We recently facilitated the sales of two businesses in two different industries; both over 20 years old, both highly successful and highly profitable.
In both cases one of their critical success factors was being able to choose who they did business with – i.e. being able to choose their clients – and both were quite ruthless in doing this!
They had developed their offerings sufficiently to say, “we’re happy to deal with Client A” but “our business model doesn’t suit Client B, so we’re not going to pitch for that job – one of our competitors can have it”.
Cherry picking their clients like this meant the margin at the bottom line was very strong.
So why was it strong? What are the actual benefits of being able to choose your own clients?
Alignment key to maximising value
Well, in simple terms, it comes down to alignment, because every business is different and every client is different.
Most businesses will have different business models, skillsets, capabilities and values.
Likewise, customers will have different expectations around price, quality, scope of work and timing of delivery.
When these elements are not aligned, things can go awry.
Here’s an example:
A builder with a reputation for the highest quality finishes wins a job for a client who is primarily focused on speed of delivery.
The fixed price contract contains clauses detailing financial penalties for failing to meet stage deadlines.
The builder delivers an exemplary project, but missed several deadlines, so he is only paid 90% of the contracted amount.
People in business often think 'a sale is a sale' and that the goal of business should be to increase sales every year, no matter what.
This is not necessarily true because – unless you’re simply selling widgets – what may be a profitable ‘sale’ for one business could prove highly unprofitable for another.
In the example of the builder above, his margin may have only been 10% – and he lost the lot!
That ‘sale’ would definitely not provide the same value to him as it would to a different builder who had set up her business to deliver projects quickly, and maybe doesn’t mind sacrificing a little quality to get there.
The holy grail
In the case of the companies we sold, they didn’t chase sales for the sake of it – they sought business that was a perfect match for their business model and that would, therefore, deliver the best margin.
Being able to choose your own clients is one of the holy grails in business. It’s not easy, of course, because when you start out you often have to accept all-comers simply to keep bread on the table, but it is achievable and should be the ultimate goal.
In our experience, it means the difference between a good business, and a cracking good business.
If you would like support and advice on how to align your business model in a way that delivers maximum value to you and your clients, contact our team on 02 6360 0360 or 02 9893 1803 for a confidential, obligation-free discussion.