Not all your customers are good to have. Some are great. Some actually cost you money. Some are just so-so. Dharmesh Shah has some good ideas on ranking your customers. His post is geared toward software companies. For other types of companies, I would add things like

• do they pay on time
• do they haggle
• do they refer in other business
• are they fun to work with. Yes fun (or other values) are important.

There is no set list of what makes a customer valuable – a lot depends on your goals and your business style. A client who might be great for one law firm, may be terrible for another.

Obviously a lot of this involves judgement  – it’s not all quantifiable – but that doesn’t mean you shouldn’t track it. Before you tell me that’s too much work, let me toss this into the mix. When I wrote the 5 numbers a business owner needs to know, I left one out. Here’s the 6th. How many customers do you need to meet your goals? The fewer you need the less daunting the task of tracking and ranking your customers.

Some service companies need less than 50 clients. They could start from zero and hit that number in a year by making one sale a week. How many does a hair salon need? A lot fewer than a supermarket. Figuring out what that number is, helps you get that many. Ranking them helps you have the right number of the best customers. That will make your business more profitable and more fun. Isn’t that what it’s all about?

While we’re on the subject of customer service, let me tell you about my BBQ grill. I got my first Weber at a garage sale. It served me for several years. www.weber.com

When it finally rusted out I decided to buy a new one. I even splurged the extra $5 to get red instead of black. I got it home and unpacked it and noticed a couple small bubbles in the paint. No big deal. But being a business owner I value customer feedback. So I actually filled out the customer registration card (which I rarely do) and mentioned the paint bubbles.

A couple days later I got a phone call from Weber. The woman told me the product was guaranteed for life and that I could return it for a new one. It really wasn’t a problem I said, very small and only cosmetic. Besides I’d already put mine together and didn’t want to lug it back to the store.

That didn’t satisfy her. She said she’d be happy to send me the new parts free, and I wouldn’t even have to send the bad ones back. It was obvious she didn’t have to check with anyone for approval to make this offer. Well, the parts in question were the bowl and the top which make up the guts of the unit (except for legs and grills). So they practially sent me a whole new unit for free, just to keep me happy – which I already was. I ended up giving the new “grill” away to our nanny and her boyfriend.

I’ve moved a few times since this happened, and I don’t remember where the red weber is (I think my ex-wife has it). But I can tell you I still cook on a weber. I’ve got two of them in fact.
Takeaways:

• They used to say that advertising doesn’t cost – it pays. I think that’s true of customer service. Especially when you treat people like people.

This site is hosted by BlueHost.com. I’ve used them for about 6 months. Never had a problem but that’s not a lot of time to tell. What it is plenty of time to tell is that they have WONDERFUL Customer Support.

I’ve emailed support requests several times. Each time I hear back very quickly and, more importantly, in English – not techspeak. They read my whole question and tell me exactly what I need to know in the right context. At one point they even changed the main domain of my account for me – something that I didn’t think they’d do, at best, would tell me to do it myself, but they did it right away.

Now I get an email saying they are increasing their support hours from 24/6 to 24/7 Way to go.

Takeaways:

• I know tech support is a cost (COGS) but I can’t imagine how much lower their COGS is because they do this right the first time. Not to mention the improvement in customer satisfaction, referals and sales.
• Use them if you want a responsive web host (as always I have no financial stake in this company).
• They’re inexpensive and have lots of features.

Jeremy J at 37signals says when writing computer code, he writes the tests first. Then he knows that the code he writes will have to pass the tests. He says it wastes less effort and keeps him happier and more productive.

I sometimes do the same thing when trouble shooting. I write down what I’m looking for and what should happen. Then check it off. If I don’t find the problem at least I know what not to try again. And the list of failed tests helps me narrow in on what the cause of the problem is.

I’ve never done it when trying a new project, but I suppose it could work. Next time someone comes up with an idea you’d like to try, do this: before you roll it out, design the tests. That means specifiy what you expect to change, by when and how you’ll measure it. Define what measurements will constitute success, and failure. Then see what happens.

DON’T

Says Seth Godin. I think he gives a pretty good alternative.

Takeaways:

• Not all VC funding is bad for every company.
• Thinking that funding is always the solution is bad for every company.

Just thought I’d share a nice piece of software I’ve been using called The Journal ($40 with a 45 day trial and as always I’ve got no financial stake in the company.) It’s designed to pop up a new page every day where you jot down your thoughts. Sort of like a journal. DUH!

I’m using it in a feeble attempt to stay on top of all my projects using David Allen’s Getting Things Done method. The Journal lets me set up categories (the tabs you see in the picture) and they can have entries and sub-entries. Did you know it’s not uncommon to have 60 projects a person is dealing with? Makes me feel better.

