Last Updated Apr 27, 2011 3:16 PM EDT
If I have to read one more article about the importance of being customer centric, I'm going to hurl.
I have found bending over backwards to please customers can actually hurt the value of your business in the long run. I know that sounds counterintuitive, but hear me out -- I learned this lesson the hard way.
When I was building my consulting company, I was frustrated with having to re-create our business every month and how dependent our client relationships had become on me personally.
Then one day I read about a little consulting company call Jupiter (now part of Forrester Research) that delivered their advice through syndicated research papers. They sold their reports on a subscription basis and didn't do any customization.
Bingo -- I thought - if I follow the Jupiter model, I can scale up my service business. If only it had been that easy. As I outline in this excerpt from my new book being released this week -- Built to Sell: Creating a Business That Can Thrive Without You -- my first attempt at scaling up a service business was a gigantic flop:
I spent the next weekend plotting how to shift my consulting firm to a similar model. I decided that my company would publish six major research reports each year with an annual subscription price of $50,000. It would cost a single company more than that to commission one report, but now the company would be getting a total of six reports -- a good deal for the customer, I reasoned. And at $50,000 per subscription, all we needed was one hundred subscribers to have a $5 million business. A good deal for us too.
I divided our prospects into A, B, and C leads. The As were our long-terms clients, Bs were sporadic customers, and Cs were people we'd never met. Interestingly, the plan sold best with B customers. They knew us better than the Cs but were not so entrenched with us that they viewed a cookie-cutter offering as a step back in our relationship.
The problem was, I burned through our B customers quickly. I managed to get seventeen subscribers, which amounted to $850,000 on an annual basis. A nice chunk of revenue to be sure, but not enough to make it worth walking away from our other clients. If I was going to make the subscription model fly, I would need to convince my A customers to join the seventeen Bs who had already committed.
However, my As simply weren't interested in the subscription. Some thought they were giving us so much consulting work that we should throw in the subscription free as a thank-you for their business. Others didn't like the model's cookie-cutter nature. Each time I met with my A customers, I would listen carefully to their feedback and invariably assure them that they could continue to do business with us using the old model. And that was my mistake. Giving our A clients the choice ensured that they would never make the move to the subscription offering. Our A customers had become As because we were providing value to their business, and they didn't want to mess with a formula that worked for them.
So I ran the subscription program while at the same time continuing our consulting business. Things went downhill quickly. Client deadlines and demands eventually overshadowed the subscription business, and the quality of the reports suffered. Employees preferred to work on custom consulting projects instead of writing formulaic reports. I felt as though I were trying to take off with an overloaded plane -- I could get the front wheels off the ground but didn't have enough torque to get the heavy plane airborne.
As I got more desperate for A clients to make the switch, I made a second mistake, which would ultimately be fatal: I started offering to customize each report for my A customers if they agreed to move to the new subscription model. Once our staff got wind that one subscriber was getting a special report, all of our account managers wanted their customers to have the very best reports for them. I fell down the slippery slope of customizations quickly. Soon we were customizing each report for every client -- thereby compromising the leverage I'd hoped to achieve through a subscription model.
It wasn't long before things started spiraling out of control. With six major studies per year and seventeen clients demanding special reports, we faced the prospect of creating 102 unique reports -- untenable for our twenty employees. Finally, mired in requests for customization and tired of the difficulties of running two different types of business in parallel, I shut down the subscription business.
Over the following five years, I concluded that my two biggest mistakes were:
- giving my A clients the choice to continue to do business with us under the old model, and
- customizing the reports of those who did agree to make the switch.
If you order Built to Sell: Creating a Business That Can Thrive Without You by April 30, you'll get this $65 basket of goodies.
Excerpted from Built to Sell by John Warrillow by arrangement with Portfolio Penguin, a member of Penguin Group (USA), Inc., Copyright Â© 2011 by John Warrillow.
Built to Sell will be released by Portfolio/Penguin on April 28, 2011.