Thursday, March 19, 2015

Should Clients Be Your Friends?

The small engineering firm had a client relationship that most would envy. Millions of dollars in fees were awarded on a sole-source basis. No proposals were necessary. "Business development" activities focused on hunting and fishing trips. The families of the firm's president and the main client contact actually vacationed together!

But when the firm hired me as a consultant, I was concerned with what I saw. Although over 80% of the firm's business came from this one client—a large energy company—no one in the firm could tell me what upcoming work was in the pipeline. There was no contract. The firm's principals deemed it unnecessary to try to extend their relationship to other key decision makers in the client organization ("our contact makes all the decisions," they told me).

Then the unexpected happened. The firm's client was acquired by a still larger energy company. Reorganization followed, and the firm's primary contact was reassigned. The new management team raised questions about the firm's work. They had never really been required to demonstrate their success in delivering business results—construction cost control, life cycle costs, system performance, value engineering, etc. It would prove to be their undoing.

The engineering firm lost most of the work with that client, and ended up being a bargain-bin acquisition by a larger A/E firm. Eventually what remained of their staff and three offices was discarded by the new owners, with the exception of two or three employees.

Was their fate avoidable? Perhaps. At least their story offers a cautionary tale about client relationships that neglect taking care of business. And that's a distinction worth noting since there are some who think that friendship is the apex of a strong client relationship. But that's not necessarily true.

Should you seek to make clients your friends? The philosophy of "friendship selling" was once commonplace, and I still encounter rainmakers in our profession who cling to that approach. There are still firms that largely equivocate client entertainment with client care. And the temptation still exists to neglect the business relationship because the client is a friend.

So what's the difference between a friendship and a business relationship? It's important to understand the distinction:
  • In a friendship, the primary benefit is the relationship itself. The two parties are rewarded simply by spending time together because of their common interests and strong affinity.
  • In a business relationship, the primary benefit is the business results derived from the relationship. That's not to suggest that affinity between the two parties is unimportant—it is. But a business relationship must deliver business value to survive long term.
Every client relationship is by definition a business relationship, whether a friendship develops or not. Yet I've witnessed several times, like in the story above, where the friendship seemed to dull the service provider's attentiveness to meeting the client's business needs. Friendship should never be a substitute for fulfilling your responsibility to help your clients achieve business success.

A couple of important conclusions to draw from this discussion:
  • Not all clients want to be your friend. Of course, you know this. But I still see sales and client retention strategies that are arguably based on a friendship model. A telltale sign? Rainmakers who seem to call everyone they know "a good friend."
  • You don't have to have a friendship to have a great client relationship. Indeed, this has become the norm. This doesn't imply an impersonal association. You still need to meet personal needs. But you can do that without a friendship that extends outside of work.
With that backdrop, let me offer a few suggestions relative to client friendships and business relationships:

Don't make making friends the focus of your sales approach. Instead, center your strategy on demonstrating your ability to give the client exceptional client service and deliver strong business value. Of course, personal chemistry and affinity are important, but are not a replacement for taking care of business first.

Don't mistake client entertainment for client service. Thankfully, client policies (and a few lawsuits) have curbed most of the excesses in this area that were prevalent several years ago. But I still encounter some who feel it necessary to regularly entertain clients to gain or retain their favor. A better approach is to delight clients in the process of working for them, not only after hours.

Don't actively pursue friendships; let them develop naturally. Despite a long history of successful friend-to-friend selling and doing business, I'm not an advocate of trying to make friendships happen as a business strategy. You can certainly take steps to cultivate friendship, but it is ultimately the byproduct of mutual interests and affinity. These conditions don't always exist with clients, or it may take an extended period for the friendship to take shape. Don't try to force friendship into every client relationship.

If friendship develops, don't ease up in delivering business value. In fact, you should be all the more motivated to do your best in this regard. Unfortunately, friendship is sometimes used as cover for less than stellar performance. Be on your guard against taking client friendships for granted. Be diligent in establishing mutual expectations, refining your delivery process, closely monitoring performance, and regularly soliciting feedback from the client. I'd advise getting colleagues who don't share the friendship to help hold you accountable. They are likely to see dimensions of the client relationship that you don't.

