PDF Summary:The Pumpkin Plan, by Mike Michalowicz

Are you a struggling entrepreneur? Is running your company exhausting and overwhelming? In The Pumpkin Plan, entrepreneur and keynote speaker Mike Michalowicz says the problem is that you’re trying to be everything to everyone—you’re chasing every potential customer and offering every service those customers may want. To escape this overextended state, change your mindset from quantity to quality: Instead of trying to cater to everyone, focus on providing a unique product or service to the people who will most appreciate it—and doing so better than any of your competitors.

In this guide, we’ll discuss the components of the quality mindset, exploring how they benefit your company and how you can implement them. In our commentary, we’ll expand on Michalowicz’s insights with advice from his other books, as well as compare his ideas with those of other business experts like Ken Blanchard and Sheldon Bowles (Raving Fans).

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In this section, we’ll first explore what makes a customer valuable. Then, we’ll discuss the categories of value your customers can fall into and how you should respond to each category.

What Makes a Customer Valuable

We’ve consolidated Michalowicz’s definition of a valuable customer into three metrics:

1. Similar worldview. Valuable customers get along with you well because they have a similar set of rules that they approach life (and business) with. Michalowicz calls these “immutable laws,” as they’re extremely influential and never change. It’s easy and enjoyable to work with people who have similar worldviews, as you’re more likely to want the same things and understand each other. In contrast, you’re more likely to experience misunderstandings and conflict with people who don’t share your rules. You may also feel pressured to change the way you operate—to break your unchangeable rules—to accommodate them. This then leads to internal conflict and unhappiness.

For example, if part of your worldview is "Always take responsibility for your actions,” you wouldn't work well with people who are focused on protecting themselves from criticism. It would be frustrating to work with them, and they may take advantage of you by blaming you for anything that goes wrong, not just the things you’re actually responsible for. You might then feel tempted to act defensively and refuse to take responsibility at all, contradicting your own worldview and causing internal conflict and unhappiness.

(Shortform note: Can international companies prioritize similar worldviews? Your culture heavily influences your worldview, so people from different cultures often clash in this respect. Some business experts acknowledge that it’s difficult to work with or serve people from other cultures. However, their methods for overcoming this difficulty and building positive business relationships mainly address surface issues, like misunderstanding nonverbal cues, not the kind of immutable laws Michalowicz describes. This suggests that you can accommodate these surface issues without breaking your rules or facing internal conflict. Keep an open mind and research the other culture’s norms so you know what to expect and can look past those surface issues.)

2. Financially trustworthy. Valuable customers use your services regularly, pay their bills on time, and are likely to generate future revenue.

(Shortform note: One way you could increase customers’ financial trustworthiness is by using a recurring payment model. In The $100 Startup, Chris Guillebeau says that recurring payments are more reliable than single payments, and they encourage your customers to continue using your service regularly for an extended period of time. In addition, customers could set up automatic bill payments with a recurring model, ensuring they pay their bills on time.)

3. Cooperative. Valuable customers maintain good communication and are willing to work with you to resolve any mistakes instead of holding a grudge. (Shortform note: Building rapport can be an important part of maintaining good communication. Rapport is a friendly, harmonious relationship with another person, some business experts explain. When you have rapport with someone, they’re more likely to trust that you’re working in their best interests. This makes it easier to communicate—and to work together to solve problems. Building rapport requires attentiveness, positivity, and coordination, so look for customers with these traits.)

How to Rank Customers

Michalowicz uses a letter-grade system when ranking customers. We’ve divided it into four categories your customers could fall into, and describe how you should respond to each:

1. Most valuable. These customers are almost perfectly aligned with you in all three metrics. You’ll focus on catering to this small, elite group with every decision you make, as they’re the most likely to bring you future revenue and help you succeed. (We’ll discuss how to do this in Step #3.)

(Shortform note: How small and elite is this most valuable group? Some business experts say it may be less than 1% of your customer base, as studies show that 1% of customers can drive as much as 90% of a company’s overall revenue. These experts recommend surveying these customers to understand why they became so valuable—which the experts define by financial trustworthiness, excluding the less tangible metrics Michalowicz discusses. They also recommend using personalization engines to cater to each customer even more closely.)

