For those who may not know, I own a business and our field is HVAC distribution, which is a subset of industrial distribution.
A few weeks ago I lost my largest customer. It wasn’t due to any fault of my company or staff. The order came from one of my manufacturer vendors, where the people and culture have developed into a gross toxic stew over the last few years. I’ll spare you the gory details, but to quote Goodfellas, “we had to sit still and take it. It was among the Italians, it was real greaseball shit“.
Which is to say, one of my largest vendors gave this order and no matter how hard I fought, or wanted to fight, it was over. So that was that.
The great part about owning your own business is that over time (I’ve been doing this for 35 years) you develop a sense of peace in the face of threats and you develop what many have called “steel”. I have faced unimaginable (to most) adversity being in business for this long. We have lost our largest customer before.
And while this is a short term shock to us, we have been here before and have been through worse. Kneejerk reactions always prove unproductive. Sitting in a quiet room and thinking about your company, where you are, and who your friends are and what you can do IS productive. Charlie Munger said:
The first rule of a happy life is low expectations. If you have unrealistic expectations you’re going to be miserable your whole life. You want to have reasonable expectations and take life’s results, good and bad, as they happen with a certain amount of stoicism.
Munger thinks that I shouldn’t spend too much time navel gazing over something that I had no control over. So what now? This customer was 12% of our revenue.
Well, after thinking about it, this is what we are going to do.
There is a very good possibility after this blows over that the new vendor(s) for this customer will screw the pooch and the customer will eventually go to the vendor and say “we want the Dan from Madison company back or we will drop you”. Keep good relations with the customer.
But if that doesn’t happen, what can we do to improve profitability? I remember someone saying a long time ago that they increased profitability by decreasing their revenue. Let’s use the new time we have on our hands to look at our processes and vendors and maybe drop customers who are actually costing us money to do business with. Are we missing some rebates? Are we paying the correct amount for credit card processing? And on and on.
There’s another vendor for the same types of products who is much smaller that has been courting me for some time. As I’m furious at the other vendor, let’s look for places we can sub this new vendor’s products. They are being super nice to me and treating me like a customer instead of like the enemy like the bigger, toxic company. The other vendor’s culture in stark contrast is all positive and energetic. How refreshing!
And so forth. This is a simple example but life is full of hard times and rough patches. That Munger quote applies to everyone.
“Sitting in a quiet room and thinking about your company, where you are, and who your friends are and what you can do IS productive.”
That, right there.
It’s great that you are keeping a positive attitude, Dan from M. