One of the big challenges we see with clientsis they cannot take advantage of all the opportunities they identify.
There may be lots of opportunities, but they have limited;
For example, they cannot get the people they need to take full advantage of an opportunity because of demand for these particular types of people, or alternatively they get the people but a significantly higher cost than they had budgeted for. So they take on work where they do not have enough capability or capacity, and their margins are being diluted.
While there are many opportunities for these particular companies, they often end up dealing with unprofitable clients that are consuming a lot of time and resources.
Where to Play
The key for these type of companies is, do they need to narrow their focus?
With one particular client, they were dealing with large corporate clients who were consuming a lot of their resources. Also, payment terms were stretched out and they expected our client to be available on demand. They also worked with smaller clients where the payment terms were better, they were much more flexible, and there was less complexity in the type of work they were doing and less risk. The decision was made to narrow their focus to the smaller clients with a subsequent increase in profitability on a smaller revenue base.
How to win
With the smaller clients, they did not have to be so price sensitive. It was more about what they could provide, which was more about problem solving and solutions that these smaller clients need, which is not always recognised by the big clients.
The key is to pick the environment where you can add more value, and it is recognised by the client. By focussing on a different customer, they’ll get better payment terms, and add more value.
The challenge is how do they transition out of these bigger clients which consume a lot of their revenue without the margin. Move to an environment where they can be much more focused, where they have a greater chance of winning and where the works more profitable.
Is it about revenue or profit?
You might get lots of revenue, but it should be about profit, what’s the point of doing $1 million revenue when you’re going to make $50,000 profit when you can do $300,000 somewhere else and make $100,000. You’re just busy having filled up all your valuable time in the wrong areas.
There are lots of opportunities for businesses, but there is this thing called intelligent constraints, and a lot of strategy is about what you don’t do.
They’re focussing on the revenue, but the hard thing is transitioning out of certain revenue works. It’s going to take time to build up this other type of work, but in the meantime, they’re under this short-term pain having to deal with these corporates that are very demanding.
They don’t give them any security or expected tomorrow, and it’s tough to build a relationship because you’re dealing with a hierarchy, a lot more ego to it, rather than dealing with smaller companies. A lot of the time people just do work for these companies because there is prestige attached to having those contracts.
What is the lesson here?
Pick where you’re going to play, lookfor the greatest opportunity where there is a match between your capability and the opportunity to make a reasonable profit.