Grow Your Business by Firing Bad Clients and Nurturing the Best

Entrepreneurship is hard, but the process can be simplified. You can achieve success faster, sooner, and easier. I'm Mike Michalowicz, and I'm on a mission to eradicate entrepreneurial poverty. My goal for this episode and every episode is to serve you on your journey. Let's start right now on Entrepreneurship Simplified.

Here we go.

This is episode 7, I think.

Yeah, this is episode 7.

Okay.

Look at us.

Look at us. Welcome to Entrepreneurship Simplified. The goal of the show is to make the path of entrepreneurship simpler and more accessible. It's a hard journey, but there are certain shortcuts you can take. There are certain ways to get the results you want. And if you feel impeded in anything, this is the show that, damn it, we're going to fix it.

That's right. Anybody can do it. It's Mike Michalowicz.

It's Mike Michalowicz and Amy Cartelli. Amy, a dear longtime friend and colleague now. We've been working together, I want to say 7 years?

8 years.

8 years.

8 years.

One year off.

Wow. Yeah. Yeah. And Mike Michalowicz, author of The Proper First and The Proper First. Profit First, The Profit, actually, no.

And The Fix This Next.

Sorry, Mike.

That's a different guy.

And Mike Michalowicz, author of Profit First, Fix This Next.

And other books.

And all books.

Let me ask you this, Amy. What's the longest-term job you've ever had? Like, with one business?

Wow, I think, honestly, I think it's this one now.

We may be approaching it.

I think we're approaching it, yeah. I was with a medical group for a really long time.

You were doing administrative?

Administrative, yeah.

So this is, looking back, the longest-term job I've ever had too, as an author.

Yeah.

Yeah. So I was in the IT space.

Yeah.

I was then in computer crime investigation. I then did angel investing. But this is the longest I've been in a single career.

And clearly your favorite.

And my favorite. Oh, yeah. Yeah. And maybe that's indicative of something, right? The longer we do something, maybe that indicates we like it more. Not necessarily. I know some people have ground out a job.

Yeah. Yeah. They've just stuck with it and stuck with it. With it and stuck with it. Yeah.

I can't anticipate myself doing anything else. No. I have friends, we have friends, they're starting to talk about retirement.

Yeah.

We're in our early 50s.

Yeah. We have a couple friends who have retired. Who have retired. I know.

Yeah.

It's wild. Runefelt. Yeah.

Both of the Runefelts retired.

Yeah. Both Runefelts retired and it's kind of mind-blowing. I mean, they're loving it. They're enjoying every minute. They're making the most of all of it. I don't know. Are you ready? I don't anticipate ever retiring, but definitely, definitely anticipate slowing down the amount of work. Yeah, the volume, the volume.

Yeah, yeah. But I just get so much joy out of this.

You really can't retire, Mike, because I'm depending on you to employ me for the rest of my days.

Yeah, and I'm not leaving until, until you are fully retired and taken care of. So if I gotta stick this out full-time—

oh God, we're not gonna put that on you.

I'm doing— no, I'm doing it. I'm doing it.

I got your back. So, Mike, today I want to talk about— the topic is finding your top clients and firing your worst clients.

So thank you. Yeah, because it's such an important topic that's ignored.

Yeah. Yeah. Well, I don't know if you saw this, but a few months ago there was a TikTok video of a woman who owned a salon. Actually, she was— she's down— the White Opal Hair Company is the salon she owns down in Oakhurst, New Jersey. And you're seeing this video of her having this conversation with a client. Did you see this?

I did watch it.

Oh my goodness. This one makes my stomach churn a little bit. This is definitely emotional, like tough conversation to have. There's a feeling of like, you really have to stand your ground. You have to stay centered and present, and that can be difficult. But anyway, what you see on the video is, um, only the owner's conversation, but you get the impression that this customer has become a bit abusive and irate and, um, aggravated and has become disrespectful. So the owner basically says like, you know, we don't align anymore. Yes, I have other customers that I can serve. Um, you don't get— you don't value getting your hair done at my salon. Um, that she won't accept her behavior and ends up hanging up the phone because the conversation is not unfortunately becoming productive. It, it's over. They, they've, you know, they've had to part ways.

Yeah, when people are in a anger state. You know, anger is derived usually from fear. Yeah. So when they're in a fearful state, they shut down their receptivity of any conversation. We get into this argumentative state, so it's fruitless in that regard. But I'll tell you what was very fruitful, because I did watch that entire video, is the integrity that the business owner had to herself, right, into saying no. So the customer, you can't hear them, but you hear them saying, I'm your best I'm the best GD customer of all time. You're an F-face. And it's belligerent. But also putting themselves in a position of how important they are. And the business owner effectively says, no, you're not my best customer of all time. You derived value during this experience. And at this point now, you've become so belligerent toward our organization, you're a distraction. And we can't, we will not serve you. I just thought the integrity in that was great. The one thing I did not like about that video was my sense was a little bit staged in that there was a camera sitting there perfectly the whole time. It wasn't like someone just picked it up and started filming.

