I was leading a half a dozen entrepreneurs in a lively group discussion. The topic was the way in which leaders distinguish themselves in tough times by making tough calls. Every business owner I know has navigated tough times, so I was excited by the opportunity to learn from so many at once. I expected a treasure trove of varied stories and was surprised to find a common theme. Virtually everyone agreed that client selection is the toughest call during tough times.
The monsters I expected to crawl out from under the bed included layoffs, asset sales, and being truthful with the bank. Possibly whether you love your business more than your spouse, but we did not know each other all that well. Instead, almost unanimously, what to do with your “ideal customer profile” when revenues are scarce.
The Temptation in Tough Times
“Ideal customer profile” may be a bit abstract for some, so let’s just think through a hypothetical. You are an information technology firm, founded to serve small businesses with less than ten employees. You were inspired by the idea of keeping small business IN business against the threats of cyber attack, software version upgrades, connectivity outages and the sort. During tough times, small businesses pull back on their IT budgets, essentially “winging it” in the hopes of surviving financially. A friend of yours owns an IT company serving companies with over 200 employees. Your friend has capacity constraints resulting from labor scarcity. The offer: “Hey, let’s help each other out. I can subcontract 100 cases to you initially and grow from there.” Not exactly your kind of business, but a paying client.
According to best-selling leadership author John C. Maxwell, tough calls have three primary characteristics. First, the tough call demands risk. Second, the tough call brings with it an inward battle. Finally, the tough call will distinguish you as a leader. We did not use a checklist. The shares from this group of entrepreneurs covered it all. I needed no more convincing. For small business owners, client selection IS the toughest call during tough times.
The apparent universal truth of capitalism is that revenues must exceed expenses. That is certainly true over the long run and equally true in the short-run depending on the size of the gap and the capitalization of the business. In pursuit of that truth, with that immediacy of tough times, it seems so easy to say “yes” to any revenue opportunity as cash runs low. It is a life–line to keep all those other monsters tucked under the bed. But saying “yes” to just any revenue opportunity opens up a dangerous game of whack-a-mole. There are plenty of other monsters lurking if you make the wrong call.
Building an ideal customer profile (ICP) is a critical step in business formation because from it all other disciplines flow. The people you hire. The processes and systems you build, including all service processes. Some available revenue streams may be close enough to your ICP, but often it is far enough away that that you cannot serve it well without additional investments or resource allocations – monsters! Operating with the same business model for a different kind of client may permanently damage your reputation.
Will I Ever Get Back To Kansas?
I remember decades ago my parents moved to another city on a three- year corporate relo. As we cleaned out their home for a downsizing thirty-two years later, I wondered, “How did three years turn into thirty so quickly and silently?” Whether in personal life or business, we constantly fight inertia and for survival over what is desirable. In business, the opportunity costs can be highly expensive. While you muddle through to survive, your competitors (new and old) pursue your ICPs in new and daring ways. The ticket back to Kansas gets more expensive every day that you are not solely focused on your ICP.
Walking Up The Down Escalator
Those beautiful, sustaining gross margins you built around your ICP will rarely, if ever, materialize from less than ideal clients. During tough times, entrepreneurs are faced with that magnificent dilemma: cut and run or scratch and claw. Most entrepreneurs I know are feisty enough to keep fighting. Just be aware that between operational inefficiencies from serving the less than ideal, and opportunistic replacement customers beating on your margins, it may appear that you are still in business, but you are slowly and painfully exiting the business over a longer time horizon. As hard as you are working to pull out, there are forces working entirely in the opposite direction. Some are spry enough to do it. Many aren’t.
Tough Calls or Compromises?
Entrepreneurs are acutely aware that these monsters lurk around corners during tough times. They make for tough calls for sure. But I find one other reason that client selection is the toughest call during tough times. Years ago, I listened to a podcast about decisions. The guest pointed out that decisions are a distinctive form of cutting, the extension “cision” coming from the Latin verb “caedo” meaning to cut. The other popular forms include cutting into (incision) and cutting out of (excision). Decision means cutting off or cutting away.
The hopes, dreams, and intentions involved in our ICP development are often too powerful to cut away in favor of something new and simply sufficient. It might be an easy decision if we did not love the intention of our businesses. But we do, and that makes client selection the toughest call in tough times. So hard to say goodbye to loved ones. Somehow, we sense we are doing just that when we compromise our best intentions to simply survive.