Cutting the Cord - When to free yourself from your clients!

I work in business optimisation – advising companies on how they can get from their current position ‘A’, to where they want to be: ‘B’. This might mean increasing turnover, profits, engaging staff, marketing, or all the above. Whatever I am working on, I use the 80/20 rule. an approach developed by an Italian Economist while he was working on his vegetable patch.

Originally known as the Pareto Principle, the 80/20 rule was developed in 1906 by economist and avid gardener, Vilfredo Pareto. Pareto noticed that 20% of his pea plants produced 80% of the crop yield. He questioned whether this would hold true across different fields, and surprisingly, it did.

Whether considering who owns land in a country (80% owned by 20% of the population), optimisation efforts in computing (80% of the errors are contained in 20% of the code), health and safety (20% of hazards are responsible for 80% of accidents), or business, the principle holds. Keeping it in mind will help you focus on the profit-making parts of your company and cut out the parts that are dragging you down.

Pareto Principle

My career began in yacht-building and construction with the family business. I then gained experience in retail management working with Topshop and Debenhams. I left long ago and promise I had nothing to do with their collapse! I have since worked with many different businesses as a marketing and business growth strategist, helping my clients achieve their goals. From market share, through marketing and sales, the Pareto Principle is applicable to (probably) every corner of your business.

When I first start working with a new client, this principle is the first thing I tell them about. Most of the time they know it, but they either forget to apply it or don’t realise the full impact it can have. For businesses looking to streamline their processes and maximise turnover, please note:

If you want to make more money, you need to free up your time!

When we go through client lists, it generally holds that 20% of their clients generate around 80% of their income. I’m not suggesting that you go through your client database and drop 80% of your clients. But you should identify that top 20% and focus on them.

It can be tempting to treat all clients equally, but in this area (and others) equity is far more important. If you split your time equally between all clients, you will be spending as much time with 'Jack’ who provides 2% of your business, as you are with 'Sue’ who gives you 30% of your business.

All those percentages add up, and you don’t want to lose anyone. But losing Sue would carry far more business impact than losing Jack.

Take an honest look at the time you spend supporting different clients, and seriously consider if you’re spending your time with the right people. If you spend that extra time with Sue, will she increase her business by another 5%?

The principle also works with complaints. 20% of your clients are making 80% of the complaints and extra work in your business. If someone in this 20% is also in your top 20% of spenders, then you may need to put up with them. Many of them won’t be.

It is very common that when reviewing the customer list with my clients, we find that most of the complainers are in the bottom 80% of the spenders. Without fail, they are also bad at meeting payment deadlines. Why are you keeping them around?

Cut. Them. Loose!

It can be difficult for any business to consciously rid themselves of any clients. All people see is money walking out of the door. Instead, I urge my clients (and you) to reframe this action. Instead of losing a client and their money, you are gaining back 80% of the time your staff spends dealing with difficult customers. Time they can use to find new and better clients or refocus on your ledger’s big spenders.

As a manager, business owner, CEO... your time is incredibly valuable and is a resource to your business. Making sure you spend it wisely, investing that time into the clients that fuel your business, rather than focusing on the ones that drag you down, will not only improve the bottom line. Working with positive people who are a benefit to a business will also benefit the mental health and motivation of your team. It will give them time and energy to look elsewhere for cost-saving and income-boosting initiatives your company needs.

With your new, streamlined client list, you can then look at other areas to apply this principle.

If you make a product, you will find that around 80% of product defects are caused by 20% of the problems in your production methods. Review these methods, focus on improving that 20%, and the overall quality of your products will increase.

You should also have your marketing team consider their actions through this lens. They should focus their attention on the top 20% of readers of email marketing, social media and other activities, rather than trying to attract everyone.

It’s important to mention that this is a general principle that holds across many different arenas, rather than something you should live your life by. When checking your sales, you might find that 30% of customers are responsible for 75% of your income. Or that 15% of customers are responsible for 85% of complaints. But the 80/20 rule will generally hold and will give you a starting point to start investigations.

To grow and protect our businesses for the future – whether looking to sell or pass on to our family – we need to make sure they are running as efficiently as possible. Go through your operations, your processes, and your complaints. Talk to your staff and ask them what takes up time. Look through the results, and just keep the 80/20 in your mind while you do so.

Cutting the cords on negative relationships and clients that don't appreciate you will help you thrive, improving staff morale and increasing your income.

Increase your income, time, and morale by saying no to problem clients!

The True Cost of Sustainability

Traditionally, sustainability in business refers to a company’s strategy to reduce the negative impact of its operations on the environment. I have always felt that true sustainability goes much further.

Sustainability is about making sure, to the best of your ability, that your business is well prepared for the future – whatever that future may look like. Being sustainable means that your staff are well cared for, leading to a lower staff turnover. It means that you have a relationship with your customers and can attract new ones. It also means that you embrace and generate change, anticipating rather than reacting. Without money, none of this is possible, so it also means safeguarding your income and profit margins. These things are easier said than done; how can business owners fulfil their responsibility of protecting the environment, community, and staff, as well as protecting the bottom line? And how can we possibly measure it?

Assessing the Demand

The recent rise in the cost of living has impacted our wallets, and this has had an impact on consumer spending. Although we have not experienced a recession, many people are worried and preparing for it ‘just in case’. It would be tempting to think that this will have quelled people’s demand for ethical products.

