When it is important to optimize, not maximize

The following is based on one of The Covenant Group’s clients. All of the names and telling details have been changed.

Matt Corso is a 38-year-old financial advisor and recently became one of my clients. He has been in the business for five years and has built a thriving practice. Like many advisors, Matt started out marketing himself to people he already knew who were within five years of either side of his age - his natural market. Matt did such a great job serving those initial clients that many of them referred him to their friends or business associates they thought would benefit from his services. When I met Matt he was firmly established in the business, making over $85,000 a year in commissions. Unfortunately, Matt had a serious problem.

When Matt arrived at my office for our first meeting, he looked harried. As he rushed in he was flipping his cell phone closed, and trying to straighten his wind-blown hair with his other hand. He was sorry he was a few minutes late, but he was just run off his feet, trying to get from one client to the next. 

In fact, that’s why he had made time to see me. He had heard from a friend about the work I do and he realized he could use my help. As we talked, Matt painted a picture of his life for me. He worked five and a half days a week, and, some days, it seemed to Matt that he lived in his car. He made hurried phone calls, dictated letters to his assistant, and even wolfed down his lunch as he hurried from one side of the city to another to meet with his clients. His days were packed solid with client service meetings, and it was a rare event for him to be able to spend any time at all in his office, preparing for a meeting, or planning his next marketing action. 

He was going crazy. 

I told Matt to sit down and try to relax for the next hour. He needed to take a step back, examine why his business had become so labour intensive, and start thinking about how to correct the problem — before he burned out and started losing clients. 

After Matt sat down, I asked him to walk me through his current situation. He told me he had three hundred clients, mostly small commissions, and a handful of very high net worth clients that he acquired by marketing in the medical market. Those cardiologists, oncologists and plastic surgeons brought in more than 40% of his annual commissions, even though they were less than 10% of his client base. He wished he had a few more like that. Unfortunately, marketing was the last thing he had much time for recently. He was far too busy trying to serve all of his clients to pay much attention to filling his pipeline. Plus, he was sure that, even if he did acquire new clients, he wouldn’t be able to offer them the level of service he wanted. 

I suspected we were reaching the crux of Matt’s problem. I asked him to describe for me how much contact he had with his clients, and what he did for them. Matt told me he wanted to impress each of his clients, not just with his ability to solve their problems, but also with his eagerness to help. As a result, each client received letters and calls on a monthly basis. He met with each of them quarterly. And, he had a personal rule that he would respond to any and all client inquiries within three hours, during the business day. He had even begun a semi-annual newsletter for his clients. 

Matt believed this level of service set him apart from other advisors. All of his clients deserved the same red carpet treatment - not just the doctors who brought in the big commissions. Unfortunately, the service was killing him.

Obviously, Matt had reached his ceiling of complexity. The sad truth I had to explain to him was that the business model he was following, although generating commissions, was not a good long-term strategy.  By offering identical levels of service to all his clients, regardless of their value to him, he had been unintentionally following the same strategy as a not-for-profit business. As I explained, he had been following a ‘maximization’ strategy, instead of an ‘optimization’ strategy. He had misunderstood what you have to do to run a profitable business. And the results, as he was finding out, could be disastrous.

Matt was a little shocked by what I told him. He’d never imagined he might be running a charity before. But, as I explained, maximization is ‘a not for profit’ strategy. In this strategy, your aim is to maximize the benefit for all recipients. This was exactly what he was doing. For instance, if someone ran a charity devoted to ending world hunger, they would not be trying to end hunger in one person or one family, but for everyone, everywhere. Just as Matt tried to serve all his clients equally.

Optimization, on the other hand, means using the resources at your disposal to their greatest advantage or profit. For instance, in business, optimization often requires that you segment your market. Instead of providing a uniformly high level of service to all clients, and running the risk of burning yourself out, you should strive to provide excellent service to your highest value clients and lesser degrees of service to lower value clients. In order to reclaim his life, and then grow his business profitably, Matt needed to completely re-tool his approach.

Over the next few months, I took Matt through our prorgam, which is based on optimization. Although, the course covered all areas in Matt’s business, he faced two specific challenges: segmenting his client base and developing a service plan. Once he had streamlined solved those problems he could market himself more aggressively and in a more targeted fashion to the medical market. 

To start, Matt defined his top 20 list, identifying the twenty current clients or centres of influence most important to him. He defined his ideal client and target markets. Then he divided his clients into segments based on their value to his business. He created a service plan based on the optimization strategy he was now employing. He would offer his premium level of service only to the top 10% of his clients. The other segments received fewer letters, calls and meetings according to their value. 

Over a period of months Matt would have to learn to pull back from some clients in order to focus his efforts on the people most valuable to his business. He had to stop trying to feed everyone, and focus on helping those who would make him the most profitable. Only then could he use marketing and introductions to increase the size of his client base by finding more high-value clients in the medical market.

One year later Matt and I met to review his progress. In the previous six months, his commissions were up 80% over the same period the year before. He had lost a few low-value clients, but hadn’t panicked, and, in fact, profited from the extra time he had to market to medical prospects. Doctors now made up 30% of his clients and that number was steadily rising. He projected that, in the next year, he would more than double his income. The best news of all for Matt was that he no longer run ragged: he’d stopped working weekends and nights, and his peace of mind was returning.

Lessons Learned

Matt’s experience showed the importance of pursuing an optimization strategy in your business, rather than a maximization strategy.

In his story, we saw that, by trying to serve everyone, he had artificially capped his revenue potential and was on the verge of burnout. He was maximizing and his business was suffering. In fact, Matt had misunderstood the central philosophy of all businesses. He thought that, in order to make money, he had to focus on serving all of his customers, regardless of their value to his business. 

Although customer service is one of the most important aspects of running a successful business, Matt’s approach was misguided. He needed to optimize his service plan and that meant providing maximum value only to his highest value clients. 

Most importantly, Matt had to learn what not to do. This is the crux of optimization - you are defined by who you say no to. You need to focus your efforts on the clients who can grow your business and spend less effort on the others.

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The Covenant Group is referred to by many as the place entrepreneurs go to become Business Builders. They are considered to be thought leaders and have authored the best-selling books, The 8 Best Practices of High-Performing Salespeople, The Entrepreneurial Journey, and The Business Builder.