A version of this post originally appeared on TheEppleyGroup.com.
If you never say no, then your strategy is missing a crucial piece.
Many businesses work hard to identify and serve a target customer.
But knowing which kinds of customers you don’t serve should also be part of your overall strategy.
Challenge yourself to answer these questions:
- When was the last time you gave up a short-term win to free up resources to pursue your long-term strategy?
- When was the last time you told someone in your company to turn down a prospective client?
- When did you last tell an existing customer that you wouldn’t do something they requested?
Good to Great author, Jim Collins also provides a useful tool for identifying tasks or customers that are not producing value or results.
Stop Doing What Doesn’t Produce Value
Collins’ tool is the “Stop Doing” list. He recommends that leaders and organizations start each year by creating one. To get started, ask your team which of their tasks seem to create no value for the company. You will be surprised to discover that tasks which once contributed value no longer do and have never been discontinued.
If you’ve seen the movie Office Space, the scene about Totally Pointless Stuff (TPS) report cover sheets probably felt familiar to you. Many companies have people wasting time producing something like the TPS report. I described a similar scenario in an earlier blog post, How CompuServe Earned More When It Stopped Doing.
I dare you to stop doing the TPS and see if anyone notices. If you’re unsure make a list of tasks that appear to be of no value. Start with the low hanging fruit and get agreement that people are going to stop doing those – then, make this an annual exercise.
Opportunity Cost of Saying Yes
For bigger-picture questions, such as, “which types of clients should we stop serving?” you need a thorough strategic planning process. Your leadership team must force itself to decide which kinds of customers or services have a disproportionate value, and which clients are more important than others.
Sometimes customers who want something that you don’t offer are telling you about a demand in the market. Ask yourself, “Should we consider changing our priorities and the way we do business to capture this opportunity, or is this request an aberration that doesn’t fit with our strategy?”
A banners and signs business I’ve worked with in Travers City, Michigan, has a “we never say no” M.O. They promise to fill any order and serve any customer. When an analysis revealed that the business makes eighty percent of profits from twenty-five percent of clients, and loses money on another twenty-five percent of customers, the company founder didn’t forget this core value. Instead, he found a different way to say yes to those folks; the business started fulfilling their orders through the website instead of via direct sales help. This was his way of aligning the cost of fulfilling these smaller customers’ orders with the level of profit they could produce.
When I sold industrial pumps, we told customers, “If you get your order in by 10:00 am, it will ship the same day. If you order after 10:00 am, we can’t promise it will ship today, but it will ship the next business day.” We realized that there were certain clients who were willing to pay a premium to guarantee next-day shipment. So, for an extra $500, the company guaranteed next-day shipment even for orders that came in at the end of the day. The additional revenue made it worthwhile to get an order out that day.
Any business needs to decide, “If we can only do one thing right or serve one customer well, this is the one it is going to be.” Make sure your employees understand when prioritizing their workload that this kind of customer is the most important. Both of these examples illustrate that when you have strategic discipline, you build your systems and processes to serve certain kinds of clients. This doesn’t mean you won’t do business with other kinds of clients, but you aren’t building your business to serve them.
If you have twelve types of customers and you say none of them are the greater priority, then there will be opportunity costs to serving the least important before the most important. We tend to assume there’s only such a cost when we say no, but there is often a cost when we don’t say no.
If your business is a premium coffee shop, then someone who wants Dunkin Donuts is not your ideal customer. Sure, you can sell to them. But when they don’t want to pay what you’re charging for the better cup of coffee, or wait in line for your artisanal brew, then you have to be OK with that. You need to decide what you want to be known for; the best tasting, the fastest, or cheapest cup of coffee?
What happens to companies that don’t zero in on their target customer and say no to those who fall outside their strategic mission? In my experience, eventually they stop having any customers at all.
Knowing your customer is hard work, but worth the time.