The Ethical Consumer Markets Report has been published since 1999 and is an important barometer of UK consumer spending. Data is tracked across a wide range of sectors. The most recent report is from 2022 and highlights just how important it is for businesses to be perceived as green. As a global trend, the willingness to spend more on ethical products is starting to decline, mostly in poorer countries. However, in richer countries, including the UK and Ireland, demand is holding steady and, in some instances, increasing. The report shows that hybrid and electric car sales increased by 61% from 2020-21, and the growth doesn’t seem to have been impacted much by the UK government's withdrawal of the electric car grants.

There has been a 32% increase in homes being powered by renewable energy providers – which equates to 1 million more homes. The report, and others like it, have found that the ‘ethical market growth is a long-term trend’. These trends suggest that it might be worth willingly embracing sustainability (ESG) before we are forced to by government legislation. It seems that consumer demand is willing and able to absorb some additional costs and is eager to engage with sustainable businesses. So, provided that adopting these practices doesn’t drive up your costs too much, committing early means you might just find yourself ahead of the competition with other businesses scrambling to catch up.

Environmental, Social and Governance (ESG)

ESG is a framework used to gauge an organisation’s business practices and performances on various sustainability and ethical issues. The main regulations are set out in the Companies Act, and section 172 requires company directors to have regard to the interests of their employees, the need to foster business relationships, and the impact that the business has on the community, environment, and its reputation.

Although this is superseded by the duty that directors promote the success of the business for the benefit of the shareholders, consumers have made it clear that they may reconsider purchasing from businesses failing to adopt ESG practices. This could mean that committing to ESG, and communicating it successfully, will lead to greater returns. I feel comfortable making this assertation, not only due to anecdotal evidence, but also because there has this year been an excellent report issued by McKinsey, investigating the demand of consumers for ESG products.

They found that “Products making ESG-related claims averaged 28 percent cumulative growth over the past five-year period, versus 20 percent for products that made no such claims.” This was in the USA, and over the sales period from 2017 to 2022, so this accounts for the financial impact of the pandemic. I propose that there would not be a marked difference between consumer habits in the USA, and the UK and Ireland, and slightly older studies bear this out.

Of course, there is nuance at the individual product level, however broadly speaking, and across many categories, there was a material link between a business’s commitment to ESG, and consumer spending on their products. This hasn’t even considered the impact on tendering if you don’t give at least a nod to ESG. Procurement Policy Note (PPN) 06/20, requires that ESG is expressly evaluated in all UK central government procurement as of January 2021. This Note, entitled ‘Taking account of social value in the award of central government contracts’ requires measurement using a ‘social value model’, with a minimum weight of 10% is given to ESG objectives when it comes to each procurement.

The social value model is divided to cover 5 main themes:

COVID-19 recovery, tackling economic inequality, fighting climate change, equal opportunities and wellbeing. Businesses that are unable to demonstrate commitment to ESG will be at a severe disadvantage when applying for a tender, and those who are found to have exaggerated their commitment may be blocked from applying for another government tender for up to three years.

This builds on the previous PPN 09/16 which applied to all UK central government construction, infrastructure, and capital investment procurements valued over £10m, which in turn expanded on the Public Services Act 2012 that mandates all contractors consider ESG at the pre-tender stage. Any company looking to land a large contract in the UK should certainly be active rather than performative with their ESG commitments.

Measuring your Impact

There is no hard and fast set of standards to measure your impact, which is good news, as you can decide where you want to focus and consider what a good result would be for your business. If you are struggling in one area, then your target may be different from someone already doing well. Any improvement is good, and we can’t let the pursuit of perfection lead to inaction.

A business may want to measure metrics such as carbon emissions, amount of waste sent for recycling, water usage, employee turnover rates, diversity at the management level and above, wages, and more. How do you want to prioritise helping your community?

Making the Commitment

Ultimately it is up to individual businesses whether they want to engage with ESG. However, I think it’s clear that there is a good argument for doing so. With over 3 quarters of business leaders wanting the government to legislate in this area, and with the issue being popular among the voting public, it seems likely that legislation will be bought in through the door of the Better Business Act soon. When it does, businesses that have already embraced ESG practices will be ahead of their competition. If legislation isn’t bought in, it would most likely still be in the business’s best interests to adopt a more mindful approach to appeal to a more environmentally and social equality-driven consumer base.

The best studies tell us that demand for ‘green’ products is rising in developed nations and is expected to continue to do so. I would also argue that as business leaders, as people who can make a change, we are morally obligated to preserve what we can for the generations ahead.

Awards - are they worth it?

One of my clients asked me this question the other day and said “Anyway they are a bit self promoting aren’t they? People put themselves forward just so that they can say on social media that they have been nominated!”

Well there’s a conundrum. In some cases, yes that is the case, but in other’s it’s not. Some organisations will ask for votes from the public or their members, some are based on industry reputation and excellence.

And even if it is the case, what is wrong with that? If you won’t promote yourself then who will? There will be an independent panel of judges that choose the finalists and then vote on the winner, so even if you put yourself forward, its not a given that you will be successful.

So is it a good marketing exercise? In my view definitely yes. The publicity surrounding the event will positively promote your brand and becoming a finalist (if you are lucky) is good for your reputation.

In addition to the marketing opportunities it provides, the buzz it will generate within your business can’t be bought, having engaged teams who are proud to work for you will make yours a great organisation to work for and there is nothing better than employees who bang the drum about your business!

So, don’t be shy, research what awards are available to you and make sure you spend time completing the application form as it’s this that you will initially be judged on.

Good luck!