Sometimes Firing a Customer Is a Good Idea

 I believe in firing customers. Not very often, and never casually or in frustration or anger. But sometimes there are individuals and companies that a startup simply can’t afford to do business with.

How do you know when you have a customer you need to let go? Look for these signs.

 1.  The company or its employees are engaged in Illegal activity. This one is black and white. Don’t do business with a customer you know is breaking a law. You may even have a legal responsibility. Consult your attorney.

 2.  The company behaves unethically or against the intent of the law. Even if there is no legal responsibility, do you really want to build a business that “looks the other way?” That’s not the type of startup that attracts investors, customers, or outstanding employees.

 3.  The customer has a pattern of treating your employees disrespectfully. Harassment, bullying, even perpetual rudeness is not something your employees should have to endure. Everyone has bad days, and we can all be short or ill-tempered with others. But if this happens repeatedly, it’s your job to address the situation appropriately.

 4.  The customer demands price over value. Unless your vision for your company is to be a low-margin commodity business, be wary of purchasing-agent driven customers.  It’s hard to create a successful new business where price is the only “value-add”.

 5.  The customer doesn’t pay. Who needs accounts receivable headaches every month, especially when cash flow is such a challenge for new companies.

Firing a customer is serious business. Proceed cautiously before taking such an extreme move.

If the issue is law breaking, talk to your attorney immediately. For other situations, the goal is to repair the relationship if at all possible.

 1.  Call a roundtable meeting with all employees who have anything to do with the customer. Discuss what you can do to improve the relationship. Talk to the customer openly and honestly. Assign the customer to different employees. Change service terms. Lower expectations.

2Determine if the customer is one that the employees want to keep? If so for how long—from a month to forever, until replacement revenues can be found, for as long as they can stand it, only if the customer will change behavior?

 3.  If yes, define a path to improving the relationship, with specific actions and owners. Set a 60-day review.

 4.  If no, what has to happen before your company  can terminate the relationship? Fulfill contractual terms, find a replacement customer, reduce expenses to offset revenue loss, notify the Board, or nothing—the situation cannot be allowed to continue.

Most of the time, the process of talking through the situation with sales, engineering and the administrative team identifies ways to keep the customer.

However, if the customer has to go, put a plan in place to disengage as efficiently, and respectfully as possible.

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