06/07/2011
When to sack your customers. And how to find customers who really value what you offer – and are willing to pay for it!
By Gerard Burke, Founder and MD, Your Business Your Future
The fifth of our Seven Pillars of a Better Business is “Stick to the knitting – and stand out from the crowd”. Remarkably, nearly nine out of ten businesses who achieve consistent profitable growth achieve that growth by selling more of their existing products/ services to their existing customers and other people just like them.
The “sticking to the knitting” strategy is all about getting the most possible out of your existing market segments and your existing products/services. “Sticking to the knitting” tactics include cross-selling, up-selling, increasing the usage rate, winning a bigger share of your customers’ spend on your products/services, asking for referrals, and winning more market share so that you dominate your niche. Of course, all of these tactics depend on identifying and truly understanding the specific set of customers to whom your product/service delivers distinctive benefits. In other words, a group of customers who will buy from you, instead of someone else, because they value something about your product/service that they can’t get from someone else. These customers will then be prepared to pay for your products/services thus enabling you to avoid competing on price and maintain good margins.
Conversely, selling to people who don’t value your distinctiveness will most likely result in dissatisfied customers and poor profitability. This was the situation Pillinger Controls was in when its technical director, Mike Darby, and MD, Steve Sears, started the Better Business Programme in January.
The company, which designs energy management systems for commercial premises, had grown quite significantly in the seven years since it was created. The workforce had swelled from four to 40, and turnover had hit £3 million.
However, rather than growing up gracefully, the company had, in Mike’s own words, ‘got big in a badly managed fashion’. “We were victims of our own success. We got more and more customers but weren’t managing them properly. Our turnover had gone up but profitability had fallen, and we were starting to lose staff as we weren’t fun to work for anymore.”
The root of the problem was that the company wasn’t being discerning about who its customers were. They were selling to people who were not part of the set of customers who really valued the benefits their service delivered.
The majority of Pillinger’s business was coming from building contractors, who were working on projects where architects or others had specified installation of an energy management system for controlling heating, ventilation and air conditioning. For the building contractors, the installation of the energy management system was purely a box-ticking exercise. They weren’t actually making use of Pillinger’s main area of expertise, which lies in using the system to minimise energy consumption and reduce the lifetime running costs of a building.
“People who are managing a new build or refurbishment don’t care how the system performs – they only care about it working properly at the time of handing the project over. We were working with people who didn’t understand what we do but had to use us to meet specifications,” says Mike.
Essentially, Pillinger was selling to customers who didn’t value its product, and it started to take its toll.
“Our cashflow had become a nightmare because of the payment terms in the contracting world and because customers would try and beat us down on price at any opportunity. It wasn’t doing our reputation any good and it was crippling our morale,” says Mike.
Steve and Mike knew they had to escape this downwards spiral. Once they started talking about their situation with other owner managers and coaches on the Better Business Programme, they were able to visualise an alternative way forward and pluck up the courage to walk away from any new business with contractors.
“We took the difficult decision to stop working with contractors and instead focus on the market that really valued our service - owner-occupiers such as accountancy firms, banks and public sector organisations, who own and occupy large portfolios of buildings,” says Mike. “These organisations are actually interested in getting more value out of their systems - which is exactly what we’re good at. We always knew that we preferred working with customers, but we hadn’t seriously considered turning away work with contractors because the natural instinct is just to grab everything that comes in.”
Having identified its niche, Pillinger is now looking to exploit it by ‘squeezing the lemon’ – in other words, extracting the maximum value from its ‘juiciest’ customers. “The time we were wasting on contracting jobs we’re now spending on nurturing relationships with owner-occupier customers,” says Mike. “For example, rather than just speaking to the facilities manager within organisations we’re looking to build relationships with company executives. It’s about being less like a contractor and more like partner - someone who will demonstrate value for money for customers by identifying work they don’t know they have but we know they have and that will pay for itself in energy savings.”
With their new focus on customers who genuinely value what they do, Mike is confident that Pillinger will grow in a far more profitable way in future.
Watch the video below featuring Gerard Burke of Your Business Your Future, discussing the 7 pillars of a better business.
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Create a better future for your business and yourself! Fresh Business Thinking LIVE! at Cass Business School is a one day event specifically designed for ambitious entrepreneurs and owner managers. Gerard Burke of Your Business Your Future, will introduce a range of successful entrepreneurs who will share their experiences of building the 7 Pillars of a Better Business – the seven characteristics which seem to distinguish those businesses which consistently perform better than the average.
To book for the event on 7th September, click here
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