When you start a company, it’s like shopping at the supermarket when you are very hungry. Everything looks good. Any suspect might be a prospect. Any prospect is worth pursuing, and your ideal customer is anyone who is willing to pay you for your product or service.
As your business grows, you begin to differentiate between good customers and bad customers. Those who don’t deal with you fairly, pay late, are always denigrating your product in hope of extra discounts, or demand extra services above what they pay for are allowed to fall by the wayside. Their departure is noted with a “good riddance,” if it is noted at all.
If you are fortunate, and keep your promises, a few of your first customers become your best customers. You develop relationships. They depend on you as a trusted vendor, and you show appreciation for their loyalty by serving them as well as you can. Your company grows, based in no small part on these steady accounts.
Can you outgrow these loyal customers? Is there a point where their business is no longer worthwhile to you? For most of us, the instinctive answer is “no.” Someone who has supported us on those first crucial steps up the ladder deserves our gratitude. But gratitude doesn’t address the other issues that come with a customer/vendor mismatch.
One of my clients owned a commercial general contracting company. When he started, they took in a few million dollars a year doing tenant improvements for strip centers and restaurant remodels. The company developed a reputation for bringing in jobs on-time and under budget, and after a few years he had built up a steady clientele of property owners.
His skill in project management landed him progressively larger jobs. He became a specialist in building bank branches, private schools and churches. Each of those jobs was about the same size as his entire revenue in the first few years, and eventually he was contracting for a dozen such buildings a year.
He remained loyal to his first customers, but fitting in a hundred thousand dollar remodel between multi-million dollar commitments grew more challenging. Each job now involved an estimator, a project manager and a supervisor, where he had once filled all those roles personally. The smaller jobs couldn’t carry the overhead. Where he once gave the restaurant owners a daily progress report by telephone, now they were scheduled between his meetings with CEOs and Boards of Directors.
Not surprisingly, his long-time customers began to complain. They didn’t have the access to or the attention from the owner that they once enjoyed. His pricing was getting more expensive. They sometimes had to wait weeks or months for a spot on the schedule.
He tried his best to address the issues. He dedicated special staff to smaller projects, and put his most senior project manager in charge of them. He couldn’t change his overhead costs, however, and that division relied on the support of the bigger jobs to cover expenses.
After years of trying to address the problem, he finally notified his small customers that he was no longer able to quote projects of less than $1,000,000. Many reacted as you might expect, perceiving his decision to be based on self-importance and greed, without any regard for their needs.
In reality, he had to let them go. He was no longer able to give them the type of service that he was known for, and that they had a right to expect. He had tried to roll back his company to a version of its earlier model, but in fact he was just subsidizing their work for old times’ sake, and still delivering at less than the expected level of service.
You’ve outgrown your customers when you can no longer serve them profitably or well. You can show your gratitude by helping them find a vendor who better serves their needs.
My new book, Hunting in a Farmer’s World: Celebrating the Mind of an Entrepreneur, is now available on Amazon in paperback, hardcover and Kindle. It is an ownership book, not a management book, and is illustrated with the stories of real entrepreneurs who faced challenges that apply to us all.