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How a big customer could ruin your company

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By Coeli Carr


AJ Shankar and Jeff Friedman wanted to provide law firms, corporate legal departments, and government agencies with a better way to prioritize, organize, and access evidence data. In 2011, the duo launched Everlaw, a document-dis­covery service that relies on cloud storage. Many target customers loved the technology's user-friendly and speedy interface, and quickly came on board. The Berkeley, California-based company grew nearly 90 percent in 2016, and it projects 100 percent growth this year. But others, used to years of hands-on super­vision of data by means of onsite hardware and tech support, were concerned about cloud hosting. "They'd ask us to make our software run on their premises, but that would mean eliminating our technology's most innovative e-discovery features," says CEO Shankar. Everlaw's official policy in such cases? Get lost (please). "Business strategy is as much about what you won't do as it is about what you will," says Shankar. Turning away paying customers can seem insane, especially when you're starting out. The reality, though, is that taking on the wrong business can hurt your brand--or far worse.

Protect Your Brand

In 2016, Jason Boyer, a principal at architectural firm Studio Ma in Phoenix, faced a decision: Would a lucrative commission worth $750,000 help or hurt his company's brand? The client, an international real estate developer, wanted to build 60 three-story townhouses in central Phoenix. Boyer knew that Phoenix residents prefer single-level dwellings, but the Studio Ma team could not convince the developer of that. "We want to be involved with successful residential developments, not ones that might negatively affect our brand," says Boyer. Studio Ma passed. "You're putting your brand and professional reputation on the line if you take on a job--even one that helps you turn a profit--that neither leads to future work nor enhances your company's value," says Deborah W. Searcy of the Florida Atlantic University College of Business, who researches entrepreneurs who decline business. Searcy notes that startups and young companies often must take on even questionable opportunities to build their portfolios, and the fallout for them may not be so great. But established and mature businesses, which have a lot more to lose, need to be more selective.

Defend Your Bottom Line

Every new client is a profit risk. Last year, Rebecca Miller, who co-founded and co-owns Peggy Jean's Pies in Columbia, Missouri, with her mother, Jeanne Plumley, was approached by a national retailer that wanted dessert for 1,000 for an event. The gourmet piemakers' two-serving, five-inch "baby pie" retails for $7; the retailer offered a paltry 55¢ a serving, including plates and napkins. "The event would have been a phenomenal opportunity to expand our brand, but we know our costs for supplies and labor," says Miller. "We would have lost money on the deal, and would have had to limit product in our store while we fulfilled that order." Don't get awed by a big name, says Searcy, who believes taking on unprofitable work is rarely a good idea. Feel you can't turn down a cash-loss job? Get better terms. "Negotiate the entire compensation package," she says. You have more juice than you think. The other company may be bigger than you, but it wants what you have.

Stand Up for Your Values

Are you willing to throw in your soul when making a sale? "My company's values--providing fair wages and labor standards--are built into the price," says Sharon Rowe, founder and CEO of Eco-Bags Products, in Ossining, New York, which makes reusable shopping bags. Rowe says clients respect the integrity of her company--it's a certified B Corp--and are willing to pay a premium for it. "They feel that using our products enhances their own reputation and brand," she says. A good way to attract like-minded customers, says Searcy, is to advertise your mores along with your wares. "On your website and through social media, publicize and advertise that you truly live your values," she says. You'll be less likely to attract the wrong crowd.

Three Reasons to Say No Thanks

1. The risk of overextending yourself

"Entrepreneurs are easily enticed by high-volume orders, a big-supplier tactic that could sink your business," says Joel Shulman, professor of entrepreneurship at Babson College, and founder and managing director of Entrepreneur­Shares, a Boston money-management firm. The ploy: A large-quantity order persuades you, against your better judgment, to significantly lower your price. One business owner he advised, who was typically paid more than $3 a unit, was offered 80¢ by a big-box retailer. Understand your true costs, says Shulman: "By the time you pay for manufacturing, logistics, and, in many cases, physical distribution to brick-and-mortar retailers and make a commitment to take back unsold items, there's a good chance you'll have lost your shirt."

2. The threat of unforeseen expenses

Smart, if undercapitalized, entrepreneurs try to stick to a budget, but a promising business opportunity can lead them to abandon the plan. "Complex contracts or demands from prospective clients may require you to consult with attorneys or business advisers," says Shulman. Even worse, he says, is realizing midway through a job that you can't finish it with existing resources. Suddenly, you need to hire additional personnel or find more space. If you believe the incremental costs--including aggravation and time--of a project will exceed its value, turn it down.

3. The possibility of getting sidetracked

"A basic failing of many entrepreneurs is allowing themselves to get sidetracked from their primary goal," says Shulman. With competition so fierce, he says, business owners who don't focus their time and energy can get crushed. Interestingly, it's much easier to say no to bigger jobs for which you know you lack expertise. "It's the less substantive opportunities--so small you don't think taking them on will dilute your vision--that can cumulatively siphon off critical resources of time and money," says Shulman.

The original "How a big customer could ruin your company" article can be seen here.

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