I was wondering if she was doing that to protect herself because she knew she was going to have to engage that customer on the phone and, you know, needed some evidence, right? Yeah, some evidence. Because here's the thing, we're always told that the customer is always right, but sometimes a bad customer is really, really bad for business. And then like in that case, I think You know, in this world of social media and everything else, these reviews get posted on there. You kind of need to prove your side of the story in, in a lot of things. It is a shame. It is a shame.

But, uh, we were just— Kelsey and I and Andrea were at the coffee shop down the street, and a customer came in, um, that was just demonstrating strange behavior. And so what did every other customer do? Get up and walked out. It's a shame I don't know the circumstances were there. The business owner apparently knew this person and didn't— wasn't— yeah, it wasn't, uh, defensive or, or concerned. Wasn't concerned. That's where it wasn't concerned. But you can have this— is it the word caustic effect? Where one person brings in an energy that has this cascade. And if we try to serve every customer equally, we're basically saying to every customer You are not of significance. Everyone is the same.

Right.

And so you're diluting your best customers. So that's one component. The second component is the energy spend. Imagine that salon owner we were just talking about said, you know what, you're, you're an animal, but keep coming in, we'll take care of you.

Right.

How much mental energy she'd spend on that, anticipating this negative customer coming in? Right.

The dread of that customer coming back.

Yeah, going to bed at night and then at night you're like, oh my God, I'm gonna have to deal with this monster tomorrow. The emotional cost is extraordinary with bad customers. And yet business owners say, well, I'm gonna make some money off them. No, the money ain't worth it. And I almost promise you won't even make money off them because the money they spend, they're not gonna be happy. They're not satisfied. You have to redo the work. In many cases, they cost you emotionally and financially. I've coached businesses, you know, we have, Prosper Group. And Prosper Group is we invest in businesses that need to be turned around or turned up is the kind of phraseology I have. And we've gone into some of these businesses, and I've done this myself too, and identified customers that if we simply remove them, and we do, the business will instantly become profitable and become more efficient. That the customer, the bad customer, is the cost to the business and a distraction.

Right. So it makes sense to fire them. And I know you like to use the pumpkin farming analogy.

I do.

Tell us about that.

All right. So this— I wrote the Pumpkin Plan before you started working here. Do you know they grow colossal pumpkins here in Jersey?

They grow what?

Colossal pumpkins in New Jersey.

Oh, wait a minute. No, I did, because my brother lives in Warren County and he said they have a pumpkin throwing contest. Yeah, pumpkin chucking. It's big out there.

Pump chuckers. So they're Warren County and Sussex County, New Jersey. My God, that's where our pumpkins are. That's the, the hee-haw country for New Jersey. Then you get to where we are and it starts getting the, the, the kind of the mixed middle.

Yeah.

And then you get a little further east, you get to Bayonne. It's like, hey, I gotta ask you a question. What are you doing here?

Yeah, right.

So that's, that's New Jersey, and it's all within like 5 miles.

Yeah, exactly. You could walk to each one.

You could literally walk to each one and experience this all in one day, right? I had a business coach Frank Mignotolo, who I hired with my very, very first business in computer technology. And he said, "Mike, if you want to learn how to grow a business, you have to see what nature already has to teach us." It's called biomimicry. And he said, "You'll notice that in nature, some things can grow explosively, so just follow those principles." He turned me on to pumpkin farming and I visited pumpkin farms, but not just ordinary ones, these colossal pumpkin farms. And what these women and men do is they will modify the common process to growing pumpkins by just a little bit. There's 5 core things, but as one of the examples is an ordinary farmer makes all their money in Halloween, fall season.

Sure.

You want to buy seeds that are cheap, plant them over your big farm, and grow them as quickly as possible so you have these mix of pumpkins to sell.

Sure.

Colossal farmer doesn't just pick a quantity of cheap seeds, they evaluate, does the seed match my soil conditions? Is it best for my climate? And so forth. They'll pick a seed that has the most potential to become explosive in growth. And so even at the very early stages, there are certain things you can do that trigger a long-term, in this case, colossal growth. I do have one little asterisk here, is that when I use the word in this analogy, colossal growth for small business, I think many business owners think, oh, that means I have to be the next big— Right. No, I mean colossal, meaning the, the full delivery of that vision you have. So colossal success is I want to have a retail store where people love my store and they come in and they buy vintage clothing, and I want to work there a few times a week and have 2 associates. That's a colossal success. That's a colossal business. So what I mean by this is a manifestation of the full vision you have for your business.

Cool. All right. So, um, you were talking about one of the things, one of the analogies with the pumpkin plant is if you're constantly watering the weakest, you inherently prevent the business from growing healthily. So that's just more attention in on the wrong client is the problem.

