Absolute Motley

I came across this Article and kinda felt like agreeing the author but wondering about the practicality of approach. yes, I myself have let bad clients go several times, but still…

The article was originally appeared on http://www.9dot9.in/emagazine/jan10/special-feature.html. It is written by Mahesh Murthy – founder of Pinstorm and Managing Partner at Seedfund.

It was a little past 3am, and I was in Los Angeles, talking to the team in Delhi, some 12 hours and 12,000 kilometres away.

It was a curious case. A new telecom operator was launching its services in India and had put our company on the shortlist for their digital advertising account—worth, they claimed, more than Rs 12 crore a year—a sum that would immediately put them among the 10 largest clients in the country. The potential client had read our website, where we said, front dead and centre, that we were a pay-for-performance digital advertising firm, that we did not charge retainers or commissions, and that we charged only on a success basis. And having read that and met us, and having heard our thoughts on their business, they decided in their wisdom to award their business to us, pending, as they said “commercial discussions”.

So the team in Delhi was in the midst of these commercial discussions when it felt that I needed to get on the call. Hence, the middle-of-the-night wake-up. “Yes, we respect your pay-for-performance model”, the client was saying, “but our tendering process says that we will work with you on a cost-plus-retainer basis. Please show us salary slips of the people who will be working on our account—and we will pay for their salaries and for some reasonable overhead on top of that, and then give you some margin on top so you can make a profit on our business.”

“But”, I tried to explain, “did you not read on our website that we are a performance firm, not an old-school retainer firm?” Yes, was the answer, post which the argument continued: “But we really would like to work with you guys, so can you please bend your rules a little here? We’ll make sure you won’t lose money on our business—and the other finalists have already agreed to this model. In fact, they’re happy with even a 15% mark-up on their costs—we can go up to 20% if that makes you comfortable.”

My gut was clear on what to do, but I decided to ask the team what they felt. They discussed and came back, saying: “We feel glad they chose us for our thinking, but that means they should choose our model too, right? If we start with this model now, we don’t know how far we will keep compromising.” Their recommendation—even though this account alone would double the size of the business—was to decline the offer. Which is what they did, to the surprise of the client—and I’m proud of them. One day, I told them, we will win this business—and their rivals’—and we’ll do it on our terms, not on some ridiculous terms that the industry had accepted.

I remember asking the telecom client: “You are offering customers a price of XX paise a minute; will you accept it if your customers ask you for the salary break-ups of your CEO and sales executives, and offer you a flat margin on your salaries as their monthly payments to you?” There was nervous laughter at their end and some words to the effect of—well, thankfully we don’t have to do that—and anyway we can ask that from you because we are the buyers.
My learning here was clear. The best way to grow your business is to say no to the wrong sort of business.
The scene was repeated a month later. Another pitch, another client; this time in Mumbai. It was again down to us and another firm—this one a subsidiary of a large advertising multinational. All went well, till the last question, when one of the clients asked: “So, if we stop working together, how long will you lay off before you start working with our rivals?” My reaction was, “We’re a performance firm and as such we don’t recognise conflicts; so the question doesn’t arise. But nevertheless, if you do choose to work with our rivals right after we stop working together, I guess we have the right to work with your rivals too right away.”

I thought it was a fair answer. To me, business has to be done on symmetrical terms between two parties.
But it was apparently the wrong thing to say. The client called back later, with a sprinkle of glee in his voice, saying, “Well, the other guys agreed to a two-year moratorium on working with our rivals after they end working with us—and they also agreed that any new technology or concept they developed while working with us would belong to us forever.”

If our earlier competition had merely compromised on working practices, this one was willing to go to any length to placate the client even before work had started. Once again, I told the team—worry not, this was the right reason to lose a business.

I have been working for some 26 years now—and I can say that the lowest-priced vendor of any service has never become the market leader. The cheapest car company is never the largest. The cheapest advertising firm is never number one, and the cheapest retailer never becomes the most profitable.

And “work for hire” is a recipe for death, especially in the services business. I would advise all of you to avoid this like a plague, unless you are a BPO. This phrase should never be in your legal agreements with clients. Make sure you build some intellectual property—and that your work and your original thinking go to line your pockets—not your clients’.
Even on the other side, the buyers of the cheapest goods and services never become the best either. So while some marketing guy is furiously patting himself on the back for getting his agency to bend over backwards—or forwards, as the case may be—he is never going to get the best talent or the best thinking at work for him—and the harm from that in the first month alone will more than out-do the gain from the few cents saved through the year.

Yeah, right, some of you will be saying—that is always the case with sour grapes. You don’t get business, you whine. Maybe there is a little of that. Actually, I think there isn’t. In some sort of odd way, this follow-you-down-the-glory-hole behaviour sets us apart from the rest. I believe these clients know they settled for the second best. One day, if and when they are ready, they will come to us.

And till that day, there will be many more clients who will see things the way we do. And just for information of the sceptics, for these two account losses in the last two months, we have had six account gains on our terms.
What can I do, I’m sure you ask yourself, when others around you are dropping their prices and policies?

I would say a few things. One, look around you. See the brands you love and respect. The big ones. Maybe, a Titan in watches, a Starbucks in coffee, a McKinsey in consulting, or an Apple or Nokia in phones. See how much they charge. You will notice, without exception, that it is never the lowest.

Second, think of all the people who offered dirt-cheap pricing. Air Deccan, maybe. Or a Suvega in mopeds. Or even an AP government offering rice at Rs 2 a kilo. See something similar? They’ve all gone the way of dirt.

Three, now have the confidence. The firms that drop their prices and practices will eventually drop out of sight. Say this to yourself and the team.

And four, be glad, not sad, when you lose a business for these reasons. As long as you know you are offering a differentiated value, have the pride and the strength of conviction to insist on a differentiated price.
The right client will offer it to you.

The wrong client won’t. But that’s okay. They won’t be around to pay the other guy’s bills in a few years’ time.