All the entrepreneurs we come across want to sell to big business because they think that where the “Big Bucks” are. This cannot be farther from the truth as the road to bankruptcy is paved with promises of high volume contracts and discounted prices. Take a look at how we prepare both buyers and sellers for the era of Supplier Development. By Judi Sandrock.
Decisions Decisions Decisions. All the MEDO entrepreneurs know how to pitch their offering to the right person to get a “yes”. When selling to an individual or a small business, it is the same person who decides what they want, who we deliver to, and who pays the bill at the end of the day. And they usually pay straight away. When selling to a large business, one team decides on the specifications, another one goes out on enquiry and often a third committee makes the decision. We need to deliver before we invoice, and may not be paid for 90 days. The decision-making process can take many months too, and a small business can go out of business waiting to enter this Big League.
The question to ask is “apart from you, who else will be involved in the decision?” Entrepreneurs are eternal optimists and too often believe that the person engaging them is the final decision maker, only to learn that they need to take it to their superiors, or that it will only be budgeted for next year. In a large organisation we need to map out the role players, and find our who can say “yes” and who can say “no”.
Money Money Money. Over the last number of decades, buyers in big business have been encouraged to negotiate the lowest price and to delay payments as long as possible. We encourage our clients to consider not the lowest price, but the best price for both parties – the price at which the client gets great value for money and the supplier can make a profit to feed sustainability. Invoice financing costs a small business up to 3% per month which they need to build into their pricing when selling to companies renowned for delaying payments. In South Africa we have BBBEE incentives to pay early, so we encourage our clients to pay as soon as their systems allow. “Time is Money” has now become “Time scores Points”.
Entrepreneurs need to be acutely aware of all their input costs as well as the cost of the time they may have to wait. Discounting to get the deal is not good for anyone.
Be careful what you wish for. There are very successful businesses that have clearly decided not to sell to large industry, and rather to focus on selling to individuals and small businesses. Pam Golding is an example, an entrepreneur who has built a globally competitive real estate agency still selling to individuals after decades of growth. Deenin Padayachee was on the MEDO Supplier Development Programme in 2014, and he decided that he was going to stick to his target market, parents with young children, resisting the temptation to build an offering for a corporate market he may not appeal to. To the other extreme is Pascal Nderitu who provides solar power equipment, and he needs to move large volumes to big companies and municipalities, and cannot sell one or two units to individuals.
Entrepreneurs need to understand their businesses and markets, where they want to play as well as where they don’t want to play. Focus on the target.
It’s not all about me. When we invite entrepreneurs onto the MEDO Supplier Development Programme, we make sure that they know that we will take them away for a week on a “Bootcamp”. We need to test if the business is strong enough to cope without the entrepreneur for a week, because if it is not, it is probably not strong enough to supply to big business. We come across many entrepreneurs who cannot let go and they believe that nothing can happen without them being around. This means that they can never take a holiday, or heaven forbid, that they or their loved ones cannot get sick and be cared for. If we want to build a business that can provide an income when we are be around, we have to let it grow beyond just “me”. One of the reasons we build businesses is to create wealth and value, and if the business is nothing without the founder, its not worth anything to the marketplace.
In the early days of MEDO, I was often asked by our clients if there were others in the team who could deliver, and I understand this as too often a small business gives the impression that it cannot scale to become a large one. We had to be ready to prove that it was not just the Bjarke and Judi Show.
Entrepreneurs need to develop those in their teams and to introduce then to clients, so that they don’t look like the One Man Band.
Supplier Development is not new. The Japanese have been developing their suppliers for decades, and methodologies like Just in Time supported Japanese manufacturers to become world leaders. Supplier relationships can be as important as customer relationships, as in a big business we want to know that we can rely on our suppliers and that they’ll be around tomorrow, and the next day. We cannot keep large inventories of input materials and need our suppliers’ deliveries to be synchronised with our demands. Sustainable suppliers need multiple year contracts so that they can hire great people, and finance equipment and technology.
Entrepreneurs need to develop their own suppliers as well as be prepared to be developed.
The MEDO Supplier Development Programme attracts applicants from across South Africa, and the team takes the candidates through a rigorous screening and interview process. In 2015 the Supplier Development Bootcamp will be delivered in Cape Town during which the entrepreneurs will undertake the grueling task of repositioning their businesses to become sustainable suppliers to large industry. The programme focuses on governance and scaling a business to meet demand, and culminates in a Supplier Showcase presentation session to private and public sector supply chain professionals. MEDO provides ongoing support with shared services, legal, accounting and marketing assistance, as well as introductions to markets.
Judi Sandrock has over twenty years of experience in large corporate environments, running departments and business units in industrial gas and chemicals, pulp and paper and mining. She is a qualified Chemical Engineer with a GIBS MBA.