Customer vs. Client: Help Your Company Figure Out Which Types of Customers It Needs

 ...You mean we've had  clients  all along?

...You mean we've had clients all along?

At every place I’ve worked, the what-do-we-call the-people-who-pay-us question has been a subject of intense debate. At its core, the discussion boils down to what kind of company management wants to build. Being a “client business” implies providing a higher level of service and custom work than being a “customer business” does. That makes the economics of the businesses obviously different, but the customers vs. clients distinction also has major implications for the skillsets the business must recruit, the margins it can expect, and the partnerships it may need in order to succeed. It’s hard to find a meaningful aspect of the business that isn’t impacted by this decision.

My record of dealing with this issue has admittedly been mixed. Early in my product management career, I worshipped blindly at the altar of “self-service tools” and made some mistakes as a result. I naively thought that all users wanted tools that put them in control, and that guided my decision making. More reflection and experience would have shown me that while self-service products were great for us since they required less support, they often weren’t what our buyers wanted or needed. Now years removed from some of those unsuccessful product launches, it occurred to me that a big part of the problem occurred when we tried to force our users to be software customers when they wanted to be treated like clients who received more personal attention. I’ve tried to apply the lessons I learned from those experiences into my work today, as I confront the same questions about how the market wants to use my products, and what gives the client, the product, and my company the greatest odds of success.

If your company is debating this question right now, you have an opportunity to add major value and elevate your profile in the organization by shaping the discussion and helping to reach the right decision for the business. Buckle up, because answering this question ain’t as easy as it used to be.

 

Complex Products and Services Make the Customer vs. Client Distinction Fuzzy

So, what is the difference between a customer and a client anyway?

On his blog, Seth Godin writes, “The customer buys (or doesn’t buy) what you make. The client asks you to make something.” Godin is clearly right at the extremes: Chevrolet has customers, whereas an M&A lawyer has a client. But there’s a lot of gray area in between the extremes where this definition seems insufficient.

That customers-buy-products-while-clients-buy-bespoke-services was my rule of thumb for a while, but over time it became clearer to me that it failed to describe both of the industries I’ve worked in: (enterprise) software and, before that, consulting. Product companies and pundits generally refer to software buyers as “customers”, but product customization and configuration requirements have blurred the lines between customers and clients for decades. When a big company demands custom features and ongoing support before buying an “off-the-shelf” piece of software, are they behaving like a client or a customer? I’d argue it’s more the former, but the point is it’s not immediately clear.

For consulting firms the answer used to be clearer, but they have been blurring some lines of their own recently. Over the last five or so years I’ve watched the growing trend of strategy firms hiring for product manager positions. That’s a little strange when you consider that they are in the advice business, and most of us don’t consider advice to be a “product.” Nevertheless, I now see lots of people like this on LinkedIn:

What does it mean to be a product manager at a management consulting firm? More importantly, what does the fact that they employ product managers imply about the level of customized service their clients should expect?

Once client businesses standardize their outputs, those outputs feel less like personalized advice and more like off-the-shelf products. LegalZoom might be the perfect embodiment of this:

Is LegalZoom a product company with customers, or a service company with clients? In my view, it is closer to the former but clearly has elements of both. After all, you are still getting a (pre-packaged) legal service.

The Customer-Client Spectrum

In many sectors, the way business is conducted is too complex for black and white distinctions. It makes sense for these companies to think of the customer vs. client designation as a spectrum instead and then figure out where they should be on it. Here’s how I picture the customer-client spectrum, with some benchmark examples:

At the far left is the MS Office suite. When you use Excel and Power Point, you are a Microsoft customer. You pay the same price for the same product as everyone else, and you don’t get a phone number for someone to call when you have questions. At the other end are law firms like Skadden, Arps, Meagher, Slate & Flom. When their attorneys litigate on your behalf, they do a huge amount of custom work for you that they can’t re-sell to anyone else and for which they generally charge by the hour. In between those two extremes though lies a vast gray area in which different business and service models blend custom work with standardized products. The more standardized a company’s products and services are, the more its buyers are treated like customers rather than clients with unique needs. Conversely, the more individualized, configured or customized the product, the more its buyers are treated like clients.

