As a B2B startup, there's going to come a time when you have to let go of a customer. It's an ironic role-reversal when you finally are in a position to tell no to someone who wants to pay you money, but firing a customer can be just as hard as winning a customer. Here's how to do it right.
A fellow Y Combinator startup recently had an issue with one of their earliest customers. This customer once was very valuable to them: they helped the startup to generate revenues, gain some credibility and validate some of their ideas.
But at the current stage of the startup, this customer wasn't a good fit for the startup anymore. The customer made too many demands which distracted them from their core mission.
It was time to break up with this customer, in order to focus on building their product in a more scalable fashion.
2 ways to get rid of them
There are basically two ways to fire a customer.
1. Create a situation where they fire you
The best way to create such a situation is by simply raising your prices to such a ridiculous level that they're surely going to cancel (or if they don't cancel, make the number so high that you'd actually be happy to keep them at that price!).
Get together with the person with whom you have a personal relationship and tell them:
"Listen, our business model has changed and we can't service you successfully anymore at the current price point. The economics make no sense for us anymore. We're forced to increase prices, and your new price is going to be $____________ [insert ridiculous amount].
I totally understand if you're not willing to go along with this, and if you decide that you don't want to pay this new price to keep using our product, we're going to help you transition out in the most successful way, we're going to give you plenty of time and do everything in our power to help you move over in a smooth way. But this is what it is, this is the new price, and I wanted you to know this as soon as possible, so you have a chance to make decisions and choose how to move forward with it."
2. Be upfront and honest
Just pick up the phone and tell them about the situation. Tell them that this business relationship doesn't make sense for you anymore. Tell them your business model has changed, your focus as a business has changed, and you can't continue servicing them as a customer anymore, because it would prevent you from growing as a company.
Be proactive, honest and transparent about it. Everybody understands that a business relationship needs to benefitial for both parties, and if it ceases to be, it's time to part ways.
Do it like a pro
You don't just want to make them feel like an unwanted customer. Breaking up—even if it's "just" a business relationship—can be emotionally tense. Show them that you really care. Do more than is expected of you, especially in a situation where things are difficult, and you'll discover that people talk highly of you.
Don't let this breakup turn into a dramatic conflict between the two of you. You don't want a disgruntled ex-customer to run around and badmouth you.
Do what's good good for your reputation, good for your brand, and what's the right thing to do anyway.
Be super helpful
Offer them as much help and support to transition to a new solution as you can afford. Provide them with a stellar offboarding experience, so that they have minimum pain moving out from your product into the next. Give them enough time to manage the transition. Even drive to their office and work physically when they need it.
Consult them on what's next
Maybe they'll need help to figure out what to do next: Build an in-house solution? Change to one of your competitors? (If so, which one?)
You know their requirements, and what the market has to offer, and thus are in an excellent position to give them great advice. Do it.
Who should tell the customer that they're being let go? Not some account manager, support staff or some low-level employee. It should be you, or a person with real authority who has been involved in the deal.
Don't break up by email
Ideally meet them in person, look them in the eyes and tell them what's happening. If you can't meet them in person, call them on the phone. But don't send them an email.
Do it fast
Don't delay the break up. Once you decide that you're going to fire a customer, communicate it with the customer as quickly as possible. Act fast. Don't wait around for weeks, don't postpone it because it's uncomfortable and you hope that you'll conjure up a better way to deal with this. The more you postpone this decision, the more problems accrue—the more they depend on you, the more money you took from them, the more promises have been made to them ...
What's more, as soon as you decide that this is not a good customer, you'll start deprioritizing them, people on your team won't be motivated to serve them well. It's just going to create a lot more bad will, issues, conflicts and challenges until you actually break up with them.
Just get it over with, wo both on you can move on as quickly as possible.
Do it with friendly strength
A lot of people feel really bad about breaking up. It's difficult, uncomfortable, and it'll probably upset the other side. It's natural to want to avoid that. And many people execute the break up with weaksauce.
That weakness will just outrage the other side even more. And it can often lead to an abusive reaction from the customer, who'll vent at you more aggressively. They'll often request unreasonable concessions, and they will try to strong-arm you into things you shouldn't agree to.
That kind of apologetic approach, can create an environment where they push you to agree to change your mind. They'll coerce you until you give in and say: "Well, you know what, you made some really good points, I'll go back to my team and we'll think about it again, let's see, maybe there is another way."
No, screw that. You made your decision, you stand by that. And when you tell them, tell them in no uncertain terms.
"Listen, here's what's happening, I feel really bad about it, it sucks, but it's the reality: we can't service you anymore, we need to part ways. We'll give you guys two months to transition off, we'll help you with finding another option, we'll come to your office and help you offboard, we'll do anything in our power, but within the next two months, you guys need to find another solution. We can't service you anymore, it's not going to work."
This is what's going to happen
You're not negotiating with them. You're telling them what's going to happen. Friendly, but strong. It might create temporary discomfort, but they will actually respect you a lot more for it, and it saves both you and them the time that you both might otherwise be wasting on trying to negotiate the case. They'll realize that this is real, there's no way around this, and they'll ask the right question: How do we move on from here?
That's exactly the kind of energy you want to have in this kind of conversation.
Firing customers: Learning to win new customers and close new customers is important. But learning how to actually fire customers can be just as important. Because bad, toxic customers, customers that derail you into a completely different direction that has no future for your business, can ultimately kill your business.