2. Valuable. These customers are mostly aligned with you, with only minor differences, and they make up the majority of your customer base. You won’t focus on catering to this group, since you don’t want to diffuse your attention too much, but the decisions you make to benefit your most valuable customers will usually benefit them too.

(Shortform note: In Superfans, Pat Flynn describes “connected customers,” a group that roughly aligns with our valuable category. Flynn focuses on customers’ buying habits and marketing value more than Michalowicz, defining connected customers as people who regularly buy your products or services, trust your brand, and actively communicate with other customers. Flynn says this group isn’t the majority of your customer base. However, it does affect the size and value of your customer base, as this group builds a vibrant community that encourages other people to become connected customers—thus increasing their value. Help them build this community by coordinating live events and giving your customer base a name.)

3. Mediocre. These customers are aligned in some ways, and they don’t harm your company, so you don’t need to fire them right away. However, they’re not particularly helpful to your success, either, so you’ll try to gradually replace them with more valuable customers.

(Shortform note: One reason you may tolerate mediocre customers until you identify more valuable ones is the desire to boost profit. One study shows that you can increase profits by tolerating some bad behavior—or misalignments, in Michalowicz’s framing—if there’s a net benefit for your business. For example, a customer who tries to return a sweater after the return period is violating your policy—and may not align with your responsibility-first worldview—but if you allow the return and that customer goes on to buy three jackets and a pair of pants, your company ultimately makes more money.)

4. Bad. These customers aren’t aligned with you. They drain resources and stop you from succeeding. You’ll fire them immediately to minimize the damage they cause. (We’ll discuss firing bad customers in more detail in the next section).

(Shortform note: Some business experts add that you should fire customers who are hostile to your employees—for instance, by using insults or racial slurs. Firing them both removes their negative influence and can boost morale, as your employees see that you prioritize their well-being over a sale. You shouldn’t cut ties completely, however. If customers change their behavior, they may become more valuable.)

Step #2: Fire Bad Customers

Once you’ve ranked your customers, Michalowicz says you need to fire the bad ones—the ones who don’t share your values, aren’t financially trustworthy, and aren’t cooperative. As mentioned before, many entrepreneurs struggle with this step because they don’t want to lose any customers. However, the customers in this category actually damage your business: They drain resources, leaving you less time, energy, and funding to devote to your valuable customers who’ll actually help you succeed. By firing these customers—and eliminating the expenses associated with them—you give yourself room to better serve your remaining ones. As discussed, this better service will then attract more valuable customers, helping your company grow.

(Shortform note: In Profit First, Michalowicz goes into more detail about the damage bad customers can do to your company. He cites a study that found the top 25% of customers bring in 150% of your company’s profit, the middle 50% break even, and the bottom 25% cost you 50% of your profit. In other words, if you fire those worst customers, you could reduce your expenses and increase profit by 50%, even though you “lost” a quarter of your customer base.)

Michalowicz recommends re-ranking your customers every quarter. This ensures you catch any new bad customers before they can cause much damage. It could also help you decide which mediocre customers to fire when making room for more valuable ones. (Shortform note: Another potential benefit of re-ranking your customers every quarter is noticing changes in your valuable ones. Your customers may outgrow your company, Jason Fried and David Heinemeier Hansson explain in Rework. Instead of changing your products or services to retain those once-valuable customers, focus on attracting new ones that better align with you.)

How to Fire Customers

One method Michalowicz offers for firing customers is eliminating products or services that your worst customers use but your best customers don’t. Once you cut these products or services, the bad customers will likely leave, while the valuable and most valuable customers won’t care. Another benefit of this method is that cutting these products or services will give you more resources to pour into the products or services your best customers do use, making them happier and therefore more valuable.

(Shortform note: Before you eliminate a product or service, it may help to have potential customers lined up for your other products or services. Some business experts say having a way to replace the revenue you’ll lose when a bad customer leaves can give you the confidence to fire them. It helps you focus on the opportunities you’ll have once they’re gone—like using your freed resources to provide your other products or services to more people. Another way you could motivate yourself is by determining whether the products only used by bad customers are underperforming. Underperforming products drain resources, like bad customers, and knowing that you’ll save money in two areas may help you finalize your decision.)