That's one of the— yeah. So yeah, so here, let's go into the analogy. Ordinary farmers are in the quantity game. You, you need to get as much as possible. But the consumer, what we don't typically realize is about 50% of pumpkins, probably more, just rot away in the fields. It's a total waste. So what you hope to do is have enough volume that offsets this huge amounts of waste. Sadly, many businesses are run this way. It's like, let's try everything. We were talking about this in last week's episode. Ernie, the guy's like, I can clean the roof, I can repair the roof and do your lawn and do this and repair the chimney. They diversify. It causes a cascade of waste. Well, when it comes to our business, we have to identify what is working and amplify it, but we also have to have this discipline of removing what's not. So it's in aspects of our service or our product, but the thing we're focusing on today is clients.

Right.

When it comes to clients, we really do have to bifurcate who are the great clients. And great clients, I mean, you're generating revenue from them, they are assuring profitability 'cause it's strong, good revenue, you have a great working relationship with them, you value these customers, versus the other extreme, which is clients that you do not value, they do not value you, they're confrontational, you don't generate money off them, or at least profit. Maybe you generate some income, there's consequence to it, they put you at risk, they're naysayers. There's different extremes. And of course there's folks in the middle. If we have the discipline to stop watering the stuff that's not working, you can now use those resources, energy, time, focus on your best customers. That's the watering process. And yet I see it over and over again. Businesses say, I gotta care for everybody. And that becomes the mistake. You stay stuck.

Well, I have a note here. It says, don't saturate. So you're watering your best seeds, but don't saturate. Can you explain that?

Yeah. So saturation, which is interesting in the pumpkin process, is if you keep watering a plant, you can actually kill it because the roots start to rot. They drown is a kind of colloquial term they use. When it comes to business, you can saturate a market too much. So once I identify who my best customers are, say I sell, you've got a little robot here, I sell plastic robots, and I find that these children love these plastic robots, and therefore the purchaser is gonna be moms. And identify moms with kids of the age that want these plastic toy robots, are parts of pool clubs or something in the community. So I'm like, okay, I'm going to advertise there. But I do— what I do is every day I show up, I'm like, hey, buy my plastic robot, everyone. And constantly I'm doing it. At a certain point, I become a nuisance. Now, the modern version of this is through remarketing on the web. I was looking— Adela, my daughter, was looking to buy a car years back, so we want to get it, help her get a used car and identify it. I found that The Toyota Corolla has high resale value and stuff. So I look at Toyota Corolla and apparently I looked at a green one because then I started getting these remarketing ads constantly. Buy a Toyota Corolla for months. And at a certain point it's like, F one car she's not allowed to have is a Toyota Corolla.

I don't want to ever see a Toyota Corolla again.

I hate them. I was so frustrated because they were pounding it down my throat.

Yeah. Okay.

That's what I mean by saturation.

All right.

Here's the difference. Use a quenching process. It's a subtle difference. So a colossal pumpkin farmer will go to a colossal seed, they pick the seed, and they'll give it the optimal amount of water. They'll leave, let it grow, and they'll come back to it. Sometimes it's multiple times in a day. In business, what we can do is we go to the market, and as long as they want to receive us, we should be present.

Right.

Typically, they like to receive us if it's education or entertainment. So an example is like a Coca-Cola commercial. We're right now, it's in August, but we're gonna be going into the fall season. Those commercials will come on television, if you watch commercials anymore, and there'll be snow coming down and it'll be a liter of Coke and a polar bear will grab it. They're not saying, "Buy Coke, buy Coke." They're simply entertaining us. Because they know when we're in the market to make the decision, they've captivated part of our mind. That's what small businesses should do too, is once you know who your audience is of your ideal customers, start quenching them. Instead of going to the pool club and saying, "Buy, buy, buy, buy, buy," Can you do things where you're simply saying like, "Hey, we're gonna have a fun day for your kids, robot day. We're gonna have a robot person come in a robot costume." And just provide value to the audience in one of those two categories, entertainment or education. That's usually the two big categories. And now you're quenching an audience. You've gained top of mind. I do wanna acknowledge Coca-Cola has a billion dollar, more than a billion dollar marketing budget. We small businesses have basically a $0 marketing budget. But you can still captivate an audience, 'cause the more narrow you go, if you simply appear in front of that group with some kind of frequency, that group will say, "Gosh, you're everywhere." So if you figure out the pool club that the moms with these young kids are going to, and you find the other activity, and I'm picking moms, it could be dads, but moms for, and you go to those 2 or 3 spots and you're appearing, you bring your fun robot costume, you maybe do a robot, day where kids can make their own robot costumes or something. You appear enough times, you've owned their mind in that space and they'll see you as the dominant authority, just like Coca-Cola. Gotcha.

And we also note here, thank them.

Yeah. So let's talk about your best customers.

Yeah.

