Archive for September, 2011

Second hardest thing in business

September 30th, 2011 No comments

The hardest thing most people have to do in business is lay people off. It’s a business decision that very few take lightly and most of us will do almost any thing to pass the responsibility on to someone else. I honestly think it can be harder to lay someone off than to be laid off yourself. (I know that’s certainly been my case.)

The second hardest thing might be to raise prices. Nobody likes it and today, customers have grown to expect the opposite. But as many small tech companies have noticed, we’re usually not selling millions of widgets with healthy year-on-year growth, so that, even in a weak economy, we might be forced to raise prices.

Setting prices in the first place is a difficult task. Of course you’ve got to cover your costs–all of them, even the tiny hidden ones–but you’ve also got to have something left over to help your business grow. As conditions change, though, what used to be rolled up in the economies of scale might become a distraction from strategic goals and prices have to be increased to accommodate this market reality. Meanwhile, your customers are going to have trouble seeing what’s in it for them. Understanding how you set the price and what’s changed is something you’re going to have to explain.

Therein lies the good news in this uncomfortable situation. We need to communicate with customers, and the more often we have a chance to do that, the better we can take care of our relationship with them. Raising prices is an opportunity to have a (difficult) conversation. The wrong way is to wait until customers send a purchase order and ask them to revise it. Instead, bite the bullet and be pro-active. You’ve got to let them know not only what is happening, but, most importantly why.

You may be raising prices because costs have gone up, or because your competitors are charging more and you just think you can squeeze a bit more out of the market. Niether point is terribly interesting to your customer. Better is too look for something that might actually matter to them. You may be reaching, but maybe all you can say is that doing this strengthens your committment to manufacturing the widget they purchase, or enables you to invest in necessary improvements. That isn’t much, but it beats begging and usually, it is, at least, an honest answer that a rational purchasing agent can understand. It is especially true that original equipment manufacturers (OEMs) need to see their suppliers as partners who need to make money if everyone is going to be successful.

You know the story: that’s a feature, not a bug! You’re not raising prices, you’re ensuring the success of their product! Hopefully that’ll work! If you can’t afford not to raise prices, then losing the customer is the best thing for your business anyway, and if not, you could always back off. Just don’t try that too often!

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We got along just fine without them

September 27th, 2011 No comments

I’ve been bought a few times. Well, not me, actually, but the company for whom I was working was acquired by a larger one. Once or twice, I was on the acquired side too, but, with many small tech companies developing ideas which require much more money than the owners can find between the couch cushions, being acquired is a common occurance. And it rarely happens friction-free.

The so-called “cultured clash” usually has more to do with communication than differences in how to run a business, which is not to say there aren’t real issues. One experience I’ve seen repeated without fail is the feeling of employees at the smaller company that the red-tape and bureaucracy of the bigger is costly and a waste of time. ‘We never had to do that before we were acquired and we got along just fine!’

There’s just one big flaw in this thinking. You, dear acquired company employee or business owner, did not get along just fine. Otherwise, you’d have had little reason to be bought! Sure, there are exceptions. When the price offered was just too rich to ignore by the folks who stood to make a bundle, but those situations are rather rare–just look at how many successful acquisitions there are compared to failed ones–the acquired companies are struggling, somewhere, at least a little bit.

Once we realize that what looks like a bunch of annoying extra work may actually be covered by things like economies of scale, it’s easier to adapt to the new procedures. They are making you enter your orders at a company thousands of miles away, and you have dozens of new passwords for your e-mail; how can this be better? Maybe tracking business costs is exactly what propelled the bigger company to the top and keeping e-mail secret is more critical to their success than to a little $10 million dollar business.

Of course, the acquiring company may really have much it could learn from the acquired. The first step is to get things working well in whatever system the big-unmovable force needs, and only then suggest improvements. Ego during this process rarely helps anybody, and if you find the other side (remember, you’re on the same side now) is too arrogant to learn from you, it’s hardly the mature thing to cross your arms, stamp your feet and insist: no, you know better!

Some little companies grow up all by themselves, proving their business model and way of doing things really is the best thing out there. Most, though, go through some pretty big changes as they transition from five to twenty-five, to two thousand and five employees. Acquired or not, you’re likely to be doing business differently than you did before if you’re lucky enough to stick around through all that. Enjoy the ride!

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