Choose Your Customers Carefully

The Culture Chronicles

June / July 2007 By: Paul Short Volume 5 Number 3

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I recently had an argument with a good friend who was starting a second business. It began when he described his strategy to me, a version of which I've heard a dozen times in the last year. It goes something like this: "I'll get a lot of my R&D done with SBIRs (Small Business Innovative Research contracts), and then I'll sell the widgets to Intel (or Microsoft, Cisco, or the big, sexy company du jour.) That way I won't have to dilute my ownership with equity capital."

My contention back to him: that's a recipe for failure. Worse yet, it's not even going-down-in-flames failure, but living-death failure, the kind where you never boom but never go out of business.

A company's culture cannot be much different than that of the customers it serves, and customers in different markets have radically different cultures.
Trying to mix behaviors from different markets is like mixing oil and water; behaving like a government contractor will get you nowhere in any other market.
A few years ago I visited a couple of PC motherboard manufacturers in Taiwan. The surroundings were austere, the offices packed tight, the pace frenetic. If you want to be a supplier to them you have to make your deadlines—€”miss by just a week and you've missed the next product launch. Your volumes will drop from millions to zero overnight. It takes an iron stomach and a relentless focus to supply to the PC industry. A culture tuned to the PC market has little room for niceties.

I've had lots of experience supplying to industrial controls manufacturers. They sell their products for decades, so being a little late on a product delivery won't kill you. The best way to lose their business is for your products to fail once they're out in the field, no matter how harsh the conditions or how many years they've been out there. The industrial culture is methodical, quality oriented and safety conscious. Such a focus would fail instantaneously in the computer market, and vice versa.

And so it goes. The telecom industry is constantly changing, so to succeed there you must have an innovative company that spits out inventive products regularly. Automotive manufacturers are like the borg; you must assimilate into their crushingly quality and cost-conscious ways of doing things if you want a nickel of their money.

Then there are government customers. When I worked for a big conglomerate we had different divisions for the military and commercial divisions, even though the products were almost identical.

Why? Government employees do not make decisions the way a PC company does. They don't have sales or customers in the normal sense—€” their ultimate customer is Congress. (You might argue that taxpayers are government customers, but when customers have no choice, they have no influence on the organization. This is why government-sanctioned monopolies like phone and cable companies have such lousy customer service.)

Governmental organizations are measured by a different yardstick. One classic example is the common practice of spending money at the end of the fiscal year on items that are not needed and sometimes not even used. Budgets are set based on prior year's spending, so it's spend it or lose it. In a normal business finishing the year under budget is rewarded, not punished.

I don't mean to bash government workers or those that sell to them. They are acting rationally based on their situation. But it doesn't change the fact that such organizations are slower to innovate and are risk averse compared to other industries.

A culture geared towards winning SBIRs is ill suited to the fast-paced telecom marketplace. In fact, it's ill suited to do anything but win more SBIRs. They take forever to get and are rarely focused on precisely what you need for Cisco or Tellabs, so taking an SBIR is bad for your business if those are your ultimate customers.

Rep. George Brown (D-Calif.) and James Turner (House counsel) said in a recent report about the SBIR program, "Most SBIR awards aimed at the commercial marketplace do not lead to major commercial successes and most SBIR awards aimed at government needs do not result in federal procurement contracts."
So, I argue to my friend, why are you basing your business on a strategy that's been proven time and again to fail?

If you want to sell into a specific market, understand the culture of your customers. Your culture cannot be radically different from that; if it is, you have little chance of success. If you want to sell to the government, sell to the government. If you want to sell to Dell, don't sell to the government. It'll kill your chances. Align your culture with Dell's and sell to them.

Paul Short is CEO of Quadric, Inc., and runs the web site, www.culturechronicles.com