When to say “no” to a client

When was the last time you said "no" to a client? Can you recall ever saying "we can't do that" or "we don't have the capability to do that?" If you are like most companies, especially in the over-promising web marketing and technology industry, probably rarely.

Don't worry, you are not alone. According to some studies by MIT professor of behavioral economics Dr. Dan Ariely, our obsession with keeping doors and thus options open is a predictably irrational human behavior. That is -- we tend to do it even when we know it is detrimental to us or those around us.

Loss Aversion

Loss aversion is the human tendency to prefer to avoid loss rather than acquiring gain.
Closing a door or option is experienced as a loss. Think of it this way -- would you rather get a 5% discount, or avoid a 5% surcharge? Rationally, these equal the same value. Regardless, we tend to prefer to avoid a 5% surcharge because, in the end, we are more adverse to loss.

Fear of Closing Doors of Opportunity in Business

In business, we retain unprofitable client relationships in the hope of a future gain. Or we promise more than we can deliver because, well, we don't want to lose business, do we?

Yet, this fear of closing doors has an untold negative effect -- we spend so much of our time keeping doors needlessly open that we forget that not all opportunities are alike. While we are busy working on tons of projects and client relationships, we lose focus and forget more important ones. There is even a term for this -- opportunity cost. That is, the cost incurred when you select one option over another.

And that is exactly the problem of not saying "no" to a client. When you don't say no, you are by default selecting the option of saying yes. And this is a commitment of your attention and focus. When you can not uphold this commitment (probably because you are too busy saying yes to every client) trouble will brew. Just give it time.

Case Study: Sherpa Web Studios Fires 50% of its clients

Last year Sherpa Web Studios had to directly face the ancient profit vs revenue decision. We struggled with this for quite some time. Yet, in the end we decided that we would prefer strong, close relationships over numerous, shallow ones. We preferred relationships with clients that invested in us as much as we invested in them. We preferred profit over revenue.

What happened? It was terrible.

• A lot of people got mad at us.
• We had to let go of some staff.
• We had to cut back on expenses. We even took a pay-cut.

But then, slowly, unexpected things started to happen.

• We hit time lines and budgets more frequently.
• The quality of our work improved.
• We started getting better projects.
• Clients became Raving Fans -- without prompting, they started to refer us to their colleagues or even *ask* to give a referral.
• Word of mouth and referrals increased. Our phone started ringing with new clients
• Morale improved. Its fun being liked!

Yes, we did have to decrease our size and limit our growth. But ultimately, we became more profitable (and got bonuses).

Such is the reward for facing your fears.