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Vendors and customers alike are facing some frank discussions about their relationships

Claus Jepsen Profile picture for user Claus Jepsen September 13, 2022
"It's not you, it's me" - breaking up is never easy. Claus Jepsen of Unit4 considers how vendors can review their relationships with customers that have reached a crossroads.

KYC or know your customer concept Process of Minimizing Financial Risks in Business Relationship. business identification concept vector © TA design - Shutterstock
(© TA design - Shutterstock)

Gartner has suggested that by 2025, 75% of companies “will break up with poor-fit customers.” In reality, this will prove to be a two-way process. It's worth exploring the important reasons why this is happening — and the steps that companies should be considering now.

The prediction by Gartner is based on the rationale that the cost of keeping less compatible customers is more than the cost of acquiring ones that are a good fit.

At first glance, this sounds cold and transactional. But some 'break ups' could actually be good for the long-term success of both parties, especially when it comes to enterprise technology.

Soaring expectations

In recent years, modular technology development and deployment has advanced dramatically in terms of what B2B customers can achieve. Expectations have soared and a new generation of customers now anticipate the highest value from any system, right out of the box.

Typically though, the enterprise solution they choose only delivers around 50-70% of what they would want right away — and the rest comes through customization, including workflow changes and various workarounds. This adds cost and delay, making customers question whether they are getting real value and if switching to another provider would be better?

Addressing these expectations is a growing challenge for enterprise technology vendors today. To satisfy poor-fitting customers and to protect their own Net Promoter Score (NPS), they need to keep devoting valuable resources to the relationship. Over time, it doesn't get any easier — or more profitable. Fortunately, there is a way out.

Shift to specialism

Increasingly, we're going to see more enterprise technology vendors able to provide something like 90% of what customers need — set up already — so they can achieve a swift ROI.

Of course, it's not tenable for vendors to apply this level of focus to every vertical and geography, so the big challenge will be to figure out where to specialize. Vendors need to ask themselves, 'Where are we strongest, where do we have the edge, and where is our greatest opportunity?'

They'll also need to factor in how much they really know about customer needs in any particular sector, as well as the processes, infrastructure, sub-systems, integrations, and best practice required in that domain. And it doesn't stop there. Specialized offerings also require the right customer care and a company culture to match.

But this raises an uncomfortable question — what about customers that don't fit any more?

Today versus tomorrow

Credible tech vendors will not suddenly attempt to 'drop' poor-fitting customers or shun renewals. Rather, the pragmatic way to handle this is for a vendor to make a conscious decision not to bid for new business with customers outside their new areas of focus.

Winning such business could have a short-term revenue gain, but long-term it's going to throw a monkey wrench into the vendor's strategic plan. So they must stick with their vision.

Life will change for customers too. Discovering a vendor isn't interested in your business might be painful, especially in some verticals or geos that could feel 'left behind'. But, while some enterprise vendors step away from the table, eco-systems of micro tech vendors will fill the space. Before long, their niche solutions will get customers closer to 90% of functionality quickly.

Three key questions

We're now in a period of rapid re-alignment where many forward-looking vendors and customers are thinking deeply about their strategic direction and are moving away from generic systems towards best-of-breed solutions for specific verticals. 

To find the right path forward, both sides need to answer three questions: 

1. Where are we headed?

Vendors need to be very honest with themselves and open with customers about the verticals and territories where they intend to specialize. Their selection of sectors and territories should include financial data and analysis of customer types, opportunities, and risk.

At the same time, customers must revisit their own roadmaps and clarify exactly what they want from software vendors. They can then check whether the roadmaps match. Remember, it's not just about today — but where will your vendor be in 3-5 years.

2. How open are we?

This might seem like an odd question. But traditionally, some vendors have wanted to 'own' everything in their realm. However, that's not how technology works any more.

Increasingly, customers will demand openness and greater agility. To succeed, they'll require problem-solving skills and effective solutions from vendors about how they should best connect with legacy systems, link with outside technologies, and harness innovation. They'll want vendors that look at challenges and opportunities through the customer's eyes as their starting position. Vendors and customers must check if they share the same mindset.

3. Will people get what they want?

Alignment is about more than customers and vendors — it's also about the next generation of users and whether the overall 'people experience' makes them feel motivated and committed.

Today's new users expect immediacy, speed, and convenience. They demand frustration-free tech, just like they rely on in their personal lives. Their systems should be intuitive too, taking only moments to learn and enabling them to handle workplace tasks relatively simply. To succeed, the tech must give them what they need to thrive.

To summarize, the realignment process will take time and require deep strategic thinking. But it's in the best interests of vendors, customers, and their people to make this a priority. Nobody likes to break up. With the right approach, you'll find yourself in like-minded partnerships that drive you forward for years to come.

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