By Dr Farah Sleiman

There is an entrenched paradigm in entrepreneurs’ mind that makes client acquisition the most focal activity in their effort to build their ventures and scale up their business. And this paradigm is perpetuated erroneously in MBA schools and all executive education programs.The paradigm dictates that the business viability and profitability is proportional to the number of clients you acquire and keep and this should be the main purpose of the marketing and business development function in every business. Today I would like to explain why this paradigm is not accurate and why building your business efforts around this goal can be detrimental to your business . Business viability and profitability is proportional to the number of profitable transactions you are able to engineer in your business not the number of clients you have. The core notion every entrepreneur should have in mind is that not every client is a profitable client, some clients are in fact damaging to your business both on the short term and long term and can in fact drive you towards bankruptcy.

The direct consequence of this principle is that the core objective of your business development and marketing function should be to generate profitable transactions and this is possible by designing your processes around two key priorities:

• Increasing your current customer share of wallet
• And qualifying carefully new customers before you decide to engage in a transaction with them Let us contemplate a couple of important numbers:
• Acquiring a new customer can cost five times more than retaining an existing customer. • Increasing customer retention by 5% can increase profits from 25-95%.
• The success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%. When it comes to increasing your current customer share of wallet the key is to create value to your clients so that they come to see you as a long term and trusted business partner in the area of services or products you are offering , in the long run this will give you exclusivity and kill your competition. This is only possible if you are offering a positive customer experience at each touchpoint of your service and the quality of your products or services is consistent.

The second priority your marketing and business development efforts should be focused around is to qualify new customers adequately. This is a risk assessment exercise, the way customers run a due diligence on you, you should also run a due diligence on them, if not a full blown one at least a prescreen that will allow you to answer the below questions:

• What is the level of authority of the person managing the relationship with your company has? Does he have signatory authority? if not you are not really negotiating you are just entertaining someone who has no power to generate any revenue for your company. This is the difference between signing a contract within two weeks from a sales pitch and wasting two months in endless emails that are being cascaded through the different levels of the client hierarchy. This is time taken out from real customers who can yield profitable transactions. It is opportunity loss. Time is money.
• What is the likelihood of the client defaulting on his payment? The bigger the transaction the more cautiously you need to assess this risk , this is what turns seamlessly big accounts into drivers of bankruptcy. You need to be very careful, your business sustainability is linked to its cash flow not its revenue. Whenever you have to make a tradeoff between revenue and cash flow , remember cash flow is king! Large receivables not only paralyze your operations but they deflect management focus from growing the business to chasing clients for overdue balances, this is where they can inflict most damage because they cause strategic loss of focus.
• What is the likelihood that the transaction you are exploring with this client will result in a high level of satisfaction to the client given on one hand his level of expectations and the level of your service and expertise on the other hand. This is an aspect frequently overlooked by most businesses. Most businesses consider that if the transaction was completed and the company got paid then automatically this makes it a profitable transaction. It is not. You need to consider the aftermath of the transaction, did it result in a level of satisfaction that will drive positive word of mouth and referrals or have you created a walking broadcasting station telling everyone in the market how your service suck or your employees are incompetent. Business sustainability depends on the aftermath. What will make you build a billion dollar business is the lifetime value of your customers not one-off transactions. So to sum it up, if your are looking to build a unicorn your main focus should be to know which customers to cultivate and which ones to ditch. Any customer who doesn’t pass your due diligence is a toxic customer , and your business is better off without him. How fast and efficiently you can run this elimination process will determine how far and how fast you can grow.