One of the biggest problems I see with new entrepreneurs is that they don’t know what a successful business is supposed to look like, and there’s a real tendency to do what sounds good, as opposed to what works in the real world.
The latest feel-good advice making the rounds is that you should be highly selective about the business you are willing to do and the clients you want to engage with. After all, if you’ve got to focus – and we can all agree that you do – why not focus on the kind of work you want to do and the kind of people you want to work with?
Seems to make sense, doesn’t it? It does ... if you don't mind living hand-to-mouth for the rest of your life.
In 30-plus years in the high-tech industry and beyond, I’ve never once seen that strategy work, but I have seen it fail dozens, if not hundreds, of times. More importantly, some of the world’s most famous entrepreneurs and companies would never have achieved a fraction of their success if they’d followed that ludicrous advice. And neither would any of the successful founders and companies I’ve worked with.
Related: How to Know When to Change Direction
I’ve got a story for you. You may have heard a popular spin on it before, but this is what really happened.
In the summer of 1980, a bunch of suits from IBM flew to Seattle and asked Bill Gates of startup Microsoft to supply them with an operating system for a new product called a personal computer. Gates was into programming languages, so he referred them to Gary Kildall of Digital Research (DRI) down in Pacific Grove.
When the IBMers showed up at DRI, they met with Kildall’s wife and business manager, who refused to sign their NDA. And while they did later meet with Gary, for whatever reason, they weren’t able to reach an agreement to license his popular CP/M operating system.
IBM went back to Gates, who finally agreed to help them out. Gates bought another operating system, QDOS, from Seattle programmer Tim Paterson for $50,000, made some changes to it, and licensed it to IBM on a nonexclusive basis for a per-copy royalty fee.
The lesson is simple. While IBM wasn’t either founder’s ideal customer – Gates because he didn’t do operating systems and Kildall because he didn’t like the suits – Gates was far more flexible than Kildall. He did the deal and, as a direct result, became the richest man in the world and chairman of one of the most powerful companies in history.
Granted, that’s just one story, but I can tell you dozens of others that highlight why you should always be open and flexible to the needs of your customers and why, besides obvious criteria like their ability to pay and your own ethics and instincts, you should not be selective about whom you do business with.
The truth is, customers typically know their needs and how you can serve them better than you do. More importantly, they’re often aware of growing trends and, sometimes, they’re the ones that come up with market-making breakthroughs, as was the case with IBM.
That’s why the vast majority of successful startups don’t make it big with their first idea. They learn from their customers. They learn from the market. They adapt.
Not to mention that characterizing or judging a potential customer in any way other than in business terms is, to be blunt, absurd and idiotic. You can’t tell a book by its cover, simple as that.
One more complementary piece of advice: Service businesses can be tough. The problem is your revenue is directly proportional to your time. That's why developing and marketing a product or licensing a technology is almost always the way to scale and grow a small business into a thriving profitable company.
Besides Microsoft, companies as diverse as Dell, Sony, Starbucks, 3M, and Kraft Foods – all of which began as small service businesses – all listened to their customers, followed the market, graduated to products, and became industry-leading giants.
If you like living hand-to-mouth, be selective about your business and customers. But if you have bigger goals for your business and your life, look at each potential customer as an exciting new opportunity. Listen, learn and adapt. That’s the path to success.
This post originally appeared at Entrepreneur. Copyright 2014.
Steve Tobak is a management consultant, former senior executive, columnist and author of the upcoming book, “Real Leaders Don’t Follow." Tobak runs Silicon Valley-based Invisor Consulting where he advises executives and business leaders on strategic matters. Contact Tobak.