Medium is Beautiful
Who are your best customers? It’s a question I often ask my clients. And the answers I most often get are either “the big ones” or “the small ones”.
In fact, because I have a ton of experience in selling to large companies, I’m often asked for my advice on how to “land a whale” or to break-in to big companies.
But in my experience, the best, most profitable customers for most businesses are the medium-sized ones. It’s certainly the case for me. And when it comes to prioritising business development – that’s where I put my energy.
I love small customers and working with SMEs. They have a flexibility and a freedom that makes a real refreshing change from working with big corporates. The trouble is that the revenues from these businesses often don’t justify the fixed “overhead” costs of doing business with them. In the work I do, I invest a lot of time really getting to understand my client’s businesses, diagnosing what we will need to do to grow their sales, and understanding the best way of implementing my recommendations so that they will really stick. That up-front investment is pretty much the same for small or large businesses – but with small businesses the revenues I may get from that investment are usually lower. And because my fees are pretty much at the top-end of the market, smaller businesses often struggle to afford me. So sadly, I have to restrict my work with small businesses to a few a year, where I am really going to learn something and grow myself as a result.
Conversely, although the profits I might earn from large companies are theoretically much higher, I find this to rarely be the case.
Nowadays, large companies have “professionalised” their purchasing processes – and in my experience this often means that they have bureaucratised them. The selection processes for suppliers are long, complex and costly – effectively ruling out many smaller businesses and handing a huge advantage to bigger suppliers more used to dealing with these processes and having pre-prepared stock answers to the typical questions asked. In an effort to have a “fair” process, suppliers are prohibited from speaking to potential business customers during the selection process and are funnelled through the procurement professionals. This hands a huge advantage to incumbent suppliers who know the company well and know how to frame their solutions and responses to resonate with the company’s needs and culture. For new suppliers, cut off from rich interactions with the people who are really going to be impacted by or using their products, they have to rely solely on what has been written in black and white on the request for proposal. As anyone who has been involved in sales knows, it’s frequently the case that the true customer requirements only really emerge from in-depth interactions with expert sellers. So by cutting off those interactions, the process effectively becomes a guessing game where the winner is the supplier that is able to most accurately second guess what the customer is really looking for, rather than the one who is best able to deliver it for them.
And of course, the procurement departments in large companies are frequently charged with ensuring “value for money” by squeezing out every last drop of discounts from their suppliers. It’s only the very best procurement professionals who are able to get more value by working with the supplier to ensure greater benefits. The majority simply work at reducing the supplier’s price.
Now this is not meant as a tirade against large companies and their procurement practices. There are very good reasons for them having adopted those methods. But what it does mean is that for most suppliers, large companies are usually not their best customers.
In my experience, both personally and for my clients; medium-sized companies are frequently the best customers.
They are large enough to place decent sized orders or engage service providers for large projects. They are still small and flexible enough that the seller can engage with the key decision-makers to properly shape up a solution and demonstrate their capabilities rather than working through intermediaries.
And medium-sized companies often have an ambition level that outstrips the large companies. They’re not focused on protecting what they’ve got – they’re focused on growth and are willing to take on new ideas to do so. As an additional bonus for service providers, medium-sized companies rarely have their own internal organisations which duplicate what external providers do – so they are more willing to take on outside help.
Of course, this picture is not universally true. Some small companies buy big from certain suppliers. Some large companies are nimble and focused on value rather than just cost. And some medium-sized companies suffer the worst of both worlds.
But more often than not, when you do the analysis and work out the profitability of each of your customers – taking into account all the costs of doing business with them – medium sized businesses come out on top.
The implication? Don’t be afraid to focus your prospecting and business development activities on medium-sized companies rather than chasing the big company “whales”.