In working with so many private companies, we get to see it all: different companies, industries, sizes…and definitely, different performance.
When we look at performance across a group of private companies, we usually see a standard bell curve. Many are somewhat better or worse than the average, to varying degrees. However, there are a very small number that have exceptional returns. These are the outliers – the top five percent.
I spend a lot of time with these companies to try to understand what their secret sauce is. Why does one company have net margins of 18 percent while another has one percent?
While there are many factors that affect performance, the one common denominator I find among these top performers is that they are absolutely clear that the decision of whether to do business with a customer is theirs. In exercising that point of view they do two things exceedingly well:
- They have complete clarity about the customers, markets, and opportunities that fit their business model. They have well-defined rules around customer acceptance, including acceptable levels of profit within the customer relationship.
- They have the discipline to say no to opportunities that are not a fit with their customer acceptance rules.
This point of view may sound almost obvious, but it is incredibly difficult to put into practice on a consistent basis. Here are a few observations on how these high-performing companies do it.
- Everyone in the company knows the focus and which customers they will choose to serve.
- There are established business rules for sales and customer service that include elements such as pricing and margin requirements.
- There are approval mechanisms in place for deciding when the company may vary from its norm and granting exceptions to the pre-determined customer acceptance rules. These exceptions must be approved.
- The company’s leaders don’t override or break the rules. They lead by example.
- Incentive programs are designed to reward behavior that is consistent with the company’s rules.
The companies with these traits are by far the best performers we see in our work with clients. Give some thought to how stringent your company is about your own customer acceptance practices. I promise that investment in your time will reap dividends.
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