When a best customer does work with you, so now you've engaged a customer and you see value in them, significant value, thanking them, showing appreciation is the greatest way to bring a relationship, to consummate it and make a relationship concrete. We do it all the time. It's verbal. We do it every Tuesday. We sit here and we say, we go through our thank you list.

Shoutouts.

Shoutouts, yeah. Amy, thank you for doing this. Is a great way of receiving affirmation. It's a shame most businesses don't thank their customer after the fact. How many thank you cards have you gotten from buying something? You redo a wall in your house and you spend a couple thousand dollars, Do you get a thank you card after? No. You get a bill. And if you're lucky, you get the receipt for paying for it. And maybe there's a stamp on there that says thank you. What a thank you does is says you're a significant client to me. Now here's the funny thing, is when you're trying to bifurcate your customers, those bad customers, if you're still providing service to them, don't send them a thank you note. My mom, your mom says the same thing. Mike, treat everyone the same, treat everyone well. My mom is a bullshitter. It's a lie. Not all people are constructed the same way. There's some real jackwads on this planet.

That's true.

So why go out of your way to cater to jackwad person? Yeah. When you could use that energy to be of service to someone that you really do appreciate and really appreciates you.

Yeah.

We have limited resources as a small business. We have a limited amount of thank-yous and gratitude we can show. We can't just keep pouring it out. Right. Identify the community and give it to them. We give gratitude through thank-yous, through thank you videos. We do it through gift giving. We do it through referrals and trying to support them. We do it best by doing it not because it was triggered by an event. You just bought something today, thank you tomorrow. We do it unexpectedly too. Hey, I just sent a message to a guy named Phil. I haven't talked to him in 2 years. Great historical client of ours. And I said, Phil, was thinking of you today, just wishing you well. No need to even write back. Keep crushing it, man. You're such a great human. And guess what? He writes back and says, "Dude, that was so nice out of the blue." I'm not trying to game the system. I'm not saying, "And Phil, by the way, we have a sale going on today." I just wanna show him I truly appreciate him. I know when a decision comes of something that we can support, we got the leg up because we show that appreciation.

[Speaker] Yeah, true. Those are your fit customers. Those are the ones you're thanking. But what about your unfit customers? There has to be some difficult conversations with firing them.

Yeah, do you have a story? I do, I do. So I'll tell you how to fire bad customers, and then I can give you a way to delineate good and bad, because that's kind of hard to do. So I had one customer, and I think anyone listening can relate to this— extremely demanding, required services. This is pre-this company. Required services that we provided and then said it's not satisfactory. "and you gotta redo it at no cost for us." And I'm like, "We did everything you said." "Well, I changed my desires and you didn't adjust." Then they said, "We're gonna sue you if you don't do this." And they happen to be a law firm, so they're like, yeah, horrible customer. So what we did is, there's a few things you can do. I'll tell you what we did, but there's a few things you can do. Let me start off with that. You can call a customer and say, "You know what?" We're not fit. Just like that salon owner thing. We clearly don't share similar values. You're not appreciative of what we're doing, so why are we continuing this, right? I'm not going to change my ways to accommodate something that is not congruent with me, and you're not willing and shouldn't change something that's not congruent with you. We'll see you later. Um, you can introduce them to your competition. Here's the funny thing is your competition's like, oh my God, you're losing clients and I'm picking them up. Yeah, you're picking up my crappy Horrible clients. Take them all day long. Take them.

Take them.

A friend of mine calls them poison. I may only get that a little bit later, but he calls bad clients poison. He's like, why are you swallowing poison? Oh, that really—

That really lands.

That really lands. Let others swallow poison. Another way that's a little softer, but also integral, is to just explain your circumstances and say, I've devoted our services to be of excellent service to certain clients. I realize we are not satisfying your expectations. I will not be able to allocate more energy towards you because I do have other clients that really do appreciate and value us. So I'm sorry, but our services will not change or our product will not serve you. It's time to say goodbye. So that's a little softer, but it's still, yeah, it's an explanation. Now, if you wanna avoid conflict, which is my preference, there's another technique. And what I do is I go into, I use a third party as the excuse. So I'll go to a client and say, I have a contractual obligation that precludes me from doing work with you. So starting such and such day, we'll no longer be able to do work. So here's an example, not a perfect example, but someone will say, Mike, I want to author a book with you. I don't want to author books with someone else. And every time someone says, Mike, I want to author a book with you, they think they're the first person to ever come up with this idea. I've had hundreds of people ask to author a book. I've had some people come to me, we are offering, authoring a book together, Mike. Nice approach, you know?

Yeah, yeah.

But then I'll simply say, "I'm sorry, I am contractually precluded from doing work with anyone else. I have a contract with my publisher, Penguin." Right. "And now Page Two. I have an arrangement that precludes it." The nice thing is I don't have to go into conflict with this person.

Yeah.

We can sustain our relationship, but there is a justification and a reason to do it.

