the right ones to hold onto is vital to your business’s success. Back to our analogy, managing rapid growth can easily be equated to “fishing during a fish feeding frenzy.” The metrics for the “keepers” may vary by company, but for those wanting to manage growth successfully, a well-defined set of criteria are needed to determine which clients to keep. Many companies are often afraid to let go of the least viable clients, and instead, they try to handle all of the clients that come in the door. This often results in spreading resources so thin that they provide sub-par services, with less than stellar outcomes. Doing a poor job, or providing mediocre services, not only affects the client experience, but negatively affects the morale and success of your business, as well.

It is essential for a business’s success to have clearly defined guidelines to identify the “keepers” when presented with more clients than you can handle. Here are a few to get you started:

1. PROFITABLE CLIENTS. Rule #1 is to keep those clients who generate new opportunities and profitable business relationships for your company. It always amazes me when companies make the choice to lose money servicing certain clients. Why? The list of justifications and skewed reasons of why “we, as a company, should be in the stupid business” could go on forever. One of my favorites is when sales reps tell me that if “we don’t do the project (and lose money) then our competitors will get the deal”…do you think that we could ship all of our unprofitable clients to our competitors? The answer is simple: Yes, I do. I would much rather have my competitors investing their time - and losing money - servicing these unprofitable clients. Another favorite is that if “we don’t do the small unprofitable project then we will never get the big projects from the client.” This, too, is a misnomer. If you continue to work with your clients on small, unprofitable projects, isn’t it fair to assume that the client will continue to hire you for projects that they think are your specialty, as opposed to realizing your full capabilities and expertise for their big, important projects?

2. CLIENTS WITH REPEAT BUSINESS OPPORTUNITIES. When given the opportunity between a client who will hire you for one project versus a client that might have multiple projects or an ongoing need for your services, pick the client with repeat business potential. While a bit self-serving for you as the provider of services, it is also very good for the client. Establishing longer term working relationships creates efficiencies for the client, as you will have a better understanding of their business, priorities, internal processes and politics. Not having to educate a new provider of services to all of these idiosyncrasies and preferences saves the client time, money, resources, and energy. Larger companies are often the source of multiple projects, but don’t lose sight of smaller organizations that may not have the breadth or depth of internal capabilities. You may well be positioned to assist these smaller companies that place significant value on having an outsourced relationship with someone with your specialty expertise.

3. TRUSTED ADVOCATES. During the course of a working relationship, your client will go through various stages. Stage 1 is a happy client – they like what you’ve done with them and for them, and they feel like they’ve received good value for their investment in your services. Stage 2 is a reference client – they like what you’ve done and are willing to act as a reference for other prospective clients if you ask them. Stage 3 is an advocating client – this is when the client will actively promote you, your company, and your services to their colleagues. Personal testimonials speak volumes and enhance your credibility. Working with clients who have developed a deep level of trust in you and the advice you provide them is a gift. Getting those rare clients to actively advocate for you, without being prompted to do so, is truly a prized gift. You probably have exerted all efforts to get to this stage of a working relationship with your trusted advocates, so you deserve the active goodwill that comes from the relationship. But remember; never take that type of client for granted.

4. “GOOD” CLIENTS. Different companies will define “good” clients based on varying measurements and criteria. Perhaps the client is fun, nice, reasonable, flexible, or in some other way, just a pleasure to be around. Perhaps they value your advice and make you feel like an important part of their team, rather than just viewing you as a vendor. Maybe they acknowledge appreciation for the work of junior members of your team and treat them with the same respect they treat the managers of the project or relationship. It is important to never lose sight of the detrimental impact that a bad client will have on morale and your ability to provide exceptional service and results when your people don’t like working with them. Similarly, don’t underestimate the effort that a motivated and respected team will put forth to make sure the client is successful – I’ve seen people on my team move mountains to insure that their favorite clients were happy.

Preparing for, and planning on, success often defines the likelihood of achieving success. Conversely, lack of preparation and planning will also negatively impact the likelihood of achieving success. It is an absolute certainty that fishing in the wrong location, at the wrong time and with the wrong bait, will not result in catching many fish. When you are in a position to select your “keeper” clients, you should employ a formalized set of well thought out criteria to make your selection.

If you looked at your client base and found profitable business relationships with companies that needed your services on an ongoing basis, plus they were nice to work with and advocated on your behalf – that would be a pretty good foundation for a successful business. Ironically, if more companies spent time determining the criteria for their ideal, or keeper, client profile, there is a greater likelihood they would have more of them.

Keeper clients often bring out the best in you, your staff and your services; ultimately, leading to more clients that fit your ideal client profile. Managing this growth requires that you make some decisions, and many of these same decisions can have a significant impact on creating growth in the first place. And, before you know it, the fish will be jumping into your boat, allowing you to further refine and define your keeper clients for long-term success.

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