MBA1724 How Much Power Do Your Customers Have Over Your Business?

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Hey O. Welcome to the Hundred Dollar MBA Show. Because an investment in you is an investment in your business. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my partner in life, partner in business Nicole back in 2014. And in today's lesson you will learn. How much power does your customers have over your business? This is an important question. As an independent entrepreneur you need to make sure that you have the ultimate leverage over the trajectory, the growth, the sustainability of your business. Sometimes people build businesses where they give up their own autonomy, their own power to their customers, where their customers actions can dictate the future of the business. This is not a good place to be in in today's episode, I want to share with you some insights that I've learned along the way in the years I've been in business. Insights from people like Jason Fried from Basecamp, Chris Savage from Wistia, and even things I pulled out of biographies. Things I've learned from Steve Jobs or Ben Horowitz or interviews with Sarah Blakely from Spanx. All these entrepreneurs have warned us about this and I want to show you the signs that your business might be giving too much power to your customers and how to reclaim that power so you're in full control of your destiny, of the trajectory of your business, of the growth, of the ability to run the business you want to run. So let's get into it. Let's get down to business.

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I want to begin by saying, how can a customer actually have so much power over your business? Well, whether you're a product or service, once you rely on a customer or a group of customers for the sustainability of your business, they have power over you. Now, that might sound like wild wow, Omar. Of course, people need customers to run a business, right? To be able to fund the business, to bring in revenue. This is true. But there are ways to do this without risking the company. Let me give you some examples. There are some services, There are some software products out there. There's some physical products out there where their whole business might depend on a handful of customers. Some companies have three or four big accounts and about 3,000 small accounts. But those three or big accounts bring in 80% of the revenue. Now, that sounds like, wow, awesome big accounts, right? But what if those three or four businesses leave? They cancel their service, they cancel their subscription. Just one of those businesses leaving can dramatically affect your cash flow. But what if all three or all four of those businesses leave? 80% of your revenue is gone. These customers have a lot of power. And because you have so much invested in these customers that make so much of your revenue, whatever they say, whatever they ask for, you have to say yes. You have to please them. You have to change your product or to change your service. You have to figure out how to make it happen. Because you don't want them to leave now, you're held hostage. This is one of the reasons why the CEO of Basecamp, Jason Fried, has said that at Basecamp, they only have one plan. It's $99 for every business. They don't modify the service or the software for anybody. And that's why they say they rather have 100,000 customers pay them $99 a month than 99 customers paying them $100,000 a month. If you have 100,000 customers and 10 of them leave, 100 of them leave, your business is really not affected. You can get another hundred easily. The barrier of entry is very low. You're not changing and investing into your software or into your product or into your service to please these customers that have so much power over your revenue. This is why a lot of companies, a lot of services that charge a lot of money, have long term contracts. I can tell you this firsthand as a software business owner. All the big contracts we have, all the big payments we have with vendors, with Amazon, with anything that is charging us thousands of dollars a month. They don't just go month by month. No, they understand this concept. Even though we're a big customer, they want to mitigate the risk and they want to be able to have predictable income. So they lock us into a contract to say, hey, this is how much you're going to pay for every single month for the next 12 months. So they can know predictably, okay, this, how much we're going to get from this customer. One of the things I learned about Steve Jobs in his biography by Walter Isaacson is that he was hell bent to have full control of the way the product is developed. He wanted to make sure that he made sure he didn't owe the customer anything, that he can produce products he felt will solve problems that they're willing to pay for and have full autonomy over what the product actually is. He's also one of the people that has been known for not really listening to customer feedback. Now a lot of people can agree or disagree with this, but Steve Jobs did not listen to customer feedback. He did not believe that customers actually knew what they wanted. He said they knew what they didn't want. He believed that Apple's job was to come up with the solutions. That's what an innovator does. And experts argue today that in the post Steve Jobs Apple era, the products are just not as good because maybe they've listened to the customer too much. They've given them too much power. Now this is up for debate and we've talked about this before on the show, but this is another form of power the customer can have over you. Sara Blakely, the founder of Spanx, self made, self funded billionaire, she owns 100% of Spanx and it's a multibillion dollar company, struggled and strived to get the company to be where it is today. But it took years for her to do that. But she was very, very adamant to make sure she retained 100% of the company. She believed in the product and wanted to have full control. From day one all the way till today, she remained independent. She didn't let the department store dictate how her product was sold because she felt like they would not understand the value of her product. They're old school. Their mindset doesn't really innovate. And she dictated terms with department stores that worked for her. Not in a position of weak, not in a position of desperation. She said, hey, this is how it's going to work. This is what I need, this is what I want, because this is what is best for my company. She negotiated terms that work for her and for the longevity of the product and her overall success. Here's the question. You got to take a look at your company right now. Ask yourself, if I took 20% of all your customers and canceled their contracts, canceled their service, would your company still survive? Any 20%? If I can hand pick any 20% of your company customers, is there any chance that your company can fold from one day to the next? If the answer is yes, you need to make some changes. That's too much of a risk. And by the way, 20% of your customers is a very low number. Things can change in the market, in the economy, in the global environment. That can really, really change things quickly. And that 20% can easily be 50, 60, 70% of your customers. And it's hard to get big clients back. Maybe 20% of your customers is kind of hard to wrap your head around. Look at your revenue. How much of that revenue is predicated on how many customers, which customers are bringing in most of the revenue? If you have a pretty even distribution, you're in good shape. But you have to keep an eye on it. Okay? It's easy for you to say yes to any client. Hey, can you change this? Can you do this? Because they're a big fish and you give that customer too much power.

