It was during the early, formative years of my consulting career. I recall it clearly. It was the first meeting for a potentially lucrative contract. Very lucrative. The CEO, a real rough-and-tumble bulldog type, met me at the door and ushered me in. The entire executive team was assembled inside. This threw me a little, since I was expecting a one on one. Everyone was in suits and ties. I was in a t-shirt and jeans; and felt immediately underdressed.
A few minutes into the discussion, one of the executives asked a question on a design point. I began to answer, but was cut me off as the executives began to argue the point among themselves. They quickly forgot about me. A long and heated exchange followed. There were raised voices and shaking heads, all happening right in front of me.
Suffice to say, the scene was a ginormous, red, flashing alarm bell that this was not the kind of client I wanted to work with. It was clearly evident from this meeting that every decision would be a battle. Every revision would be nightmarish and I’d have to fight tooth and nail against scope creep.
And yet: I had placed a rather hefty price tag on this contract.
So I took the job. I took the money. And it was a bad business decision. It ate up a disproportionate amount of my time and energy. In the long term, the opportunity cost to my business far outweighed the considerable revenue it generated.
The job was an ordeal, but it taught me a valuable lesson: sometimes the most responsible long term investment you can make in your business is to walk away from a potential client relationship. To walk away from money.
The Client Relationship: Cumulative and Exponential.
There is no doubt that clients are the lifeblood of a service based business. They provide the revenue, the social proof that constitutes your reputation in the market, and through referral, are a high quality source of warm business leads. Without clients, a service business dies. Plain and simple.
So your ability to establish and maintain successful client relationships is a critical factor in the health of your business. And the effect is not linear. Over time, positive client relationships have a cumulative and exponentially positive effect on revenue and sustainability. An effect that cuts both ways: negative relationships can seriously damage your profitability and prospects.
This effect is powered by the three main factors:
#1. Time – Play It Again Sam.
There is a heck-of-a-lot of time that gets sunk into acquiring new business (that’s actually one of the main reasons I created Qwilr). And even once you start working with a client, there is more time spent building trust and channels of communication. This is all unbillable time. From which no direct profit is generated.
But repeat business skips all this. Generating new business from existing clients, means you can jump over all the unbillable time of getting new clients on the hook and get straight to the revenue generating work.
And what leads to more repeat business? Happy, positive and productive client relationships. People want to work with those whom they like, trust, and can communicate easily with. It’s just human nature.
Conversely, a strained client relationship is very unlikely to result in follow on work. That means more non-revenue generating time invested into new client acquisition, and ultimately, a less profitable business.
#2 Reputation – The Social Network.
When someone has an excellent customer experience (whether with a product, or a service etc.) they often tell their friends and associates about it. This kind of unsolicited mention in a casual conversation is powerful stuff. No form of marketing is as potent and compelling as this kind of social proof.
Conversely, when a client has a negative customer experience, this may not only damage your reputation in the market, they might actively dissuade their friends and colleagues from employing your services (“I had a really bad experience, don’t use them”). And these friends and colleagues may continue distributing this negative message through their own networks. A network effect of the worst kind!
Building a reputation is a long slow process of accretion. And it’s far easier to tarnish a good reputation, then it is to build one up.
#3 Team Morale – Happy People, Happy Business.
Finally, one of the less tangible, but perhaps most impactful aspects of building a positive client relationship is the motivation and morale of you and your team.
This one may seem a bit wishy-washy, but if you’ve ever been through the Stress Marathon of A Nightmare Client Project, you’ll know how draining it can be on your mental energy and productivity.
It’s a business adage as old as commerce itself: happy people do good work. And good work means a good reputation, and good referrals. A positive feedback loop.
Early Warning Systems
So if the quality of your client relations are such a strongly determinate factor in the long term success of your business, then how do you avoid bad client relationships?
Short answer: don’t get involved with them in the first place. You need an early warning system in place, to diplomatically avoid forming fraught client relationships.
