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You learn something every day.
In fact, as a tiny business owner, you probably learn several somethings every day.
The worst “somethings” to learn are that there is something that causes your product or service to be unprofitable or less profitable than it could be.
EXAMPLE:
I remember one of the very first websites that I built for a customer —- it was a site redesign.Everything was going great until the end. It was at the end that I decided to have a look at how the customer had his email configured. It turned out that he had a sales force of 15 sales reps with Blackberries that relied on email heavily.
He also had a 15 employees that relied on their desktop email as well as laptops that they used at home or on the go.
For reasons I won’t go into here — all of this email was going to be interrupted if I went live with the new website.
This stalled the project for two weeks and added approximately 60 hours of work time to the project.
I lost money on the deal. I was sad.
There are four ways you can PROPERLY deal with this and one way to IMPROPERLY deal with this lesson learned.
Change Your Price
Is this going to happen in all of my website designs? Just some of them? How many hours does it add? Does it add any costs besides time?
When you find that something is making your product/service unprofitable, you could raise your prices until it becomes profitable.
Consider a business that creates, sells and ships custom jewelry. If offering “Free Shipping” makes the business unprofitable, perhaps it is time to start charging for shipping.
Change Your Process
Could I make a change in my process that would have cut that 60 extra hours and 2 weeks to 30 hours and 1 week? Is there something broken in my process? Could I build or buy a tool that would make my process more profitable?
Consider an attorney that is offering a free on-site initial consultation with all new corporate clients. But she is spending far too much time traveling around the city and meeting with no payment. This process is killing her law practice.
Time to change the process?
Consider a transcription service owner that purchases a powerful piece of software that translates her voice into text.
What would change your process for the better?
Change The People
This could mean firing your suppliers, vendors, contractors and yes —- even your customers.
Suppliers, vendors and contractors may need changing for obvious reasons.
But firing a customer? Do people do that? Absolutely.
If your customers are not profitable and they are the root of the problem, it may be necessary to make a change.
Consider a company that does logos, letterhead and other graphic design work. A customer that is constantly sending nit-picky changes to you and is causing customer service issues —- it may be time to fire that customer.
Another change that may need to take place in the “PEOPLE” department is —– YOU.
Of course I don’t mean you need to fire yourself from your own tiny business.
But consider a tiny business that goes on-site to fix computer hardware and software issues. If the owner does not have the training to fix software issues, he is cutting into his profits by working on those contracts. That owner should find someone else that can make that type of work profitable or go get some software training.
Change Your Product or Service
Is my service broken? Do I need to add something or take something away? Would removing email migration support from my services make my service more profitable?
Consider a CPA that does your yearly income taxes for $350 per year for small business owner and is not profitable enough to stay in business year around. Adding a quarterly meeting (for a fee of course) to the service might add value to the CPA’s services and also a more steady stream of income over the course of the year.
The One Way You Can’t Deal With This Kind Of Lesson
You can’t do nothing.
You must change something.
Sounds like a —– NO DUH! statement — doesn’t it?
You would be surprised.
What are your thoughts? What kinds of lessons have you learned over the years? What advice do you have for the rest of us about how to deal with unprofitable product or services?
Image courtesy of Wesley Fryer
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{ 14 comments… read them below or add one }
You are correct Russ, but I have to admit, it is very hard to raise the price in mid stream. I believe if you have a solid written contract with all the specifics on paper you have a much better chance of getting more money and keeping a happy customer. Anything before the sale is education and anything after the sale is an excuse.
@Lee Buboltz — I love that statement Lee! It is absolutely difficult, if not impossible to change your prices mid-stream. Pricing is a very difficult part of running a tiny business. But it is not smart to learn that you are not priced correctly with customer #1 and then charge customer #2 the same price. Something has to change if you want to remain a viable business.
Russ, you make some excellent points here! As consultants, you and I provide valuable services to clients with the hopes of potentially increasing their revenues by a certain multiple. As a website designer and a content marketing specialist, you deserve to be well-paid for your services. The dilemma that consultants come across is going “out of scope” with a project, so your idea of “firing” a client is very relevant and often the only solution. Nice post!
@Ed Mayuga — yes, sometimes it makes sense to part ways with a client. As a business grows, it learns. And sometimes it learns that the agreements, products, processes, etc that have been put into place with former clients don’t make sense any longer.
Good Post, Russ:
We learn more from mistakes and things that go wrong than we learn from things that go correctly.
Here’s a quote I fount the other day that gets right to that point, and the great value in making mistakes.
“If you’re not prepared to be wrong, you’ll never come up with anything original.”
Sir Ken Robinson
Often when we’re pointing a finger at someone else, we must remember we’re pointing four fingers at ourself.
In your example you gave, should you have asked questions in advance of the site redo to determine how email was being handled?
I’ve been there myself many times. Painful as in was – Lesson Learned!
@Fred E. Miller — No question Fred. The email fiasco was 100% my fault. It was a breakdown in my process, I needed to investigate this in the initial “scoping” of the project.
I have learned many lessons — but none more powerful than the importance of spending the right amount of time scoping a project before moving into the bid process.
As you said — lesson learned.
Hi Russ,
good article. I agree with the comments. We’ve had to part ways with clients. And, we’ve learned this lesson: Tell you clients that the project budget does not include endless changes.
Some other lessons we’ve learned:
1) increase your hourly rate.
2) reward clients who pay promptly.
3) no oral quotes – write an estimate — keep a paper trail!
4) get a signed contract
5) raise the red flag when you’ve reached your budget … evaluate why the project is over budget, and what can you “recoup”?
These are just a few that come to mind.
@peggy nehmen — I see a lot of process suggestions in your comment Peggy! I can see that you have learned many lessons and refined your process through the years — this only comes from experience. Thanks for lending yours.
Hey Russ, very interesting post as it takes the “seasoned entrepreneur ” for a walk down “memory lane”…
Truthfully, ONE poorly quoted job is not going to be the ruins of any business. It may be the “grounds for a divorce” from that particular product or service offering, but it certainly is not the “cause of death”.
No, what I see as the cause of death for many businesses today may pertain to the below concepts:
1. following the leader….instead of BEING a LEADER
2. frenzied nothingness…too much elbow rubbing and not enough ELBOW GREASE
3. fear based insanity….the fear of trying something new, something bold, something different…and EXPECTING anything to change!
Just like grandma used to tell us: “Finish what you start,give more than is expected of you,and just because Johnny”s parents let him do it, doesn’t mean you have to.” …and “You don’t HAVE TO do it THAT way”…
Jennifer Tobias
@jennifer — Wow! Powerful stuff Jennifer.
When a project or product “blows up” in your face, I think the smart business owner does a “post-mortem” analysis of the situation and make changes where necessary. Often, it will require “trying something new, something bold” as you mention in your comment. This often means breaking rules, instead of following them.
Lessons learned:
Be selective, choose your prospects carefully.
Relationships are the most important ingredient! There will always be someone else who can do it just as well, faster, cheaper, etc. People want to do business with someone they like, trust and rely on.
@Gary kodner — Great point Gary — choosing prospects carefully is something we should all be doing more of — but it can seem like a luxury to many tiny business owners that need cash, projects, etc now and can’t afford to turn customers back.
I would argue that you should be doing a good job of qualifying your customers before they ever speak to you — your marketing should be created in such a way as to encourage the right kinds of customers to do business with you and discourage the wrong kind of customers.
Some great points covered here Russ. These four things you’ve outlined in your post will have the greatest impact in your business. Each of these particular items will also help validate the quality of your business, your products, & services.
Thanks Mr. Ivan!