In the default useage, you have a new entry for each date of your ramblings. But I use that as a kind of scratch pad / TODO list. Then I have a tab for each project. In the project notes, you can do a lot of formatting (outlines, tables etc – in some cases easier than WORD) and you can assign topics to any text or picture you put in the journal. Then you can search by word or by topic. That’s the power.
So scattered about among many projects you have many tasks. Some are assigned to your assistant. You can put them all in a topic and then search by that topic. All the tasks assigned to him from every project show up in the search. All without making a separate list. Followers of the Getting Things Done method (GTD as the cult members call it) will realize you can make a topic for calls, at home, at computer, waiting on, shopping and all the other ways you’d want to catagorize tasks. COOL

The war analogy doesn’t work because business is not a zero sum game. A great business makes the pie bigger for everyone. And in war, you’re focused on the enemy (ie your competition) but in business you’re supposed to focus on the customer.

The sports analogy doesn’t work either. It’s all about getting in the zone – where you make decisions based on instinct, and training – instantly without thought. Great for sports where key plays happen in seconds, and the rules never change.

The best business analogy I can think of is sex – the seduction, not the act itself. And I’m thinking of seduction in the olden days like the bumper sticker says: “Remember when air was clean and sex was dirty?” Back then you couldn’t even mention – much less advertise in the newspaper – for exactly what you wanted. And then there was a tension of guys wanting sex only and always and girls not ever wanting to “give it up” – until they did. Why this analogy works is because:

It takes two to do it.
You can’t sit in your room all day inventing stuff – you have to find a customer. Otherwise you’re just making a product, not a company. Drucker said the very purpose of a business is to make a customer. Hubba Hubba.

You each want something the other has.
You want their money more than you want your own widgets, and they want what you provide more than they want their money. So business really should be a win-win (that horrible phrase). You both win in sports or war.

You don’t quite know what the other wants and can’t always believe what they say.
Sure you sell widgets, but they buy the value the widgets provide. They won’t always tell you what that value is or how much they’d really be willing to pay for it. Often because they don’t always know. Just like when you fill out an on-line dating form. Don’t the choices seem a bit arbitrary? In our abundant society so much purchasing is based on feeling and desires and the stories we tell ourselves about what’s going on rather than needs and easily specified facts. To succeed you have to tap into unspoken emotions – and they can’t just be your emotions.

Fundamentalists aren’t allowed to have sex standing up because it leads to dancing.
Dancing is a great analogy too. You each move differently, yet together you make something that’s more satisfying than you’d be able to do on your own. You’re constrained by the rhythm of the music, and the moves of your partner – but isn’t that where the excitement comes from?

First comes love, then comes marriage then comes baby in the baby carriage.
OK. So no analogy is perfect. You can get laid on the first date (so they tell me) but you rarely get married on the first date (unless you’re Brittaney Spears). The relationship between business and customer takes many forms, so I guess we’re back to the modern day sex era. There are times where a one-nighter is all either party wants. But there’s usually a lot more than that. And too many businesses refuse to call anyone back the next day.

Takeaways:

• Get over the war mindset. Stop thinking like you have an opponent.
• Start to seduce. Figure out how to get what you want by providing what someone else wants.
• Dance.

Others say it better than I. Here’s a piece by Craig James (was a top recruiter for Hewlett Packard) about how to build a team that does your interviews. Thanks to Guy Kawasaki for the link.

In case you missed it: Part 1 – Part 2 – Part 3 – Part 4

Payback

Payback is the third reason for a company to spend money after COGS and Operations. I don’t mean payback as in sending some goon out to break a bunch of kneecaps. Payback is what I’m calling the money you use to pay back lenders and investors who gave you cash to get the business going. If it’s a loan, the payments are usually figured as overhead, because you have to pay them every month. If investors contributed the funds, payback is usually figured as a dividend, or share of profits or maybe return on investment. It’s not usually figured all in one place, after COGS and Operations. And that accounting methodology has made it harder than it should be for entrepreneurs to raise financing. Let me explain.

Entrepreneurs tend to focus on potential (size of the market) and cash flow (making it through the month paying all the bills). Investors and lenders know that after paying all the bills there has to be something left over to pay back their investment and make a profit on it. Sure they want to see potential, but they also want to know how long it will take before there’s enought money to pay them back without hurting the operations. And they want to see that the risks of them never getting paid back have been minimized. So if you want to raise funds, be prepared to show how you’ll pay back your investors from cash flow, and when. Thinking about it as a separate category makes this easier to show.

Tech bubbles happen when investors too, forget about this and figure they’ll get paid back by selling the company to GOOGLE for $25million. But I digress.

I suggest that when you do cash flow projections you separate all the people you’ll pay into groups. Put the payments for COGs in one group, the payments for operations in the second group and the payements to payback in the third. This should show you and investors how much cash will be available to return their contribution, and when.

Takeaways:

• Use a separate category to show how you’ll have money to pay back your loans and investors without hurting the cash you need for COGS or Operations.