Right.

So you can use that as a way to get rid of bad customers. I try to avoid conflict because that just elevates the conflict. Yeah.

Right.

Try to give them an out. Try to give them a way to find someone else. Sometimes it's the miracle, but sometimes a hard conversation like that actually elevates the customer's behavior. It's a 1 in 100.

Yeah, but it does happen.

Yeah, sometimes.

It can happen.

Yeah.

Can you talk a little bit about how do you think firing a client can positively impact the company?

Oh, in so many ways. The first way is your internal respect. What I loved about that salon owner situation, I assume she feels, I bet you she was patting herself on the back that night. I bet you she slept pretty well that night.

I think so too.

She said, "I love and respect myself. I love and respect my business." So the number one winner is the owner. Doesn't feel that way when you're having that hard conversation. It feels really easy to avoid, but gosh, when it's over, it's like whoosh. So that's good. The second one is your colleagues. And when I say your colleagues, it could be people that work for you, it could be other vendors. But you can go to them and say, we're no longer working with so-and-so, it's not in the best interest of our company, and you may get a standing up.

You're right.

I've done that, we've done that.

You build that solidarity within the company, within the employees. And also, I can't imagine that that stylist who had to deal with that woman, um, must feel so bolstered by her boss's ability to stand up for her and be like, no, that's not happening to her, that's not going to happen on her shift, she's not going to act like that.

Yeah, so we had a situation, Andrea who's amazing, was verbally confronted, and I'm just saying that nicely, by a vendor that unfairly just was going after our company, but just chose Andrea as the target. And so Andrea, so accommodating, chooses not to report anything. And then finally, during our one-on-ones, we have weekly one-on-ones, is talking to Kelsey and just says, "Oh yeah, this came up, but it's taken care of." Kelsey said, "May I have your permission? I'd like to report it to Mike." Reports it to me. I'm like, "We're addressing this immediately, but first I'm going to call Andrea and say, 'May I address this with your permission? You didn't instigate this, but I need to address this in the best interest of the company.'" Yes, I addressed it and it significantly resolved this problem. The vendor, we still work with them. They accepted what they did and effectively apologized and their behaviors improved dramatically. But the real interesting thing was a dialogue with Andrea. She's like, she goes, "Mike, this is the first time anyone in a company I've worked for stood up for me." She goes, "I thought it was my..." She goes, "This has almost never happened before." Yeah.

That's wonderful.

I'm like, "Oh, it's a shame that you haven't in the past, but goddamn, we're going to stand up for you." And I'm not saying that's why she is such a loyal and extraordinary person. That's just who she is.

But it helps.

But it helps. And she's deserving of it.

Yes.

You, the owner, win. You, your team wins. But other clients win and they may not even directly know what went down. They just know you're more available for them. They know you have a better energy.

Yeah.

You just have more presence and more time and more effort oriented their way.

Yeah.

That's amazing.

I love that.

And you know what? Even schmucko the client maybe wins.

Yeah.

Because if they're not happy, maybe they can now find somewhere where they can be happy.

They can be happy.

Yeah. Yeah. And so maybe that gives them relief.

Yeah.

If they continue to work with you and they're not happy, that's a weight on them. So you're availing them of weight and giving them freedom to find a new path.

Right. Can I ask a tricky question? Is it ever— is it ever okay to keep the bad client? The toxic client? Is it ever okay to keep the toxic client?

It's a great question and it is tricky. Yes. When you decide that you're going to prostitute your business.

Yeah, that's what we do.

When you want to prostitute your business, maybe that's not the right word anymore.

But yeah, it lands.

You want to sex work your business? Here's what I mean by this, is that you are willing to sacrifice the corporate body for money. You're willing to say, I will do this because money is so important. And I'll tell you, there are certain circumstances where survivability trumps happiness.

Yeah.

Or complacency or whatever. I don't know what the terms are, but—

Right.

But sometimes you need the money now. And I think in those circumstances, you gotta do this. But you do have to understand the cost for it. They're gonna become— it can be harmful. It can be self-loathing.

And there may be corrections that need to be made down the road.

Yeah. Which become harder and harder because you start— I guess this is who I am.

Yeah.

This is what we do.

Yeah. This is what we are.

I hate seeing that. But there, there are businesses where I've seen customers just abuse the vendor over and over again, and they say that's just the nature of this industry. And it's not.

It's not.

It's the nature of your choice.

Yeah, exactly. Are there some warning signs that a client might be starting to become problematic?

Yeah, so there's a couple warning signs. One, the most interesting one, is avoidance. That's usually the first sign of a problem. So you're engaging with a customer And I actually just had a situation. I engage with someone regularly and all of a sudden there's like no response.

They ghosted you?

Ghosted, yeah. It's quiet. I'm like, huh? And then I asked something and there was an abrupt response.

Oof.