Michalowicz also offers a more direct method: Tell the customer that you can no longer serve them, and offer a reason why. He suggests using the excuse that you made an agreement with another customer, and you have to focus on fulfilling it. You don’t actually need to have an agreement, he says, implying that simply giving a reason helps the firing process go smoothly. If you’re going to name a specific customer in your excuse, though, you should get approval from them first.

(Shortform note: Some business experts say that firing customers directly is the best method, as it shows empathy and respect for the customer. While they agree that you should explain why you can no longer serve the customer, they emphasize the importance of being honest about those reasons. Before firing the customer, walk back through their record and determine exactly what the problems were and how you tried to address them. Presenting these facts to the customer can help you be firm about your decision and stop them from arguing. In addition, this process confirms that you’ve exhausted your other options and firing them is the best option.)

Step #3: Continually Improve Your Most Valuable Customers’ Experiences

Once you’ve fired your bad customers, the next step is to improve your most valuable customers’ experiences. As discussed previously, this will further increase their value and help your company succeed. We’ll focus on the method Michalowicz spends the most time discussing: turning customers’ dissatisfaction into delight.

Turn Dissatisfaction Into Delight

You can improve your most valuable customers’ experiences by turning their dissatisfaction into delight—or fulfilling their wish lists, as Michalowicz frames it. Michalowicz says that your customers are likely dissatisfied with your industry in some way. If you can identify what irritates them or what they want done differently, you may be able to alleviate this dissatisfaction. Since these are industrywide problems, being the only one solving them will make your customers happier and make your company more unique and attractive (as discussed in the section on differentiation).

(Shortform note: When identifying customers' irritations, you may want to focus on ones that are long-lasting, as well as industrywide. In Perennial Seller, Ryan Holiday says that successful, long-lasting products address timeless issues, not trends. Other business experts recommend researching why other companies in your industry haven’t addressed widespread issues yet. By learning what they’ve tried and why they haven’t succeeded, you can avoid making the same mistakes and instead find a truly unique and innovative solution.)

Michalowicz suggests interviewing your most valuable customers to identify the reasons for their dissatisfaction. Your questions should be industry-focused, not company-focused, he stresses. If you ask customers what they want your company specifically to change, they may be uncomfortable giving an honest answer. If you focus on the industry as a whole, you’re more likely to get a real answer. (Shortform note: Even with industry-focused questions, you may struggle to get real answers. In Blink, Malcolm Gladwell says we often struggle to articulate how we feel about things because our perceptions rely on intuition, not logic. When we try to verbalize what we feel, we end up inventing explanations that sound logical but are inaccurate.)

Once you’ve identified why your customers are dissatisfied, brainstorm ways to improve their experiences. The method you use will depend on your industry and the source of dissatisfaction: If you run a grocery store and customers complain about long lines, you may offer self-checkout as a new service, but if they complain about high prices, you may make deals with local farmers to buy produce more cheaply so you can then lower your own prices.

(Shortform note: You could also potentially identify customers’ dissatisfactions by noticing when and why they feel intense emotions like anxiety. This is especially important for companies in industries that already carry emotional weight, some business experts say, like funeral services or insurance companies. Customers are usually emotionally charged for one of four reasons: They’re unfamiliar with or don’t understand the service you’re providing, they can’t control your process, there will be serious consequences if things go wrong, or the service takes a long time to complete. To improve their experiences, identify which parts of your process will likely trigger negative emotions, respond to those emotions quickly, and help the customers feel in control.)

Finally, propose your solution to your most valuable customers, and ask for feedback. Since they’re the ones you’re trying to help, they’re the best people to judge whether your plan will work. Michalowicz says to revise your plan until customers ask follow-up questions like how much the new service would cost or when you’re going to implement the new strategy. These questions show that customers are excited about your solution and that your plan would significantly improve their experience.

(Shortform note: In How to Win Friends and Influence People, Dale Carnegie recommends a similar process when trying to attract new customers. If a customer isn’t receptive to your pitch, ask what specifically they liked or didn’t like about your product and what they’d prefer. These questions can help you improve your product and pitch to be more effective, like Michalowicz says. However, Carnegie adds that just talking about the product can make people more likely to buy it, even before you make adjustments. This is because people like coming up with and executing their own ideas. It makes them feel smart and in control. So, people become invested by sharing their thoughts about your product and thus think about it more positively.)

