IT Suppliers: your second most important relationship. The margin isn’t everything.
Our guest author this week is Graeme Coghill, CTO of Company Connecting. His relationship with his suppliers and his customers helped him through a difficult patch. He points out that '... it’s easy to do business when everything is going well, however when the going gets tough the only thing keeping your business going is the trust / relationship you’ve built up over the years.
When I started my first company I made mistakes which I learned from (thankfully) and I’m still learning. The most important one was to realise that people will do business with people they like. There is nothing wrong with that; however it does mean you will not close every sale and you shouldn’t be selling products/services at the first meeting, you should be selling yourself . Now some people will disagree with that, however it has served me well and I’ve made lasting relationships which transcend business relationships.
The second most important lesson I learned was with my suppliers. Initially I looked for the supplier who could provide me with the best percentage mark-up on the items I was ordering, however that could mean I would have to wait a week to get these items delivered. Once they were delivered my engineers would have to build them and hopefully the order was processed correctly and all the right parts arrived. By the way I’m dyslexic so you can imagine if I put a 1 or 2 in the wrong place on a part number when ordering….instead of getting an LTO2 internal drive unit I would get a 19” Rack mount for 4 x LTO2 drives (I learned an expensive lesson that week as there was no sale or return policy).
I decided to look at alternative suppliers whose specialists would check the kit list or software prior to placing the order and question any unusual items. At that time I could only find one, however the margin was considerably less but they could usually ship the kit (built) within 24hrs. Clearly there was value to both our companies in terms of faster shipping, the correct kit being shipped and built which in turn allowed me to provide my clients with a faster service than my competitors. The biggest value of that relationship was still to come.
In 2008/2009 we found ourselves in a global recession; my company saw two thirds of its turnover evaporate almost overnight, however thankfully that percentage was not transferred completely to our bottom line. None the less, it made trading very difficult for a year or so and also being hit with a number of clients going in to administration (who had great credit ratings) made that period tougher. The other issue we faced was that never having borrowed money, our credit rating went from “Good” to “High Risk” despite being profitable for the last 5 years; paying invoices within 30 days and having cash in the bank.
Overnight our credit lines disappeared and we had an order book that month in excess of £100k still to be processed. Clearly we didn’t have that in the bank nor would I have been willing to use that if we did. I spoke with our suppliers to see if they were willing to extend a credit line to cover our order book and only one came back saying “due to your companies trading history with us our financial director is willing to extend your credit line to 50% of the amount you requested”….that was the best news I’d heard all year, however I had to find the rest. I set up meetings with our clients and explained that we now needed to neutrally fund any capital items for the short term. This was met with an expected level of resistance, but eventually they agreed and we could move forward with ordering.
So what’s my point? My point is it’s easy to do business when everything is going well, however when the going gets tough the only thing keeping your business going is the trust / relationship you’ve built up over the years. The Financial Director of that company didn’t have to extend any credit to my company nor did my clients have to buy from me, however they trusted me to keep my word and deliver the services and products they paid for. So you’re second most important relationship is with your supplier. Invest time with them; treat them like you expect to be treated. You never know when you will need their support.
First published on www.companyconnecting.com June 2016