Turning down business.

One of the biggest challenges that smaller companies face is knowing when to turn down business. It is really tough for a startup to say no to new business. They have payroll to make, servers to pay for, etc. How can they even think about turning down a customer that wants to give them money and let them make payroll? And that is the problem.

I had an interesting conversation with an executive from a big company today. He was telling me about it hurts them to turn down business. This company, mind you, is large (1,000+ employees), has no trouble making payroll, and is still growing a lot every month. But they still have a hard time turning down business.

Knowing when to turn down business.
Hopefully you have an idea about how profitable it is to do your core service. You hopefully know that X number of users translates into $X. Or that $X in revenue translates into $X in profit. As much as I am not a numbers guy, when you are thinking about turning down business, crunch the numbers. See if it makes sense from a numbers perspective to do the business.

But what about cases where it is a big customer that can help build credibility? If Microsoft or Google wants to buy your software for every single one of their employees, it may be a good move. It may not be a good move as well.

It is also very important to get feedback from your advisors, team, and partners about whether a move is right or wrong. Ideally, they have experience dealing with similar situations and can tell you whether or not it is a good idea to accept that extra business or to turn it down.

Long term or short term?
Another important thing to consider is whether this extra business is just for that customer or something you can do in the future as well. If you had planned to offer the service in six months, but the customer wants it now, do it. If the service wasn’t even on the roadmap, hesitate some more.

You don’t want to invest a lot of resources into just one customer’s custom setup. What if they leave? Will you be able to sell the system or get a return on the investments you made? If the answer is no, it may not be a good idea.

This new customer might be great for your short term goals, but may not be what you need to achieve your long term goals. You don’t want to have a tremendous invest in a potentially volatile customer/account, because if they leave, you lose out.

How to turn down business.
The actual act of turning down the business is the customer service part. You want to say no, but you don’t want to burn any bridges for the future. Something like:

Hi John,

We’ve discussed your request a lot internally. Our CTO and I have had several meetings with our senior engineers and product development experts. Unfortunately, we’ve come to the conclusion that offering -service X- at this point isn’t right for our company.

We are still a startup and can’t dedicate a lot of resources to a project like -service X- at the current time. We still think it is a great idea and something we will be open to discussing later on, but at this time, we simply can’t make it work with our relatively limited resources.

Thanks so much for your interest in Company Y. We would love to work with you in the future and stay in touch. Should you need any further assistance, please don’t hesitate to contact me.

Thanks again,

Bob Bobsen
Chief Executive Offer
Company Y

That email/letter is simple. It doesn’t go into a ton of detail – it just says that at the moment, this isn’t right for us. You don’t have to explain anything further than that. The potential customer will ask if they want details.

More importantly, the email/letter leaves off on a good note. It wasn’t a “We can’t do this. See you later!” but an invitation to stay in touch and thanking the potential customer for their interest. That is what you need to do and keep in mind.

Your experience.
Have you had to turn down business before? Did it work out? Tell us about your experiences. 

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2 Responses to “Turning down business.”

  1. Anonymous said:

    Jul 14, 07 at 7:57 pm

    Sometimes this will come in the form of purchasing another business… even if it’s in the same industry and has a very similar setup to you, it requires a good bit of planning, effort, and tons of communication. I tried to grow faster by acquiring, however unless you have a team ready to do this, it’s not easy.

    Also, I think it’s better to acquire an entire business and let it run under its own name rather than moving clients in between brands.

    Basically, know when to turn down an offer. It might make sense especially if it costs a lot to acquire each of your clients, but in the end, if you didn’t plan the costs properly from all aspects, it will very likely cost more than acquiring the same business through more conventional methods.

  2. Service Untitled said:

    Jul 14, 07 at 9:41 pm

    Thanks for your comment!

    Deciding whether or not to acquire a company is definitely a big decision. There are a lot of things that have to be considered.

    With big decisions like acquiring a business and whether or not to accept a big, custom order, you need to consider all of the details carefully and see how it will work out in the long run.