Customers come in all different shapes and sizes. They can be sweet and supportive. But they can just as easily prove to be manipulative and discursive. The nightmare scenario? When an abusive customer also happens to be your biggest customer.
Dave Smith, the founder of New York-based IT supplier Tekscape, told the story of his worst and best customer. We'll call him John.
This customer would call at all hours of the day or night and never say goodbye before he'd hang up. He'd often make undue demands, and yell and shout when they weren't completed to his liking. He required favors like tickets to the Super Bowl or a weekend in Las Vegas. He got so mad at Smith once that he actually broke a sliding door. John had anger issues, sure. But he also had a trump card: His company accounted for 85 percent of Tekscape's business.
"John would push me so hard, he'd try to bend me. Really, he broke me," says Smith. Smith had violated rule No. 1 of business: Don't put all your eggs in one basket. Just like an investor shouldn't plow more than 20 percent of his assets in any one company, a business owner should have a diversified list of clients. So if push comes to shove, you won't go out of business if you lose a client--or have to fire one.
That's easier said than done, naturally. If Smith could have diversified, he would have. It's not like he was an unpracticed entrepreneur. His company, launched in 2007, landed on the Inc. 5000 four years in a row. (This year, Tekscape ranked at #2,703 on the list.) But it took a brush with business failure for him to truly grasp the import of this oversight.
"Two years ago, I thought the world was great. I was flying high." But at that moment, Smith says, "I got the worst phone call that any business owner could get. What was that call? John got fired." John might have been a monster, but Smith could count on his revenue. "I hated him, but I knew what I was getting into with him."
He also knew he couldn't give up. He didn't lose John's company as a customer, but the firing was just the kick in the pants necessary for Smith to focus on diversifying his revenue stream. Here are three strategies Smith used to make sure he'd never be in a similar situation again:
1. Study up.
Smith attended a one-month class at Harvard University to learn about best practices from some of the biggest brands in the world. He says the biggest lesson he learned from that experience was to identify and track his company's key performance indicators. Before, he says, "I was looking at sales. Now I look at profits."
2. Go pro.
Smith also hired a professional management team. There comes a time in many entrepreneurs' careers when the founder needs to step back in order to help the business grow. The company now has 165 clients and John's former employer now accounts for just 13 to 14 percent of the business.
3. Align goals.
To help incent his team to move in line with the company, Smith moved to better align his employees' compensation with the business. Among other things, he instituted performance-based bonuses.