Mistakes I’ve Made In Business Part II: Not Every Customer Is a Good Customer

Like a lot of entrepreneurs, when I first opened my business, I literally took on any customer who could breathe and sign their name to my contract. Really, that was the criteria. And, to be totally transparent, it wasn’t just at the beginning…it continued for too many years, until I “grew a pair” and realized that some business simply wasn’t good for us for any number of reasons.

I’m going to share some of those experiences with you – places where I brought on business that wasn’t good for us…and how I changed my behavior and increased profitability.

In general, I got into trouble adding customers when:

• What they were asking us to do was not aligned with our strengths.
• Customers raised red flags right off the bat.
• They were unwilling to pay a premium for premium services.

Just in case you’re new to my blog and don’t know my history, I founded and grew an “employee-first” organization where everything we did had to be measured against the impact it would have on the team members. That worked for us…as we grew to $40M, debt-free.

Let me share an example for each of those ways I got into trouble with adding the wrong customers.

Taking on Business Outside Our Core Competency

We were in the business of printing and mailing bills – that’s all we did, but foolishly, we took on a large prestigious client who wanted us to print their payroll checks and accounts payable checks, not bills.

Why did we consider this even for a moment? Because they were part of a much larger organization that was our DREAM client, and we thought that if we impressed them with our service on this work, they’d open the door for us to get the other business. So what could go wrong?

Where do I start?

First, they didn’t want us to mail the checks we’d print for them. Instead, we’d just insert them into envelopes and they’d send a courier to pick them up each morning at 6:00 AM. All other work we produced was based on a 24-hour turnaround, but this customer’s work required a different workflow process with only six hours to do it.

Next, we had to buy new equipment just for this client. Expensive equipment that we’d use ONLY for them. We had to learn all new processes for printing checks – processes we followed ONLY for them. We had to have an employee dedicated to this client. And, because checks present more opportunity for fraud, we had to build out a special secured area, with cameras, just for this work.

By now, you can imagine how this all turned out.  We certainly didn’t impress them. Because the business was not in line with our core competency, we failed at it miserably. Over and over again. They had come to us because of our impeccable reputation (in the printing and mailing of BILLS), but now we’d shot ourselves in the foot by delivering subpar service. And to add insult to injury, we lost money on their account because we hadn’t known what we were doing when we priced it.

The two major mistakes were: Taking on a client who asked us to do something outside our area of expertise…and taking on a client that we didn’t want in order to get a client we DID want. (Kinda stupid!)

How I shifted my behavior

We got smarter. We took the time to study our clients and carefully determine which ones were the most profitable…and then, we went after THOSE clients, focusing all our attention on that “sweet spot” for us – customers that perfectly fit our workflow, our time frames, etc. The result: Profitability soared and the customers gave us a 97 Net Promoter Score, meaning that 97% of them would “highly recommend” us to a friend.

Sometimes, a good, loyal customer asked us for things that were just outside our wheelhouse. I learned to respond to their requests in this way: “Yes, we COULD do that, but we won’t…because it’s not something we’re great at…and we won’t be able to deliver the same high quality that you’re used to getting from us.” Instead of being disappointed by our response, they respected our stance and it enhanced our relationship.

One very large prospective customer approached us with their business, but after reviewing their data and the processes we’d have to build around it, we turned them away, telling them they’d be unhappy with the results if they moved their business to us. Instead of getting mad at us, they quietly went about making the changes that we said we’d have to have to ensure a good fit…and THEN they moved to us. They said the fact that we’d turned them down gave them more confidence, more respect. It was the beginning of a long, mutually beneficial partnership.

When customers raise red flags right off the bat

We’d talked to one prospective customer a few times, and had even done a formal presentation to them, but they were always very lukewarm. Then, out of the blue, they called and asked for a contract, telling us we’d have to be able to start servicing them immediately.

We didn’t stop to question the sense of urgency (RED FLAG #1) giving us only 2-3 days to implement their account – a process that was typically 6-8 weeks. And, (RED FLAG #2) they balked at paying the deposit we required. They claimed that they’d never paid a deposit, though it was standard in our industry, and that they wouldn’t give one to us under any circumstances. And then, while we were feverishly working to implement their account, they still hadn’t signed our services agreement (RED FLAG #3). So, a few days later we went live with them, a customer with whom we didn’t have a signed agreement.

We started servicing them to the tune of about $30K a month, but they didn’t pay their first month’s bill. They offered excuses…which we accepted. Month two: Even higher volume, but again, they didn’t pay their bill. More excuses. So, I did what I should have done to begin with and called the vendor they’d left to come to us, asking about their experience with this client. And then it all made sense.

This client was jumping from vendor to vendor, never paying any of us…and got away with it. What a scam. But if we’d just taken control early on, requiring the deposit, and not moved forward without a signed agreement, we’d have been protected. We were just too eager to sign a new account without ensuring it would benefit us.

How I shifted my behavior

We learned to look for those red flags, stuff that indicated a prospective client might not be a good partner. If there was an urgent need, why? Were they willing to pay an implementation fee to push their work to the top of the heap? And then, stuff around basic professionalism: Agreeing to have kick-off meetings to ensure a full understanding of expectations on both sides. Negotiating the terms of the agreement and then SIGNING the agreement. Seemingly small things like not being prepared for meetings.

We learned to watch for those signs early in the process, even in the presentation phase, to determine if they would be a good customer. It was so empowering to be in those situations where, after the first meeting or two, we could withdraw, tactfully stating that we didn’t believe we’d be a good fit.

Not willing to pay a premium for premium services

I got us into these situations several times early on, where we’d agree to a certain price, and the customer would then add special features and services…but would nickel and dime us to death, not wanting to budge on price even though the product offering had changed.

For example, a customer would agree to use our standard paper and envelopes until we were just about to go live, and then they’d insist on a custom envelope, something that was not only more expensive but required special handling. And, because they’d wait until just before go-live to ask for this change, I’d cave in – wanting to get the account to revenue-generating as quick as possible. In most cases, I learned that was just the beginning of asking us to do more for them than our contract required.

How my behavior changed

While still taking great care of the customer, I did my best “Tom Petty” and I didn’t back down. If the customer wanted a custom envelope, they could absolutely have it, but they had to pay extra, not just enough to cover the difference between the standard and custom envelopes, but to cover the additional expense incurred by custom setups for their business.

Well, sometimes it turns out they didn’t want that custom envelope after all, and sometimes they were happy to pay the extra cost. But ALL the time, they respected us more! Yes, the more rigid we were with what WE had to have, the more respect the customer had for us.

Advice for new businesses

But what advice would I give to a new business…one that’s still in that “get all the business you can get from anyone” phase? One great measure of success in business comes when YOU get to choose your customers, not the other way around. What a great, liberating feeling it is when you can turn business away, carefully selecting customers that fit YOUR company.

Slow down a little. Evaluate the customer. Will the account be profitable? Will servicing it allow your company to shine, adding luster to your reputation and your ability to charge a premium. If not, walk away.

All customers are not created equal.