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To wrap up a Teddy's lesson. I've always said this. All customers are not created equal. Some customers are fantastic. Some customers are gonna cause you more problems than they're gonna give you in terms of revenue. Some customers will have too much power over your revenue stream. And some customers will just think they can call the shots and tell you how to create your own products and services. This is your business, and essentially it's your life. Okay? The things you're gonna have to deal with with dealing with customers is a part of your life. You get to make it the way you want to make it. That's the beauty of entrepreneurship. And when entrepreneurs lose sight of that, and believe me, I have in the past, okay, when you lose sight of that, you forget why you became an entrepreneur in the first place. We all do this for freedom to do what we want, to do what we love for a living. Don't give that up so you can make another sale or score a big deal. Thanks so much for listening to the $100 NBA show. If you love what you hear, smash that subscribe button. Whatever you use to listen to podcasts so you get the next episode automatically. We're every platform. Spotify, Stitch Radio, Himalaya, Apple Podcasts, of course, hit subscribe right now. Before I go, I want to leave you with this. Here's a real life example. Over a decade ago, I had my own clothing line and I had one customer that used to buy thousands of dollars of inventory for me to sell in their own local store. Now, the rest of my customers were pretty much just direct to customer. I would sell to somebody who actually would buy the shirt to wear or as a gift. But this customer is buying thousands of dollars of inventory every single month. And they would spend hours with me on the phone, email, trying to get me to modify my clothing line, modify the products, even the packaging. And sometimes I would give in and I would say, oh, maybe I'll just change this up. It's a good client. They do order a lot of money. It's worth the effort. But the more I did it, the more the demands got bigger, the more headaches I had, the more time I was spending away from my business and my customers and my team and trying to please this one customer. Luckily, I started to realize that and I just started to say, no. I said, no, we cannot make these changes. This is the way the product is. This is the way the packaging is. And I actually went back on some of the things I agreed to and say, you know what? I reviewed it. Can't do it. The customer did get upset and the customer was a little bit disgruntled. But guess what? They loved our product so much they didn't stop ordering. Don't be afraid to say no. Thanks so much for listening and I'll check in tomorrow's episode Q and A Wednesday. I'll see you then. Take care.

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