The client crunch

IT SOUNDS obvious, but a lot of small businesses don't put too much thought into where their customers are going to come from and then wonder why they are on the back foot.

The inspiration for this column came from a rather unethical peek at an internal document for one of the major investment banking houses. In it, the bank outlined how it was going to break into a certain geographic market.

On one of the pages, it gave a customer list breakdown into People we know will do business with us, People we think will do business with us and People we think should do business with us.

It wasn't hugely scientific, but it was interesting to catch a glimpse into how an aggressive corporate banking group pursued new business. It came down to specifics: who from the bank needed to meet who at potential clients to tap them for work. Really greasy investment banker stuff - but it cut straight to the nitty-gritty.

In contrast, I see quite a few small business plans and one of the first questions that always comes up is who is actually going to buy your product or service?

The responses tend to be a cursory "everybody who is in industry XYZ" coupled with rattling off big names like Standard Bank, Anglo American, Sasol and something called "government".

It sounds very impressive until you ask them how they are actually going to get these so-called clients on board; this is then met with an airy wave to an item in their business plan entitled sales and marketing.

Originality and oomph

There almost seems to be this perception of "build it and they will come". However, that's not the case and if you don't have anchor clients from the get-go you are going to find yourself struggling.

The Fin24.com/Finweek offices have experienced an interesting approach from a couple of young entrepreneurs in the catering industry, which I think has a lot of merit. They don't have clout with big corporate clients at the moment, so they've come up with quite a good way to get a foot in the door.

Instead of a lot of fancy branding incurring infrastructure costs, they have struck a deal where they come every Thursday with a different type of offering for a month at a time; last month it was salads and this month it's sandwiches on the menu.

The deal is essentially that our staff members get the benefit of a reasonably priced lunch, while the service provider gets to work out which products sell and what the actual demand is before they commit to ramping up.

Even more significantly, they have an "in" to a big corporate - if they were asked tomorrow how they are going to get clients, they could point to their existing relationship within our group.

Points for you to ponder

That approach shows a lot of initiative and planning, and I think there are a lot of lessons in there for small business owners.

Instead of rushing off and blowing your budget on a website or business cards, maybe there is merit in actually trying out your market and working out where it is best to concentrate your resources.

Businesses exist to service a need or pain. As the small business owner, you cannot assume to know what the pain is until you've done your research. You also won't know where your customer is going to come from.

For instance, I recently saw a business plan for a car wash business looking for financing. The guy was "sure" that there was demand for his business because the security company where he was working needed its cars washed daily, and he was "sure" that the company would pay for this service.

I asked him to find out how the cars were being washed at the moment. It turned out that the security guards aren't allowed to go off duty until they've washed the cars themselves, using cleaning materials purchased out of their own pocket.

Ethics aside, he was trying to offer a paying service to a firm which exploited its workers to provide the same service for free.

At the end of the day, time and money are two valuable assets for small business owners and mistakes can prove costly. If you are building something in the hope that the clients will come, you might find you are wasting both.

- Fin24.com