I once read that one of the most important jobs of a CEO was to hire the right customers. I liked the concept because we rarely think of “hiring” customers. Too often we just assume that a customer with money to spend is exactly the target market – but this is wrong.
First think about a typical hiring process for employees which includes steps like: create the job posting, post the job, review resumes, interview selected applicants, narrow the field, choose the best one, negotiate compensation, and make the offer. At the most basic level, we are trying to figure out two things:
- Can they help the company solve a problem?
- Will the person afford the company a reasonable rate of return (with a salary in line with the market)?
Now think about the [somewhat different] steps a company takes to hire customers. The company seeks a market in which it can compete more effectively than the competition, develops a solution to meet the market need, markets their solution, converts leads to opportunities to deals, and supports the customer. Again, at the most basic level, the company is trying to:
- Generate cash to fund operations (stay solvent)
- Achieve a superior rate of return (better than other investment options)
Because the market is dynamic, with shifting needs and economics, achieving these two goals is challenging. In my discussions with clients, I notice that many of them achieve cash flow (#1) but sacrifice rate of return (#2). The diagrams below help explain the problem.
The lower left circle represents current competencies. The upper right represents how the product will change to carry out your strategic vision. The problem arises when customers and prospects with unique needs create demand for changes to the products and services you offer (these changes become distractions). If your company hires this customer, they will accomplish #1 while sacrificing #2. To satisfy cash flow needs companies sometimes hire “distraction” customers. Naturally, the risk in this scenario is that hiring this kind of customer reallocates valuable/scarce resources away from your strategy. (Which means you will achieve the strategy later, which lessens your rate of return.)
The solutions are obvious, though not necessarily easy.
- Turn down the deal and maintain focus on your strategic vision. Decide that the temporary “win” is a long-term loss. This action should also cause your company to re-examine its sales and marketing strategy. Letting a deal get to this stage means there is mis-alignment upstream which must be corrected or else your customer acquisition costs will increase as your teams pursue the wrong customer. Better to pursue fewer of the right customers than to celebrate more meetings with the wrong ones.
- Change your strategy as you recognize that the “distraction” is actually a more promising strategic objective. In this option, your company will acknowledge that the customers/prospects are NOT unique and instead represent a market opportunity.
- Accept the deal with the devil and satisfy the distractions to get the cash. (Note: in limited markets or for struggling companies, this may be the only option.) If you are forced into this corner, make the deal less bitter by charging more so the returns are acceptable.
The pivot point is that hiring the right customers helps ensure organizational alignment and efficiency. The right customers help alignment because product development efforts either serve current or strategic needs and they help efficiency because marketing, sales, product management, and support teams spend less time supporting non-strategic goals.