Why Southeast Asian Start-ups Should Fire Half of its Customers
How you can strengthen your business by firing bad customers
PHOTO CREDIT: Getty Images
There is one thing every business has in common: customers. Without someone to buy your products and services, you won't have much of a business. Customers are generally considered a good thing.
But have you ever stopped to consider if you have the right customers? That's why I challenge you to fire half your customers today - and your business will be stronger as a result.
Am I crazy?
Consider a story that former Speaker of the House Newt Gingrich shares with his constituents about lions. Lions are some of the fiercest and effective predators on the planet. They can catch and eat anything they run across - everything from field mice to antelope.
For a lion, catching field mice is relatively easy once they get their paws near them: lions are far stronger and faster than the mice. But mice are also nimble, which means the lions have to use tons of energy to eventually chase them down. That means that the lion actually expends more energy chasing the field mice than it gets from actually eating them. In other words, the lions could run around chasing and eating field mice all day long and eventually starve to death.
Contrast that with an antelope. While antelope are more difficult for the lion to eventually single out from its herd and eat, the number of calories gained is enough to feed that lion and its entire pride. The bang for the buck in chasing antelope compared to field mice is off the charts.
Now consider how this analogy connects with your customer base. There are a ton of businesses who run around catching field mice at the expense of chasing antelope. Too many companies spend too much time and energy chasing small one-off customers outside of their sweet spot that ultimately hurt the business. And the result is they are starving themselves to death.
We work with a client in the steel distribution business that learned this lesson firsthand. This client had the philosophy that all customers are good customers; come any come all. And yet, while the business had increased its customer base, the business was struggling financially.
When they finally paused and took a good look at their customer base, they realized that just about 70% of their customers placed orders of $300 or less. And when they did the math to calculate how much they were spending to produce, process, ship, and bill for that amount of steel - the company realized they were actually losing money on these sales. They were chasing too many field mice.
The business was staying afloat because of the other 30% of its customers, the antelopes, who placed large profitable orders.
So what did they do?
The company took the bold step of raising their prices high enough on those small orders were they could turn a profit. They knew they would hear it from those customers - and they were OK with it. Either the customers would pay them - or they would leave. Either way, the business would win because they would get rid of plenty of field mice, which would free up resources for the business to chase after more antelope. That's a smaller, more focused and much more profitable business.
So take a look at your customer base and ask yourself how many field mice do you have compared to antelope. Are you chasing too many customers that are actually costing you money? If you are, it's time to fire them. And your business will thrive as a result.