Component #3: Creating Operational Frameworks

The final component of the quality mindset is creating operational frameworks for your company. An operational framework explains one of your company’s processes in a clear and detailed way that your employees can easily follow to give every customer the same, high-quality experience that you would’ve personally provided.

For example, part of an operational framework for addressing complaints might look like this: “Listen to the customer's complaint without interrupting. Write down any details they mention so you can resolve the issue quickly. Once they’ve explained, say something like, ‘I understand why you're upset. I would be too.’ This validates their feelings and shows them that you’re on the same side, so they’re more likely to work with you instead of blaming you.”

(Shortform note: In First, Break All the Rules, Gallup Press recommends the opposite approach. They say dictating processes is a form of micromanagement that stifles employees’ talents and productivity. And while dictating processes may ensure employees meet the basic requirements of acceptable service, it won’t help employees create true customer satisfaction because it doesn’t leave room for employees to form personal connections with customers. Instead, they say, focus on defining goals for your employees to achieve, and let them decide how to do so.)

In this section, we’ll first cover the benefits of creating frameworks, then discuss how you can create them.

The Benefits of Creating Operational Frameworks

One benefit of creating operational frameworks is that they keep the company running smoothly as it grows. When your business was small, you likely kept everything running and did most of the work yourself. As the business grows, this becomes unsustainable: You won’t have time to ensure each customer is satisfied and receiving high-quality service, so you must ensure your employees can provide that service without direct supervision. Otherwise, you risk your quality of service declining, which can drive customers away.

(Shortform note: Operational frameworks don’t just allow you to deal directly with a growing customer base—they also help ensure a smooth workflow within the company. In The Phoenix Project, Gene Kim, Kevin Behr, and George Spafford highlight the importance of creating frameworks that prevent bottlenecks that constrict workflow. This includes creating a tracking method to monitor and schedule work, integrating a quick feedback system, and identifying and solving problems immediately. This speeds up workflow, aligns departments within the company, and ultimately enables you to more efficiently meet your customers’ needs.)

Creating frameworks also grants you greater freedom. Instead of working long hours trying to manage a large number of customers because you’re the only one who can do so, your employees can manage the customers themselves by following the established process. This means you can work less even as your company grows—the company can continue operating normally without you, so you can take time off, whether for leisure or in case of an emergency.

(Shortform note: In Fix This Next, Michalowicz describes taking time off as not only a benefit of documenting processes, but also a way to encourage it. If you schedule a four-week vacation, you’ll be forced to document your processes so your employees can continue normal operations in your absence. He recommends scheduling such a vacation for every essential employee, to ensure anyone could take time off for leisure or an emergency without risking the company’s stability.)

Finally, creating frameworks for your company will save you time and effort in the long term. Once you establish the framework, your employees can complete the task whenever necessary, giving you more time to complete more important tasks. Many entrepreneurs avoid doing so, however, because creating a framework is time-consuming and effort-intensive in the short term. They’d rather spend an hour completing a task than spend 10 hours creating the framework. Michalowicz suggests overcoming this mindset by remembering that the time you spend on the task is cumulative: If you have to complete the task every month for the next 10 years, you’ll spend 120 hours on it. Compared to that, 10 hours to create a framework is reasonable.

(Shortform note: Another reason people may avoid creating frameworks is a lack of urgency. In The 7 Habits of Highly Effective People, Stephen R. Covey says urgent tasks are ones that must be addressed immediately, while important tasks are essential parts of your job but aren’t time-sensitive. Tasks can be either urgent or important, both, or neither. You may be tempted to neglect tasks that are important but not urgent—like creating frameworks—because they’re less attention-grabbing. These tasks will most benefit your company, though, so you should prioritize them. You can also save time and energy by delegating or eliminating unimportant tasks. To help you identify unimportant tasks, first define your goals and principles—what is important.)

