I was talking to an industry friend of mine yesterday, and I told him of the news that Vista Window Company was closing. His reaction?

“How does a window company manage to go out of business in today’s market?”

And this made me ponder. Eleven years ago, during the Great Recession, which was brought on by the collapse of the U.S. housing market, the closing of another window plant would hardly be news. But today it is both news as well as a scary reminder of the pains the industry endured during those stressful years. So, given the current health of the present economy, what could cause an established business to suddenly fail?

Erica Olsen, founder of the Nevada-based OnStrategy firm, outlines the Ten Common Causes of Business Failure, and I really like her list. Of the common causes she provides, the two that scare me the most are: overdependence on a single customer and not knowing when to say no. There are some customers out there that many window fabricators would kill to have, but these customers may be doing just that—having them may be actuallykilling you!

The fact of the matter is: manufacturers are oftentimes killing themselves due to their dependence on a few very large customers, combined with not knowing when to say “no” to some of the burdens that these largest customers can place on their businesses. The bottom line is that one’s largest customers may, in the course of negotiation, reach for the stars. But, if you always give them the stars, then you will lose touch with the ground, so to speak. Don’t get me wrong, there are gives and takes in every business deal, but the ground rules that define the business relationship must be fair to both the manufacturing company as well as the customer, so that both will prosper, as opposed to only one thriving at the expense of the other.

Sure, it is always great to have a few big customers, but it is always fantastic to have a hundred smaller customers as well. The largest customers can sometimesdemand a big chunk of company resources, while demanding the lowest prices, oftentimes with dangerously low profit margins. On the contrary, most smaller customers require less day-to-day attention, especially if there is a strong relationship with their local salesperson and a reliable advocate at the other end of the phone when they do need to call. Also, profit margins tend to be more attractive among smaller customers. Now, don’t get me wrong, I can give you examples of very large customers that are a peach to deal with, and very small customers that are extremely demanding. The key is to choose your customers wisely. Yes, that is exactly right choose your customers!

And how does a company choose its customers? The answer lies in strategic planning. During my first ten years in the window industry, I was a marketing executive. Every year, we spent hours working on our five-year strategic plan. That strategic plan was a blueprint upon which the rest of the business was built and executed, including manufacturing, advertising, sales and customer service. By outlining the marketing segments that exist and then deciding which segments to go after, the company defines and even names the exact customers it is going to seek; some you want to have and some you don’t; some are compatible with your core strengths and some are not; some it will exhaust your resources to get and to maintain; and some will bring you higher than average profits by playing into your strengths and allowing you to leverage those strengths to the good of both parties. The key is to know which ones to go after and which ones might be toxic to your organization, given your core strengths and weaknesses. This is the value of a sound strategic plan.

Also, the five-year strategic plan was done annually. Why? A five-year strategic plan was done every year because we recognized that market conditions, customers and competitors are constantly changing. It’s a dynamic world. Just as a football team makes corrections in the second-half of the game to improve their success, so must the company’s strategic executives change the strategic plan from year to year, in order to ensure that the company is still heading in the right direction.

Failure to get the right customers, failure to know the best direction and failure to change when necessary will spell doom to any company no matter how good their product may be. Conversely, a sound strategic plan, combined with a sound operational marketing plan will set your company on the right path to success.

Leave a Reply

Your email address will not be published. Required fields are marked *