Not curt, but just abrupt. And then I said, hey, my spider sense is tingling. I think I wronged you in some way. What's going on? And that opened them up to share what's going on. And they weren't a problematic customer. It was a situation that went down that we're interpreting different ways, and their interpretation is fair, and mine is fair, but that dialogue wasn't going to happen. So look for ghosting.

Okay.

And be the strong person who stands up and says, this is not typical in our communication. There's something going on, and I'm embarrassed that I may not be fully aware of what happened. Can we have a dialogue?

Yeah.

The second one is, um, watch for incongruencies between words and behavior. So a common thing is Yeah, business is fine. You, you did a great job. We love you. And then you see a one-star review from that same customer saying, worst company ever. Yeah, look for these incongruencies. Okay, um, the cancer effect is another one where customer's not happy, dissatisfied in some capacity, and instead of saying it, um, they go to others to try to rally a community around them so we're all on the same page, right? It's a, it's a really weak position, but it happens often.

Yeah.

You know, and then sometimes it's what's called the fake spokesperson. They'll come to you and say, I don't have a problem, but everyone's saying this, and I'm just helping you by saying everyone has this problem. And it's like, really? Is everyone having this problem, or is it you?

Right.

It's a really— I don't want to say cowardly to categorize someone that way, but it does. Some people really want to avoid confrontation. And so they use these kind of dances. Yeah, listen, I don't like confrontation and that's why I use that contractually precluded technique.

Right.

But people— but I still speak from a point of truth.

Right.

I will be in a contract. I don't make it up.

Yeah.

When people speak untruthfully as a spokesperson, that's an indicator too.

Gotcha.

And then other ones are just darn hostile.

Right.

Those are the obvious—

the obvious ones. What role does customer feedback play in determining which clients to keep or let go?

The role of customer feedback is, well, we talked about how they present themselves. If someone is showering you with love, it doesn't mean they're a great customer. And if someone is showering you with complaints, it doesn't mean they're a horrible customer. Both of them should invoke a conversation. Sometimes someone showering you with complaints actually has legitimate ways of supporting you and they actually love you the most. They're like, you're messing this up and this up and this up and you can fix this. They can actually be your biggest advocate. The one showering you with compliments could be, putting a smokescreen up because they're gonna do something behind your back or they're gonna move on or they're just doing something and just wanna avoid communication. Oh, everything's great, everything's great. And then all of a sudden they vanish. Any kind of dialogue should have an investigation and you should encourage that. So yeah.

And then how can a business effectively transition after letting go of a difficult client without damaging its reputation? So you've done the firing now.

You've done the firing.

Now what?

Go to your team and talk about it. So number one thing is, We got rid of an unfit customer. We go to the team and next morning, as fast as we can, we say, hey, we made a decision that is in the best interest of our team here and our company. And it may cost us some revenue a little bit, but it ain't worth, worth what's costing us in emotion. So we've removed so-and-so. So make sure everyone's on the same page. Give an instruction set to your team. Should this customer try to sneak behind the goaltender and come back in some capacity, here's the instruction set of how we're going to manage them. I'm sorry, we understand that we're no longer going to be providing services. We have referred you to so-and-so, but give the instruction set. Any public discord, never attack or harm the other one. So they may come after you and say on some review, horrible company, right? They, um, the services were miserable, uh, they, they charged me too much, they suck, right? Um, You can go silent, but my preference is to respond with respect. I simply say, thank you for your feedback. I do want to bring clarity to the situation. We did elect to discontinue servicing you because of a conflict in values. We are wishing you the best. And if there is anything that was financially inappropriate, you have not reported that to us, please contact our reporting department so we can address that directly. Public discord or conversations, individuals are watching. And people are smart.

Yeah.

When they see you getting attacked, they won't say, well, clearly that's the right opinion. They are going to look for the engagement, right? Do you go into the defensive position or not? And if you handle with professionalism, the general consensus will be, wow, they're professional.

Yeah.

Maybe other person had a bad—

we were just saying this because I was telling Kelsey about like looking at for a review. I think it was on some, um, uh, home rental site or something like that. And I'm, you know, The reviews are all basically positive, and then you've got this one person who's just like, this was terrible, this sucked, this da da da. And it starts to make you wonder for a minute, like, oh, oh, I was about to hit the buy on this one, maybe I shouldn't. But then you see that, that owner response saying like, I'm sorry, but you called us 13 times within a 15-minute period and didn't take my, you know, direction, da da da. And you're like, oh, oh, this person's crazy. Okay, phew, good. I want to go ahead. And I appreciate that. I want to see that response because I You need to know that one person wasn't crazy and that wasn't really a terrible experience.

That's such a good example, Amy.

You need it.