How to Create a Framework

To create a framework, Michalowicz says to first identify the task you perform most often for your customers. Then, explain exactly how you do that task. The goal is for someone with no training to be able to read the explanation and then complete the task exactly as you would have, so be detailed and include all of your tips, tricks, and advice. Once you’ve completed the initial draft, walk back through the process and add any information you missed on the first pass. Keep doing this until you’re certain you’ve recorded all the information necessary to execute the task.

Once you’ve recorded all the necessary information, simplify your explanation of the process—Michalowicz says it should fit on a single page. Anything longer will be overly complicated and difficult to follow. He uses airline safety cards as an example of a properly created framework: They clearly and simply explain the process for surviving a plane crash on a single page, in such a clear way that anyone can understand it.

Another Method of Documenting Processes

In Traction, Gino Wickman offers another method of documenting your company’s processes:

1. Make a list of your company’s most important processes. Wickman defines “process” more broadly than Michalowicz, more like the function of a department than a single task. For example, he includes human relations, marketing, and sales as processes.

2. Document each process. This should be done by the person responsible for each process (such as the department manager). Wickman specifies that you shouldn’t include every detail. Instead, simplify by only including important steps and procedures, eliminating any redundant steps, and looking for areas where technology could increase efficiency. A single process should take up to 10 pages.

3. Compile the documents into a manual and train employees in the relevant processes.

Wickman says this method has the same benefits as Michalowiz’s frameworks. However, while this kind of high-level documentation may reduce the amount of oversight needed, it’s arguably less effective than Michalowicz’s method. Given the lack of details, employees couldn’t read it and then complete their tasks exactly as you would’ve. So, you have to spend time training them and answering questions about those left-out details.

In other words, instead of a simple airline card that explains what to do specifically in a crash, Wickman’s method is more like a book that generally explains how all the parts of an airplane work. While this book may be a useful guide for airline workers who’ve already been trained, it won’t be helpful to someone without that training.

Creating Frameworks for Unpredictable Situations

While frameworks work well for processes that are always completed in the same way, what about unpredictable situations, where you can’t record every possible course of action? In this situation, Michalowicz says to create a framework for your employees’ thought processes instead of their actions. If your employees think about problems the way you do, they’ll come up with similar solutions as well. Thus, you can confidently let your employees handle uncertain situations, knowing they’ll make good decisions that’ll benefit your company.

Michalowicz provides three questions to guide your employees’ thought processes:

1. Will my decision improve our most valuable customers’ experiences?
2. Will my decision support our unique approach to delivering products or services?
3. Will my decision benefit our profitability?

Michalowicz specifies that these questions must be answered in order. Employees must be able to answer “yes” to a question before moving on to the next. If the answer to any of the questions is “no,” then the employee must come up with a different plan. This is because the questions are ordered to prioritize the components of the quality mindset over other matters like profitability. Together, they ensure your company maintains its narrow focus and remains highly effective, instead of pursuing ideas that are profitable in the short term but diffuse your focus and harm your company in the long term.

Encouraging Alignment Through Culture

Another way you could ensure that your employees think like you and make good decisions is by cultivating a strong culture. In Built to Last, Jim Collins and Jerry Porras describe the culture of visionary companies as cult-like because all their employees are trained to think and act in the same way. These companies use several methods to maintain this kind of deeply rooted culture:

1. Enforce cultural alignment. This includes rigorous screening during the hiring process to ensure potential employees will fit the culture. It also involves rewarding employees when they behave in ways that fit with the cultural ideology and penalizing them when they don’t.

2. Immerse employees in the cultural ideology. This includes seminars that teach new employees about the company’s history and culture. It also involves giving employees role models who embody the cultural ideology to imitate.

3. Emphasize the culture’s exclusivity. This includes using terminology unique to your company and encouraging employees to socialize among themselves and not with outsiders. It also involves firing anyone who doesn’t align with the culture.

To combine Michalowicz’s framework with this kind of culture, you might integrate his questions into these methods. For instance, you could ask potential employees what the most important parts of business are. If they don’t mention the customer experience, that may indicate cultural misalignment. During employees’ onboarding stage, you could hold seminars to train them in the three-question method. For established employees, you could reward those who make decisions based on the correct order of questions and penalize those who don’t. This includes firing those who continually fail to follow the framework, as they threaten the company’s focus and effectiveness by not prioritizing the quality mindset.