Everyone knows that more customers equal more success, right? Moreover, every business guru preaches about scaling, growing your network, and reaching millions of people. However, what if this conventional wisdom is completely wrong for most businesses?
Additionally, there’s a hidden truth that successful entrepreneurs don’t talk about. Sometimes, having fewer customers actually makes your business stronger, more profitable, and more sustainable. Furthermore, this goes against everything we’ve been taught about business growth.
The Networking Trap That’s Killing Profits
Most entrepreneurs get caught in what I call the “networking trap.” Specifically, they believe that bigger networks always lead to bigger profits. Therefore, they spend countless hours trying to reach more people, serve more customers, and expand their market reach.
However, this approach often backfires in ways that nobody expects. Moreover, when you try to serve everyone, you end up serving no one particularly well. Additionally, your resources get spread so thin that you can’t deliver exceptional value to anyone.
Furthermore, the networking trap creates a dangerous cycle. Instead of focusing on making existing customers incredibly happy, you’re constantly chasing new ones. Therefore, you never build the deep relationships that create real business value.
Consider how Amazon started. Initially, Jeff Bezos didn’t try to sell everything to everyone. Instead, he focused obsessively on book buyers and made them extremely happy. Only then did he gradually expand to other products and customers.
The Power of Strategic Subtraction
Here’s where things get interesting. Additionally, some of the most successful businesses deliberately limit their customer base. Moreover, they actively say “no” to potential customers who aren’t the perfect fit.
This approach seems crazy at first glance. However, when you dig deeper, you’ll discover why it works so well. Furthermore, by serving fewer people better, these businesses create stronger relationships, higher profit margins, and more sustainable growth.
For example, luxury brands like Rolex could easily make cheaper watches to reach more customers. Nevertheless, they deliberately keep their prices high and their customer base exclusive. As a result, they maintain incredible profit margins and brand prestige.
Similarly, consultants who specialize in specific industries often earn more than generalists who try to help everyone. Therefore, narrowing your focus can actually expand your income.
The Hidden Costs of Too Many Customers
Most entrepreneurs don’t realize that customers can be expensive. Additionally, not all customers are created equal. Moreover, some customers actually cost you money even when they pay for your products or services.
First, there’s the complexity cost. Furthermore, when you serve many different types of customers, you need different systems, processes, and support structures. Therefore, your operations become complicated and expensive to maintain.
Second, there’s the attention cost. Moreover, difficult customers consume disproportionate amounts of your time and energy. Additionally, they distract you from serving your best customers who deserve more attention.
Third, there’s the opportunity cost. Instead of deepening relationships with profitable customers, you’re constantly dealing with acquisition costs and onboarding new ones. Consequently, you miss chances to create long-term value.
This connects to the boredom economy principle where simple, focused approaches often outperform complex, expansive strategies.
The Mathematics of Fewer Customers
Let’s look at some simple math that might surprise you. Additionally, imagine you have two business scenarios to choose from.
Scenario A: You serve 1,000 customers, each paying $100 per year. However, your cost to serve each customer is $80. Therefore, you make $20 profit per customer, totaling $20,000 annually.
Scenario B: You serve 200 customers, each paying $500 per year. Moreover, because you know these customers well, your cost to serve each one is only $200. Therefore, you make $300 profit per customer, totaling $60,000 annually.
Furthermore, in Scenario B, you have less stress, fewer support headaches, and more time to focus on what matters. Additionally, your customers are happier because they receive better service.
This example shows why the anti-network effect can be so powerful. Moreover, it demonstrates that revenue isn’t the same as profit, and growth isn’t always good growth.
Building Your Customer Filter System
If you want to benefit from having fewer customers, you need to become selective about who you serve. Additionally, this requires creating what I call a “customer filter system.”
First, identify your ideal customer profile. Moreover, be specific about who benefits most from your product or service. Furthermore, consider factors like budget, industry, company size, and specific needs.
Next, create qualification criteria that help you identify these ideal customers. Additionally, develop questions and processes that help you spot red flags early. Therefore, you can avoid customers who will be expensive to serve or difficult to satisfy.
Finally, have the courage to say no to customers who don’t fit your criteria. Furthermore, this might feel uncomfortable at first, but it’s essential for long-term success. Moreover, remember that every “no” to the wrong customer creates space for the right one.
Companies like Basecamp have mastered this approach. Instead of trying to build project management software for everyone, they focus specifically on small teams who value simplicity. As a result, they’ve built a highly profitable business with a relatively small customer base.
The Relationship Depth Advantage
When you serve fewer customers, you can build deeper relationships with each one. Additionally, these deeper relationships create multiple advantages that mass-market approaches can’t match.
First, you understand your customers’ real problems better. Moreover, this understanding allows you to create solutions that perfectly fit their needs. Therefore, you can charge premium prices because you deliver exceptional value.
Second, deep relationships lead to longer customer lifespans. Furthermore, customers who feel understood and valued are less likely to switch to competitors. Additionally, they become advocates who refer new customers without you spending money on marketing.
Third, close customer relationships provide valuable feedback for product development. Moreover, instead of guessing what features to build, you know exactly what your customers need. Therefore, you can innovate more effectively and avoid costly mistakes.
The Anti-Network Effect in Action
Several successful companies have used the anti-network effect to build incredible businesses. Additionally, their stories show how focusing on fewer customers can lead to better outcomes.
37signals (now Basecamp) deliberately kept their team small and their customer base focused. Instead of trying to compete with enterprise software giants, they served small businesses that needed simple solutions. As a result, they built a profitable company without taking venture capital.
Similarly, many successful consultants and service providers use this approach. Moreover, they choose to work with a small number of high-value clients rather than many small ones. Therefore, they can provide exceptional service while maintaining high profit margins.
Even in retail, boutique stores often outperform large chains on a per-customer basis. Furthermore, they create personalized experiences that customers value highly and are willing to pay premium prices for.
When Less Really Is More
The anti-network effect works best in certain situations. Additionally, understanding when to apply this principle is crucial for success.
It works well when you’re providing complex or customized solutions. Moreover, if your product or service requires significant support or explanation, serving fewer customers better often makes sense.
Furthermore, it’s effective when you can create significant switching costs through relationships and customization. Additionally, customers who have invested time in working with you are less likely to leave for competitors.
It also works when you can command premium prices through specialization. Moreover, being the best solution for a specific group is often more profitable than being an average solution for everyone.
Making the Strategic Choice
Choosing fewer customers over more customers requires changing how you think about business success. Additionally, you need to measure success by profit per customer rather than total customer count.
Furthermore, you need to resist the temptation to chase every opportunity. Instead, focus on becoming exceptional at serving your chosen customer segment. Moreover, this focus will make you more valuable and more profitable over time.
The anti-network effect isn’t right for every business. However, for many entrepreneurs, it offers a path to higher profits, less stress, and more sustainable growth. Additionally, it allows you to build a business that truly serves people well rather than just serving lots of people.
