CEO's Notebook

CEOs give advice on: learning how to identify the customers you don't want; enhancing your employees' health coverage; and integrating new employees into an existing company culture.

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Seller, beware!

How to spot the customers you don't want
By Christopher Caggiano

You know just who we're talking about: the high-maintenance, low-profit customer. The one that your years of experience have trained you to identify right away. Just by a first glance or from a conversation on the phone, you can tell that this is a relationship that will end badly.

Jeff Thompson, president of Peripheral Enhancements Corp., a manufacturer of computer-memory upgrades based in Ada, Okla., says it's become second nature to him to quickly identify problem customers. "You can call it a gut feeling, but there's probably no such thing," he says. "We probably notice the red flags subconsciously, the ones that say, 'I'm going to screw you! Don't do business with me!"

Some customers are so obnoxious, you know right away they're trouble. But, Thompson says, you also need to watch out for the customers who are too good to be true, "the ones that talk a great talk but don't bring up negatives," he says. "When all they can talk about is how easy they are to deal with--they always pay their bills on time, never return product--that's when you know they're hiding something."

Here are some other types of customers to beware of, based on observations from CEOs who have seen them all:

The holdout. Paul Bartko, CEO of the MBC Group, in Mahwah, N.J., which specializes in electronic data interchange and E-commerce, has had just about enough of the customer who says, "Lower the price now and we promise a long-term, profitable relationship down the road." "They tell you, 'Help us out with the price," he says, "which basically means, 'Slash your margins.' And why? 'Because we're going to give you a lot of business in the future.' And they never do."

The serial pain. Bartko is also leery when customers defect from his competitors without offering any concrete reason why. Or when they constantly discuss their bad experiences with their previous eight vendors. "That means headaches," he says. "We're obviously not going to make them happy."

The emergency victim. Kathy Doyle of Thompson Doyle Hennessey & Everest, a Boston real estate broker, says it's a red flag whenever she hears that a client must go out today to look at office space. "Anyone who has to move immediately makes me nervous," she says. "Usually, they either didn't pay their rent or they don't plan very well or make efficient decisions."

The impolite lout. On a more subtle note, Doyle also is wary of customers who don't say, "Thank you." "It's such a simple thing," she says, "and there are so many ways to say it. Like paying your bills on time." Courtesy and prompt payment, she finds, typically go hand in hand.

The simple pawn. Ann Price of Motek, a warehouse-software developer in Beverly Hills, Calif., steers clear of potential customers who make much of their company's internal politics. "They say, 'My job is riding on this," she says. "When people don't take responsibility for their current situation, they either aren't in a decision-making position--which is bad---or they are but are trying to make you think that they aren't, which is worse."

The culture clasher. Price is also careful to make sure that the culture match between her company and that of prospective customers is a good one. "It could be anything from they're a suit-and-tie organization and we're T-shirts- and-jeans," she says, "to they're morning people and we're a nocturnal bunch." Price also avoids customers who love meetings just a little too much. "I actually now count how many people from the client company are in the meeting," she says. "If there are more than five, I know it won't be a good fit."

Not all problem customers are nightmares. Some spell opportunity. Adam Lavine of FunYellow.com, an Internet-software-development business in Princeton, N.J., says that often the best next-generation, five-years-out ideas come from the most annoying customers. "If someone is never satisfied with what your product can do, your first reaction can be, 'Great, thanks," he says. "But if you double-click on the customer's thought and say, 'How would you want that to work?' sometimes it leads to the next breakthrough idea."

The upside of the downside
Maybe the economic climate is as good as they say. Although in the first 10 months of 1997 business failures were at their highest levels in several years, during the same period in 1998 the rate of failure dropped by more than 14%. The figures come from the Dun & Bradstreet Economic Analysis Department. -- Cheryl McManus