When running a business, the decisions you make today can and will affect what your business will look like tomorrow.
A great example of a critical decision you need to make is who you want your clients to be. The natural tendency in the beginning is to not worry about this as cash flow takes precedence. The rationale is that once you get bigger and stronger you will be in a position to be more selective. However, what tends to happen is that the time to change never comes. A business tends to create an identity around its current clients.
Future prospects will judge their buying decisions based on your current and past clients.
In addition, the best and biggest source of new clients tends to be referrals from existing clients. Well, if you’ve built your business around the “wrong” companies, you are going to find that those clients will be referring you to some more of the wrong companies
A business services company that was trying to get itself out of trouble got itself into deeper trouble because of the clients it accepted to defend against the bad economy. In the past, it had been a strong firm with large clients paying good monthly retainers. As the economy turned sour, it started to accept whatever clients it could find. These clients could not afford the same level of fees, and in some cases were more demanding than the old clients. In other words, servicing these second-tier clients was at best less profitable, and in some cases not profitable at all.
As with most businesses, our example company achieved most of its growth from existing-customer referrals. Well, the new customer base tended to be single-project clients that were less appreciative than the old, long-term relationship client base, and therefore brought fewer referrals. Also, the referrals they did bring tended to be more of these smaller, less profitable, and off-strategy customers. After 18 months of accepting anything that came through the door, which they thought was the way to survive, this company found itself facing a quandary. Their customer mix is horrible, not sustainable, and they are are working twice as hard for much less money. They need to decide whether to try to grow with more of the newer kind of client, or to stay the same size, or even cut back, while they redevelop the kind of client base that made them profitable to begin with. Whichever path they choose, they have to work much harder to find new work in a tough economy.
So the key lesson for the example company and for any company wishing to sustain growth in this or economy is to very careful who you accept as customers. That decision will shape your future.
Howard Shore is a business growth expert that works with companies and people that want to maximize their growth potential by improving strategy, enhancing their knowledge, and improving motivation. To learn more about him or his firm please contact Howard Shore at [phone link=”true”] or email@example.com.