How much of your business is good business? And what are you doing about the rest?
Good business meets three conditions:
- It's profitable. There's oxygen in that air.
- It's sustainable. There's a future in doing more of it.
- It's satisfying. It doesn't run down your organization's morale.
I've been in startup mode twice in my career. Startups often take transactions that meet none of these conditions - any business looks like good business. But the longer we hang on, the more discriminating we have to be. And in well-established companies any significant portion of the business that doesn't meet all three conditions is a threat to our long term health.
It's not always easy to identify bad business. It may appear profitable based solely on Cost Of Goods, until we consider the less precise opportunity cost of the organization's time and focus. It may be difficult to discern the dynamics (market, supply chain, technology) that would show us a dim future for that kind of business. And we may not even be inclined to consider the level of satisfaction our people derive from the business.
But most companies have a chunk or two of bad business in their book. Some are riddled with it. Many can identify it, if they put a little thought forward, but then face the biggest challenge: figuring out how to deal with it.
The problem is risk, particularly when the bad business is (ostensibly) profitable. Let's assume the cliche is literally true: a bird in the hand is worth two in the bush. If so, then we can't afford to decline bad business unless the good business we intend to replace it with is 1) real, 2) acquirable, and 3) worth more than double our current bad business. Considering the uncertainty, it's no wonder we hang on so tightly to the bird in hand.
But there's an incremental path that can help us transition to more good business with reduced risk. Instead of just saying "no" to bad business, we can say "Yes, as long as..."
- ...the price is better.
- ...the terms are more favorable.
- ...the expectations are clearer.
- ...the timing suits our schedule.
- ...the product mix changes.
When we do this, we're essentially offering the bad business a chance to become better business (there's a bureau for that). Usually some will make the transition, and some won't. But it's psychologically and financially more palatable than the all-or-nothing dilemma of "Do we stop accepting those orders?"
It's particularly transformative when we combine a more discriminating approach to bad business with an intentionally more encouraging approach to good business. We do this by making our people more available to good customers, or adjusting our terms to better suit them, or reducing pricing for potential orders with ideal product mix and timing, or bundling additional value with the right kind of order. By increasing the friction on bad business and reducing the friction on good business, we can edge our way into a much better position one transaction, one customer at a time... at whatever speed is appropriate to the intensity of the threat.
There's still risk and discomfort, no doubt. Some of our people will balk at any threat to current business. But for intentional leaders, the approach is both feasible and necessary.
So back to the core questions:
How much of your business is good business?
What are you doing about the rest?