The People You Keep Away

Almost every organization focuses on attracting good clients and recruiting valuable employees. But fewer companies focus on keeping out the bad ones. The bias is always towards more clients, more applicants, and more sales. But all clients and customers are not equal, and many find out the painful way how unprofitable and stressful it is chasing the wrong group. There might be more value in keeping out the negative rather than attracting the positive, even though every corporate initiative tends to focus on attraction, rather than repulsion.

Costco’s membership card is a great example. A typical annual fee ranges from $65-$130. On episode #189 of The Knowledge Project Podcast, Chris Davis told the story of once asking Charlie Munger, a Costco board member, why Costco didn’t drop the membership card to bring in more customers. After all, it wouldn’t take many more customers to offset the loss of membership revenue. Here’s Charlie’s insight:

…the card is an important filter: Think about who you’re keeping out [with a membership card]. Think about the cohort that won’t give you their license and their ID and get their picture taken. Or they aren’t organized enough to do it, or they can’t do the math to realize [the value]…that cohort will have a 100% of your shoplifters and a 100% of your thieves. Now, it’ll also have most of your small tickets.

…Charlie called this the intelligent loss of sales. Most people just think more is better. But more is not always better. It’s who you keep out.

It applies to clients, friends, relatives, and employees. Who you keep out can be just as important as who you let it. Don’t make it too easy. The world is obsessed with growth at any cost, neglecting the enormous cost of a bad client. Slower, but higher quality growth, is the key.

It’s the same with employees. Zappos is famous for its approach to sort bad employees from the good: it paid them to go away. Zappos would offer $2,000 to recent new hires to quit. And after Amazon bought Zappos, it retained the program and called it, “Pay to Quit”, bumping up the payment to $5,000.

It’s a simple commitment test. Those who have a deep commitment and see a long-term future forgo the payment. Those who took the job half-heartedly likely take the money. Let people self-select. Don’t ask people about their commitment or judge it by their resume. Offer them money to prove it.

A cover letter is another useful tool. It’s easy to blast out resumes. It’s much harder to craft a compelling cover letter, even with AI. Make people invest some effort, rather than fake it. No doubt you’ll lose candidates with a cover letter mandate, but you’ll be glad you did.

Spend a little money today to save a ton of headaches later.