Before you’ve even started working with a client, these are the two signals that should start the alarm bells ringing:
1. Baulking At Costs
One practice I implemented into my consultancy business that made a huge impact on its profitability and efficiency was the establishment of a minimum project cost. In the very first email or phone communication I had with a potential client I put a minimum figure forward.
It was not an insignificant amount. And the figure immediately weeded out any non “serious” clients. The minimum cost acted as a screen for the kind of clients and scale of projects I was looking to engage with. If they were not willing to spend that minimum amount, our project expectations were probably not aligned.
Now: did a lot of leads baulk at the minimum investment and take their business elsewhere? Yes. Was it the right thing to do for my business? Absolutely.
I spent a lot more time engaging with the clients I actually wanted to work with, and saved myself a whole lot of time on wasted meetings and proposals, for leads where there wasn’t sufficient budget to engage my services in the first place.
2. They’re Difficult To Collaborate With
The client service-provider relationship is most effective when it’s founded on collaboration. You, as the service provider, are in many ways the amanuensis of your client. They have a vision and an intention, but not the technical skills or vocabulary to realise and express that vision.
But the process of translating your client’s intentions into reality is not a simple or straight-forward process. You need to work together. It requires collaborative discussion and collaborative iteration. The fluidity and openness with which you and your client communicate will play a pivotal role in determining the success of the working relationship.
While this working relationship will of course morph and evolve over time, you can normally form a rough idea, just from your very first meeting, of how easy it is going to be to collaborate and communicate with a client.
What’s their manner of decision making? How do they go about problem solving? What’s their style of dispute resolution? You should listen to your instinctual feel for their working style. Nine times out of ten, this behaviour will only be magnified and amplified over the course of the project.
Saying No, Without Saying No
Okay, so what if your early warning system starts going off and alarm bells start ringing? What do you do if you realise you might be walking into a bad working relationship with a client?
First things first, you don’t just say: “I don’t want to work with you”. At least not in so many words. You need to be delicate and diplomatic when turning down work.
Here’s three options to start with:
1) Scheduling and Timeframe Constraints.
Clients generally want to get start as soon as possible on a project, and they tend to have hard deadlines in mind to get projects live. This is probably the easiest way to walk away from a relationship – i.e. “The project looks great, although I’m currently booked up until October of next year…”.
2) Price Them Out.
You can also price the client out. Most clients will have a ballpark budget ceiling in mind, and you can price the project in a range markedly outside their budget. Fair warning, this can backfire and the client will still accept the figure. You end up with a well-paying, but still very difficult client.
3) Specialist Knowledge
Most projects require a range of domain expertise. It’s perfectly acceptable to tell a client that their project falls outside your particular area of specialist expertise, and suggest another consultancy or contractor that deals specifically in that area. The client will respect you for the honesty, and you’ll win commercial karma points with your referral.
Signed, Sealed, Delivered
A note on professional good-practice: if you’re already in the midst of a bad client relationship, let me give it to you straight: in the services game, once you’ve signed a contract with a client, promising to deliver certain things by a particular date, it is very poor form to break that contract.
Walking away from a client mid-project can cause some serious damage to your reputation. And don’t forget that there is also the outside possibility of legal action if you break a contract.
Consider the experience a lesson and learn from it. A careful post-mortem of what made the product and client a difficult one will serve you well in future, as you try to find the right clients and the right projects to work on.
Walking Away From Money
All this being said: it is still a tough thing, even downright nerve wracking, to walk away from a big chunk of potential revenue. There’s a lot of hand wringing about it. But the sooner you learn when to do it, and how to do it, the better. As Bob Dylan says “When something’s not right, it’s wrong”.
Business is about relationships. And the best outcomes for you, your team and your business will come from quickly shutting down toxic client relationships before they can get started, and focus your energy on seeking out the right clients, with whom you can have a fruitful and productive working relationship.