I had a reverse with Airbnb. We went, my wife and I rented Airbnb in Nyack, New York, overlooking the Tappan Zee Bridge. I think it's been renamed, but you know that long bridge. And we're there, we arrive at this place, the beds are not made. It was used and disheveled. There's towels and stuff on the floor. I notify the owner and say, "Hey, I want you to know we arrived." And they said, "Oh." Housekeeping hasn't been done yet. They said, "Oh, we didn't get a chance to clean it." there's stuff, there's linens there, you can do it yourself. Right? So I do a review. I give it 4 stars, not 5 stars, I give it 4 stars. And I say, "Views remarkable, vintage home or antique, whatever, you know, historical home, great location." I said, "We did arrive and the beds were disheveled and there was towels and stuff. And when I called the owner, they simply said how for me to clean it up. I put all the towels in the corner." Owner calls me and goes, "What did you just do?" He goes, "I want 5 stars. You better fix this." I'm like, "What the heck? What?" Starts texting back with me. And so he says, "You know, that was wrong." And I write back, I said, "I've contacted Airbnb." So thank God there was a mediator. I said, "To notify them about your disappointment about my review so we can discuss it with them." And then that—

That silenced it.

Stopped it. But sometimes the vendor is the jerk walk.

Yeah, yeah.

Uh, and, and the customer can use these same lessons, right, and, and flip it, right? How we handle ourselves, particularly in, in the public settings, is very important because people will determine, is one side crazy?

Yeah, right?

Yeah.

So helpful.

Yeah.

Well, thank you, Mike. That was, that was hugely helpful. Hugely helpful.

I do want to share one last thing as a wrap-up because these will help. I have a diagram, you know, I'm gonna post it on, uh—

Oh, Mike, I might not be done. I really wanted to find out about— there was one other thing we didn't talk about.

It—

hold on, hold on. It was the, um, client assessment chart.

Yeah, okay, that's what I was about to do. Okay, good, good, good. You have a fire, you're shaking our noisy— this table's so noisy. Listen to this thing.

It is loud.

It's like we're—

it's like hanging out in Oscar's garbage can or something.

It does. It feels that way, like we're walking in like I get some stadium in the plenum above the stadium, and I'm a spaz, so it doesn't help because I keep smacking the table. No, no, I don't know why this table is so loud, but it is. So the client assessment, that's what I talk about. What we do is I want you to take your clients and sort them by revenue over the last year. The reason we do this is I say people speak the truth not through their words as much as their wallets. Our actions really demonstrate our true belief. So if someone spends more money with you, particularly repeatedly, they're demonstrating they see value in what you do. They keep coming back. So most revenue, usually they value you the most, to least revenue, they value the least, as a general rule. But I want you to do a second column, which is the crush cringe factor. Okay. As you look at each customer, is this someone you're excited to do business with? Crush. Or you try to avoid doing business with or hate? Cringe. And put a smiley face for crushes and frownies for cringes. It's the intersection of most revenue with crushes that are— you identify your best customers. And now you can identify the communities they congregate in.

Gotcha.

Sometimes your number one or number, you know, top revenue customers aren't your best customers because they're a cringe. I did business with a bank when I had my computer business. And while they spent a lot of money, they canceled projects at a massive rate. I was buying the equipment. This is back in the day, a week or two in advance, assembling it, putting it on credit card, and then going to deliver this stuff.

And having them cancel.

And have them cancel. And they're like, we're not going to take the computers. I'm like, I can't afford this. I need to be paid for the inventory. Like, no, no, we are canceling. They sometimes would take the computer, sometimes not. The costs were tremendous. They weren't bad people. It was a bad structure for my business. I said, I'm not going to work with that type of scenario. Once you identify your best customers, for me it was a hedge fund in particular, great customer, what you can do is start asking that customer, where do you congregate? Do you go to the beach club or the pool club or do you hang out somewhere else? And you can start identifying where customers like them hang out.

Ah.

A lesson here is just because a customer is great, fun, doesn't mean that industry is great and fun. It doesn't mean everyone else is. It's a dataset of one. It doesn't mean everyone's that way.

Right.

But they are an introduction. They're a pathway into those communities. Because they love you, they're demonstrating their respect and you love them, they're likely to support you in your journey of learning more about their industries.

That might be the path.

Their communities.

Awesome. Thanks, Mike.

Yeah, that was fun. Do we have any news items to cover today?

There is this really cool thing. There are some techniques developed for space farming, which could lead to breakthroughs in high efficiency agriculture on Earth. How cool is that?

That's wild.

Yeah.

Do you know what they're doing?

I have no idea what they're doing, but I'm assuming growing plants without water and all that good jazz. I have no idea.

There was a movie back in the day where this guy figured out, I think he landed on Mars, he crashed on Mars. I think it was some famous actor, but he has to start growing plants on Mars and the plants grew differently. And that was like a big aha. Aha. I did skim that news story. They were taking seeds. They did have to use water, but they did use seeds and they were growing them. What? Yeah, they did. They used water.

We haven't bypassed God yet.

No, no, God didn't And water's still a factor for now.

For now.

