One of the most admirable aspects of Tesco’s success is in training all of its staff to view every shopper as a potential ‘Customer for Life’ and to treat him or her accordingly, especially when problems arise. Essentially the same thinking is at the heart of a course on negotiating which a high-flying friend of mine attended at Wharton Business School, i.e. before you start haggling, work out how much you care about your future relationship with the other side*. The logic – look to the longer-term, focus on overall value – is inescapable.
Which is why it is worrying, over this summer, to have seen so many examples of businesses abandoning such enlightened self-interest for the sake of short-term gain. Smart people only do this when survival is at stake – hence the curbing of my more normally optimistic outlook. Here are just a few of several examples…
Your bank wants your cash. One client was told by its bank last month that, despite all MBO loan payments having been made on time, in full, it wanted to “renegotiate” the terms, and was entitled to do so because turnover and margins were below target. My client pointed out that adding to his loan costs would exacerbate his biggest problem – cashflow – and undermine the business the bank was supposed to be supporting. The bank said it couldn’t help that. My client then pointed out that he typically held several million pounds of client money on account at the bank, money he would move if his bank persisted in undermining his business. His “Personal Banker” said that such accounts involved a different department and so made no difference to him. Both parties now know that, assuming my client survives, he’ll change his bank as soon as he can.
Your insurance company wants your cash. At least one major Employer’s Liability insurer of which I am aware is going after past and even existing clients for ‘Additional Premiums’, i.e. payments which are due if actual staff numbers and turnover for any given year were higher than projected when the premium was set. The additional premium can amount to tens of thousands. Traditionally, it has not been collected, but taken into account, together with the the long term value of the business when setting the following year’s premium. Now, on being told by its collectors that both clients and brokers were swearing they would ‘never return’, the insurance company’s reply has been, in effect, “So be it. We need the cash now.”
Your tenants want to keep their cash. Talking with a major player in the shopping centre investment market recently, the impact of Pre-pack Administration and the general legal abuses which limited liability permits was again driven home to me. Holding companies are able to put large retail chains into pre-pack, then go to the landlords of any locations they want to keep, still refusing to pay the outstanding rent whilst offering greatly reduced terms for future occupancy. Both parties know that, whatever the lease terms, future covenant value will be negligible, hence the landlord will get a better tenant as soon as conditions allow. Often, the retailer plays the same trick on its suppliers, wiping off old debts yet still wanting new stock, at lower prices.
My point here is not just that things are so tough that companies feel forced to care only about the short-term, it is that no one is making any extra money. Profits are coming from cost-cutting and, as in the examples above, by businesses taking money from others where they can, without providing any value in return. There is no net contribution to GDP, hence no green shoots. Closer to home, the question faced by businesses in danger of being caught in the crossfire (if you’ll forgive the mixing of metaphors) has been, what should we do about it? The options are limited, but mine include the following:
Offer help before you are asked. The cost of your goods or services to a client you know is suffering might be small in relation to its overall budget, but many managers have been charged with securing concessions from dozens, even hundreds of suppliers. By taking the initiative, you stand a better chance of making only concessions which suit you, whilst strengthening the relationship with your client.
Point out (realistic) opportunities. You need to be careful here, because clients don’t want your sympathy, especially when they are really hurting. But if you can, say, introduce a client to a source of new business, or mention a way in which someone else in a similar position has saved a great deal of money, you’ve got a friend for life (or until the next recession, at least).
Watch for changes in behaviour. More defensively, you do need to keep an eye on exposure to individual clients and, indeed, sectors. I have had one client of many years standing go bust on me and, in retrospect, the warning signs were there for months beforehand. Happily, when its successor emerged from the ashes of the old business, its directors re-hired me and made good the amount I’d had to write-off. Having thought I’d learned it the hard way, it’s a lesson I’ll not forget.
Invoice more often. This ties in with the previous point, helping to limit exposure and put out more markers to tell you if a business is about to go down and take a bit of you with it.
Are your own T&Cs too relaxed? A designer colleague of mine has, like so many, always had instructions from one client either via a brief email or simply a telephone call. Now that company is in trouble and refusing to pay all outstanding bills on the basis that there was no official order for them. Legally, it doesn’t have a leg to stand on, previous behaviour on countless occasions clearly establishing an implied contract but, again, in an attempt to save cash now, it is now willing to alienate, forever, a supplier who has served them well for many years.
There are, of course, many reasons to be cheerful and, having diversified a little, I’m personally enjoying working in some new sectors and business is brisk. But, having cut back on all the easy bits, it does look as though companies which are still struggling are now having to get nasty, and that this practice may be growing, not diminshing.
When you see some green shoots, eat them. Before some else does.
MT
* the course, ‘Bargaining for Advantage’, was run by G. Richard Shell and my friend was hugely enthusiastic about it. You can go on it if you pay Wharton $9,750 and can spare a week in Philadelphia. Alternatively, you can (like me), just buy the book of the same name for less than a tenner. It’s great for reminding you of all those things you sort-of know but, unless you negotiate for a living, never really practise.
