Wednesday, November 7, 2012

"Trying to be all things to all people costs you money"

There is a very useful story in the You're the Boss blog in the NY Times today. In it, Josh Patrick explains a dilemma common to small consulting firms and other, as he calls them, "micro-businesses":

If your business doesn’t have enough cash, you will be under stress. That is something I can attest to from first-hand experience. When you don’t have enough cash, you feel pressure to take any client who walks in the door. But this is usually a mistake. Trying to be all things to all people will cost you money.

Most owners understand this. But when you are under pressure to pay your bills, it’s hard to say no — even if the customer is outside of your target market. You need money, you take the business, and you often end up spending an inordinate amount of time serving the customer. And if you stay in this cycle, you put your business at risk. When you own a microbusiness, burning time is just like burning money.

Several years ago, I did some work with a graphic design firm, Gray Cat Studio. Michelle Bisceglia, the owner, had built a knowledge base working with specialty food manufacturers. She knew a great deal about the businesses and what made them successful.

When I first started working with her, she would take work from anyone. She often lost money when she went outside her knowledge area, but like many microbusiness owners, she was often short on cash.

We worked on developing her niche and I coached her in using a new word: No. Over time, two things happened. She was able to charge higher fees because of her expertise, and it took her much less time to complete projects. This allowed her to create a cash cushion, which made it even easier to say no to customers who didn’t fit her profile.

So: mistake is taking any piece of business you can. Solution: create discipline to say "no" to inappropriate customers, raise price to high-value customers, build a cash cushion to deal with the inevitable peaks and valleys of selling. Degree of difficulty: high.

But even though it's difficult, it's vital. There is a similar story in the upcoming Mistake Bank book on this very topic. Stay tuned!

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