For now. But what was interesting was the plants grew differently, and they were learning new techniques for growing plants here on Earth. Um, it's interesting when you extract a variable, in that case gravity, yeah, you make new observations. I think the lesson for business here is, can you test elements of your business in an environment that atypically gets tested in? For example, could Profit First be introduced to a children's group? And this, you know, if I bring the book there, they're not going to necessarily resonate with the book. They're not even going to read it. They're maybe not even get it. But can it be presented and digested in a different way? Can you just start exploring and maybe you'll find something out? And we did. We found out that My Money Bunnies was an opportunity, that the system could be presented in a unique, simple, but a craft way that they could maybe have a craft activity. That engaged kids. So I think the lesson here is insert what you already have in different environments to learn how you can expand on what you already have. Now I do want to go back to what we talked about last week. I'm not saying diversify, diversify endlessly because you have a captive audience, but we do have to innovate. If you stay static where you are, at a certain point, no one's going to read print books anymore. At a certain point. I don't know if that's 1,000 years from now or 10 years from now, but it's going to happen. No one's going to use a BlackBerry a certain day. And it's already happened. So we do have to stay in front of the edge, and doing these experiments is a cool way to discover something new.

That is really cool. There's another one that's talking about how focusing on plants growing in space for sustainable food sources using hydroponics and LED lighting. And then another one talking about growing with vertical spaces, which is really smart, and we don't think about it for smaller land use. Just going up instead of out. It's all thinking out of the box.

It really is.

It's really awesome and really exciting stuff.

Hydroponics, that's water, LED lighting. First there was light, that's God. There you go.

There you go. We brought it in. We brought it around.

There are buildings, including one in New York City, that was a former warehouse space they converted to hydroponic—

Greenwall?

Oh, is it Greenwall?

Is it Greenwall? I don't know. No, I don't know the name of it, but did they create an entire, like the whole thing is—

Oh, no, it's inside. So lettuce or whatever the consumer consumable is. Okay, they grow it in these hydroponic systems and it's like a conveyor belt system that kind of rolls through. What's so interesting is now you remove the need for transportation. So instead of growing a farm out in Iowa and you pack it up and move it, you, you literally pick it and deliver it to the restaurant that's a block down the road within an hour. Yeah, minutes. It's the freshest and you've reduced the cost of transportation, right? So now you've created a new market. Yeah, these, these ultra-accessible products. Um, and I don't know, I think it was a test, so I don't know how its viability— because the costs of hydroponics and LEDs may be more than just quote-unquote just farming in Iowa, right? But we do have to experiment to find these things out.

Yeah. I have two sons, one who is very much into conservation. I have two sons that I know of. Who knows who's out there? I have two sons that I don't have. One is into conservation and one really wants to go into city design and, and Urban Development, and they have both been talking about the absolute nightmare that is the fact that we eat foods that are from places that are nowhere near us. How bad that is for everything, for the environment, for us, for our GI systems, like the nutritional deficiencies that appear in these things. And it's a lot to think about coming from we who grew up in the '70s and thought we had, you know, our world was brilliant because we were able to like grow things in California and have them here.

Yeah, it's all— I can have anything.

It's wonderful.

It's called a Hungry Man.

Yeah, exactly.

Did you have those as a kid?

Yes, yes.

I remember my parents would go out and you— this is how absurd food was in the '70s. You got this plastic, kind of plastic paper weird tray with a plastic covering, and the instruction set was cut off some of the plastic but not all of it and throw it in your microwave. Yeah. And make sure the plastic's over your dessert.

Yeah.

So it can melt in.

Yeah. And then you have to peel it off and stir it. And then peel it, put the plastic back in and re-microwave it again for a little bit.

There's always that. Then you take a bite, you severely singe your tongue.

Burn the roof of your mouth on that brownie. 'Cause you know you ate that first.

You know, of course, dessert first. There's plastic melted in, it numbs your taste for anything. And we're like, this is genius. This is genius.

Get me another one.

Mom, I want a Hungry Man. Yeah, so it's interesting, your sons, like what a compliment. Environmental, uh, planning or responsibility and, and city planning, like, that may be the perfect—

yeah, that might be— they might go into business someday. There might be some entrepreneurs on our hands there.

They're gonna make that really hungry. Yeah, it's been fun.

Yeah, it has been. Thank you.

Thanks for being my co-host. Thank you for being our listener.

Thank you for breaking it down and simplifying entrepreneurship for us.

Well, that's why we hope happened, and I love to get feedback. So anyone can email me at Mike— it's me— at mikemccallowitz.com and just, hey, tell us how the show's going. Are you getting tips? Do you want us to talk about a certain topic, dig in deeper? Yeah, well, we'd love to do it. Yeah, um, so email me there. Make sure you subscribe to the show so you don't miss a single episode. And for today, we're done, but your business starts today, or at least continues today. So get to work, use these techniques, and we'll see you next week.

Bye!