GEOGRAPHIES AND LOCATIONS will I serve?
What GOODS AND SERVICES will I sell?
What BUSINESS MODEL will I use?
Our work shows that if you can answer these questions, you can build a successful growth strategy. If you miss on these, it’s pretty tough to do well.
Our next chapter focuses on Question 1: Which customers will I serve?
CHAPTER 2 Which CUSTOMERS Will I Serve?
We talked about the value of a customer as the source of all revenue in Chapter 1. What we didn’t talk about is how important choosing wisely is. Whom you choose to sell to is the single most critical question a company must answer. The amount of time and energy that goes into customer acquisition is staggering, and for good reason. It is a much more efficient, less risky proposition to sell to an existing customer than it is to sell to a new customer. But new customers are generally aligned with growth for a new business. What percentage of your time and energy should be focused on existing versus new customers?
As you ponder this, let’s make it real. There are only 24 hours in a day. There are only so many employees you can lean on. There are only so many dollars you can spend. As an entrepreneur, this is an intuitive set of data. Your gut tells you what you can and cannot support. At a larger enterprise, it’s a more formal budgeting process. But in either model, you need to think about where to focus your limited resources.
Older companies tend to have more customers to serve, and care and feeding of those customers becomes the primary objective of the revenue engine. David Maister, former Harvard Business School professor, consultant, and best selling author, coined the phrase, “hunters and farmers.” Older companies, with more mature processes and client relationships tend to “farm,” meaning they rely on existing customers, while younger companies or product lines tend to “hunt,” or look for new customers. From a skills standpoint, it’s generally accepted that it’s easier to find and develop farmers than hunters, and that is simply because you can rely on the legacy of the relationship and brand that has been developed over time as a farmer.
We will talk more about this in later chapters, but without a doubt, the customers you choose to serve are the critical first growth question to consider.
How your revenue breaks down has a lot to do with what kind of company you work for. As a start‐up, you will find much of your effort focused on the addition of new customers, where a more mature business focuses more on generating more from existing customers. The revenue mix changes over time as customers become repeat businesses.
Doug Fletcher is the modern‐day version of a Renaissance man. An author, professor, board member, speaker, consultant, and former member of GE’s management development program – I’ve known and respected Doug’s contributions to business thought since we sat next to each other over 25 years ago at the Darden Graduate School of Business at UVA. He’s a proud dad, a killer fly fisherman, and one of the most pragmatic people I know. I was lucky enough to corral Doug into offering up some of his wisdom in this book. Doug is a specialist in the world of services in general and professional services in particular. He teaches consultants, accountants, lawyers, engineers, system integrators, and financial service practitioners how to attract new customers. If you are lucky enough to have a chance to sit in on one of his sessions, I highly recommend it. Doug has two great books under his belt, his first as a coauthor and the latest solo. It’s called How to Win Client Business and talks about the challenges of getting new clients. This is generally accepted as the single hardest act in services business development, and we talked a bit about why:
We need our existing customers most in the world that I come from. In professional services your existing client base is probably 70% to 80% plus of your revenue stream, and yet if we don’t have that 20% of new client growth, ultimately, businesses will plateau or decline because of churn with the existing client base. So we need new clients.
Doug is spot on with this assessment in our world and truly for most businesses. All money comes from customers. New customers are the hardest thing to add, and they represent growth. Doug went on to describe other value new clients provide:
From a cultural and organizational behavior perspective, you need that new client base to create excitement and growth opportunities for your people! If your business is growing, you’re going to have opportunities for everyone. So from a behavioral and a financial standpoint, I think new client growth is important and I have spent my focus over the last 5 years for both of these books on how to win new client business. And I made it very clear in my new book that it’s not that the existing clients are not important. They are vitally important! It’s just that what most people get hung up on is “How do I get new clients?” It goes back to Maister’s “hunter” versus “farmer” thing, and I think while there are a lot of really good farmers out there, finding good hunters is hard.
Whenever Doug offers his wisdom, I always find myself reflecting on it a day or two after the conversation. If you didn’t get the nuance of his discussion, I’d encourage you to take your time and perhaps read it through twice . . . slowly.
Customers, customers, customers . . . which customers will I serve? Will they be direct or indirect? How do I define a customer? To appreciate the variety of viewpoints on what a customer is, I cast a wide net in my interviews and included a variety of industry leaders. Here’s the perspective of a man who humbles me.
Mitch Mongell and I became friends about 6 or 7 years ago through a shared love of golf. A fierce competitor, Mitch participated in and was a generous supporter of an event I created called the NAA, a fundraiser for the Crohn’s and Colitis Foundation of America. Mitch is the CEO of the Fort Walton Beach Medical Center in Florida, a division of HCA Healthcare, one of the leading US healthcare providers with more than 180 hospitals and 2,000 sites of care in the US and UK markets. They earned over $51 billion in 2019. As I researched the company, I was impressed to read that the CEO was returning $6 billion in CARES Act funding because the company leadership felt despite being legally eligible, it was the right thing to do.
Mitch has been with HCA since 1996 in a variety of roles. Prior to joining HCA, he worked for the Cleveland Clinic, and is a Fellow in the American College of Healthcare Executives. He has an MBA from Florida Atlantic University and served as a registered nurse and paramedic/EMT. He has walked on both sides of the track in healthcare and has an empathy for his patients and his team that I truly admire. He looks at customers in a way that I don’t. His way is incredibly valid and, to me, oddly comforting.
Well, it’s interesting as you look at customers, who are our customers. That’s probably one of the most difficult questions that you have. Our customers can be our community where the hospital is. The customers are also the physicians who[m] you try to attract and who provide great service. The patients you serve. And many times, the patient’s family become a customer. The payer sources, whether it be Medicare or Medicaid, the VA, private insurance, or those that have self‐pay, whether it’s cash or whether it’s charity care. We have those different types of customers we serve.
As a firm, currently our largest practice area is focused on healthcare, and as you can imagine, I think it is one of the most meaningful areas we add value. When you look at the question of customer through the lens that Mitch uses, it’s quite a different perspective.
Each hospital tends to be a little bit different. Our hospital serves an existing base that has been here for years. The community of Fort Walton/Destin has an image set in their mind of who we were maybe 10–12 years ago. For community hospitals, bigger was always better for higher‐level