Don't neglect other important relationships within the client's organization. It's easy to stick with your friend, especially if he or she has purchasing authority. But there is usually value for both parties in broadening the relationships on both sides. Strive for a "zipper relationship" (multiple people in multiple points of interaction) versus the "button relationship" that often results when friendship is involved. Make your friend look good by demonstrating business value to his or her coworkers.

Friday, March 6, 2015

Engaging Employees in Meeting Financial Goals

If your firm is like most, meeting financial goals is primarily the responsibility of owners and managers, not employees. In fact, as I wrote in a previous post, most A/E firms don't even share financial information with staff. I likened this to playing in a game where only the coach knows the score. The evidence is strong that engaging rank-and-file employees in meeting financial goals is a formula for success, but perhaps not for the reasons you might assume.

The first challenge in getting staff actively involved in meeting the numbers is convincing them that it's important, or even a good thing. Profit-making has never been so unpopular in this country. Big companies, in particular, are routinely demonized in the news media. The rich are portrayed as selfish rather than successful. Even the president contributes to these negative characterizations.

Not surprisingly, one poll found that 42% of Americans believe there should be a limit on how much profit a company can make (did you know that oil companies make about half as much profit margin as A/E firms?). A Pew survey found that more millennials favor socialism than capitalism (although another survey suggested that they didn't really understand the difference).

Do these trends matter when you're trying to engage employees in the profit-making mission of your firm? I think they do. Even without the bad publicity, you might struggle to get employees to take ownership for financial performance. After all, what's in it for them? Don't think that the promise of a slightly bigger bonus is going to motivate the average employee to really care about the numbers.

There are probably some entrepreneurial types in your firm who enjoy the money side of the business. But most need a different tact to get them excited about revenue, profit, and cash flow. Here's what I suggest:

Learn to describe the real value of what you do. Most employees, especially the younger generations, are looking for meaning in their work. They want to feel that what they do matters—beyond making money for the company. Unfortunately, many technical professionals struggle to connect our work to its true value. We tend to be task oriented rather than goal oriented. We're prone to focus on what we do rather than what we accomplish (for proof, read your firm's project descriptions).

The old fable of the quarry workers illustrates this point: A man comes upon three quarry workers and asks them what they're doing. The first worker replies, "I'm cutting building stones from this rock." The second says, "I'm earning a living to support my family." The third understands the real value of his work: "I'm building a beautiful cathedral." 

When your employees believe they're "building cathedrals," it puts the firm's financial performance in a whole different context. Profit then isn't just money in the owners' pockets, but a measure of value delivered. Define what success really means for your company, and the financial metrics become a way to keep score. And most people love to win.

Educate employees on what the numbers mean. Just as many millennials couldn't accurately describe the difference between socialism and capitalism, the chances are that most of your staff don't understand the financial terms that are important to management. So teach them. But do so in the context of value, success, and winning, not just profit-making.

Benchmarking against the industry can be useful in this way. To talk about how your firm is performing compared to similar firms can bring out the competitive nature in your people, increasing their interest in meeting the metrics. But don't just settle for equaling industry medians; strive to be better than average. That will generate more staff enthusiasm for the quest.

How you present the numbers also matters. Avoid spreadsheets for broader employee consumption. Most don't really understand how to interpret them. Charts and graphs are preferable. Besides being easier for most people to understand, they also are better for showing trends—important in gauging progress towards your goals.

Show the connection between what employees do and financial results. An employee may see her main duty as creating a quality work product, but fail to understand the business impact if it takes her twice as much time as was budgeted. A senior professional may not recognize that his doing a task that a less experienced and less costly coworker could have done can erode project profit or delay payment.

In most A/E firms the connection between project work and financial results is a vague concept to the average staff member. For many, simply having a better understanding of how their efforts benefit the bottom line can increase the perceived value of what they do. It can also motivate them to look for more efficient and profitable ways to do their work.

Don't ignore overhead staff in this discussion. They may not do billable work, but they have vital functions that contribute to the firm's financial results. Avoid talking about nonbillable time as a drain to the bottom line; instead describe it as an investment—one that must be wisely allocated (hence, not too much of it). The firm simply cannot be successful without expending nonbillable time on winning new work, collecting payment and paying bills, maintaining the IT system, hiring new employees, etc.

These are what I consider some useful steps in getting staff more involved in meeting your firm's financial goals. There are others. Have any ideas you'd like to share? Or any opinions on what I've written here? I'd love to hear from you.