Whether they do it consciously or not, most businesses have to decide how deeply to engage with their buyers and the level of support they will provide to help them get value from the product. Meanwhile, despite implying that their advice is always bespoke, advisory-type firms decide the extent to which they will standardize their methodologies for solving different kinds of problems in order to make a client-business scale as much like a customer business as possible.

(Sidebar #1: I call this phenomenon in the enterprise software and services sectors the Central Tendency Rule. Enterprise software companies downplay how much customization and support their solutions require, while advisory firms downplay how much they’ve standardized their methodologies. Each usually sits closer to the center of the customer-client spectrum than they’d have you believe.)

 

Big Customers Can Skew Your Position on the Customer-Client Spectrum

Muddying the waters even further, especially for customer businesses, is the fact that really big customers are always treated like clients. Marc Andreessen wrote a classic blog post on working with really big customers which stresses the unpredictability and strain of working with them for startups:

“A big company might study you for three months, then approach you and tell you they want to invest in you or partner with you or buy you, then vanish for six months, then come out with a directly competitive product that kills you, or alternately acquire you and make you and your whole team rich.
And you're never going to know why.”

I’d add to Andreessen’s point that no matter what you sell to a really big customer, they are always liable to order something that’s not on the menu and cause you to change course. Why? Because they can. Because they pay you a lot of money and they know you can’t afford to lose their business. And because they can yet again.

At the first startup I worked for, we had one client that accounted for 90% of our revenue at one point. We were a tiny shop, and they were a multi-billion dollar, Fortune 100 company. Our contract with them said that they licensed our software. In reality though, they got all of the people in our company on-demand to do whatever they wanted, in addition to the software

Drop everything and hop on a plane to be at your office for a meeting tomorrow? You got it.  

Do a huge custom analysis with your IT department to justify the investment? Um, sure.

Build a new feature that has no value to anyone else we want to sell to? Er…how can we refuse?

We couldn’t refuse, and we almost never did. When you harpoon Moby Dick, you’re going to go wherever Moby Dick wants to go. That alone can drag your business in a direction you never anticipated and change your perception of what the company ought to be. Now don’t get me wrong, having this customer did some hugely positive things for our company (besides just the revenue), and we had mostly good relationships with the people there. But there’s a cold logic you need to keep in mind with any customer, especially one on which you are highly dependent: They don’t care about your success. They care whether you’ll be around to serve their business.

Combine the complexity of products and services many companies offer with the additional distorting effect that really big customers can have, and it’s easy to find yourself in a place on the customer-client spectrum where you never intended to be. This creates friction throughout the business as people become confused with how they’re supposed to sell and what to promise customers. Discipline goes out the window, individuals get stretched too thin, and the profitability of customers probably goes down because the business isn’t as rigorous about scoping what it will and won’t do.

The good news if you’re in this position? It’s a great opportunity for you to develop expertise and show your leadership skills. By stepping back and asking a few fundamental questions about how the business really works, you can frame the issue in objective terms and chart a path to the best outcome for the business.

 

Frame the Customers vs. Clients Debate for Your Company

As companies introduce new offerings and expand into new markets, the optimal point for the business on the customer-client spectrum may shift. Your company may find itself in the wrong place on the spectrum without management realizing it simply because of its own innovations. Whatever the reason, figuring out where you belong on the spectrum is one of the most important strategic decisions the business can make. If you can answer the following questions, you’re virtually guaranteed to have a well thought-out position that can serve as an anchor for the discussion. Don’t be fooled by how short this list is – you’ll spend a lot of time on each of them:

  1. How do buyers interact with the company today?
  2. How well is the current setup working in terms of acquiring, retaining, and satisfying the people who use your products and services?
  3. In which direction should the company move on the client-customer spectrum in order to improve acquisition, retention and satisfaction?
  4. How can the company get to the desired state?

The answers to these questions together form the basis of a business case you can make for any strategic change in direction. At minimum, your analysis should get you included in the conversation if you follow best practices for driving adoption of your ideas.

 

1. How do buyers interact with your company today?

Start by thinking about the path customers follow from start to end when they interact with your company. If it seems like every ad agency trots out customer journey mapping tools these days, it’s because the process really works for understanding your customers’ experience working with you. If your organization has already done gone through this exercise, you should start with that. If they haven’t, then you can 80/20 the exercise on your own and still have more than enough information for your purposes:

Start with the area you’re most familiar with and work your way out from there. If you’re most familiar with how people use your product, capture your thoughts in that column first (as I’ve shown in the example above). The level of detail and confidence you have for those answers should set the bar for the detail you’ll want to answer the others. Pull on salespeople, account managers, marketers, your boss – anyone who has the information you need to fill gaps in your knowledge.

