A client wants us to do work that is non-core to our business. What should we do?
Here's a quandary that happens more often than you may think. While this particular story is about a catering company, I have seen the same scenario play out at technology businesses, professional services firm, logistics companies, graphic designers, and so on and so on.
The company, let's call it Mutton, started about eight years ago. After a couple of wobbly years they found their feet when they decided to focus on a repeatable offering – simple menu, great service – for a core market – sit-down-in-house-important-client lunches for medium-sized businesses.
One of Mutton's first customers – lets call it Tango – grew into the company's longest standing and largest customer. But by earlier this year it was causing Mutton some concern.
Mutton's business model was to do repeatable simple lunches. The rationale for this was to provide the market with a very high quality but fairly reasonably costed lunch and for the company to make good money on an easy to produce very scalable offering.
Tango so enjoyed the lunches that they asked Mutton to do some bespoke events. It started with a few breakfasts – they were fairly easy to accommodate - then some cocktail parties, then tailored lunch menus and over the years the requests continued to grow and grow, both in scope and complexity.
Early this year the senior team as Mutton were looking at the profitability of the business. While it was doing okay, and the revenue line had grown, it was quite clear that the bottom line had peaked a few years ago. Further investigation revealed that the problem was Tango.
Essentially the issue with Tango was twofold. Because Tango provided Mutton with so much work, Mutton had rather taken its eye off the ball in regard to chasing new business, so the regular business was suffering from a dip. On a revenue basis the Tango business more than made up for the shortfall, but unfortunately the Tango business simply wasn't that profitable. For every new style of event that Tango wanted Mutton had to rescope, design, hire new staff, make new dishes, etc.
Mutton's skill, and the way it made money, was on the simple repeatable offering, and with Tango it had deviated too far away from its core.
So the Mutton management made a really tough call, they decided to stop working for Tango. And 10 months later, profitability is up.
It's not unusual to outgrow a client, and usually we are disappointed when they leave. But it can be far more devastating if they stay.
Julia Bickerstaff's expertise is in helping businesses grow profitably. She runs two businesses:Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of "How to Bake a Business" and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).