Don’t get too carried away with making the output pretty. Once you can fill out the table confidently and completely, you should understand the customer journey well enough.

2. How Well Is The Current Setup Working for the Business?

Once you’ve filled in the entire journey map, take a step back and look at the overall picture. You should now have a pretty good idea of how well your service model is working at each stage of the customer/client lifecycle. While the setup here may be “quick and dirty,” your analysis of each stage should be anything but. It may sound obvious, don’t forget to ask people how well they think the current state is working. Subject matter experts are often quick to explain how something works but don’t offer their thoughts on whether it works well unless you specifically ask them. People usually like being asked what they think, so don’t be afraid to ask.

(Sidebar #2 – I’ve written whole posts on listening to customers and how to collect feedback, but I highly recommend Esteban Kolsky’s ThinkJar blog as a primer on this. The “Feedback Comes in Many Forms” section in this piece is spot-on.)

3. Should the Business Move toward the “Client” or the “Customer” End of the Spectrum?

Research is over; now it’s time for critical thinking. Think hard about what the customer journey map shows you about how well the customer acquisition and retention processes are working. Combine that with any empirical and anecdotal evidence you have that illustrates customer satisfaction and engagement. Does the company need more personal relationships or more scalable relationships with its buyers/users in order to grow and keep customers happy? Look beyond your company as well. Refer to your mental model of the industry and how your company positions itself against competitors and how their actions are shaping buyers’ expectations.

Another angle you might approach this question from is how you want your buyers to view you. Is your company more likely to succeed if your buyers have a collaborative relationships with individuals at your company? Or should their relationship instead be more with the product rather than any individual? For many B2B vendors, the answer to these questions will be nuanced. Start by figuring out in which direction you need to move on the spectrum, and get more specific from there.

4. How Do You to Get to the Desired State?

If the answers to the first three questions reveal a need to adjust the business model in one direction or the other, the company may not be able to get there in a single step. Transitions usually require planning, and it may be that what the company needs it can’t get to right away. So if you really want to set yourself apart, don’t just settle for doing the analysis and making a recommendation. (Lots of people are happy to do the fun strategizing part.) Go further and do the hard thinking about how you would actually implement your proposal and what you think it would realistically take to get it done.

If you recommend shifting toward the “customer” end of the spectrum – Perhaps overinvesting in the relationships was the only way to win business in the early days. Startups for example often have to embrace non-scalable means to get over the initial hump. How you get the 10th customer is usually different than how you get the 100th or 1,000th. Now that you want to scale, can better product training or onboarding reduce some of the ongoing costs of supporting clients? Can you migrate help functions online through tutorial videos or package customer support some other way? If not, what partnerships with other firms might make sense to keep buyers happy without taking on all of the cost yourselves? Be sure not to forget about existing customers; how will you migrate them from one service model to another? And last but not least, which customers if any are you willing to lose because they don’t fit with the strategic direction of the business. Not all customers are created equal, and a business can’t be built around treating terrible customers like great ones.

If you recommend shifting toward the “client” end of the spectrumMany enterprise companies work hard to make their products self-service only to find that that without advice and support from the mothership, customers stop using their products. As I mentioned up top, software people are prone to interpreting the need for human support as a product failure when in reality they’re combating users’ app and tool fatigue. So what do you do when you need to support customers, but don’t want to be in the client advisory business? Having some kind of customer success layer within the business may be the answer. Pick the worst trouble spots you identified in the customer journey, and imagine what it would look like if you hired someone to make sure those problems no longer come up. What would the person in that role spend their time doing?

If you’re tempted to punt on the answer to question #4, don’t. By this point, you’ve done the analysis and critical thinking and identified a real opportunity to improve the business. Finish the job by figuring out how you can make it happen.

 

Have you spent time wrestling with this question in your company? I'd love to know how you handled it. Share what you've learned in the comments or drop me a note: christian@smartlikehow.com or @smartlikehow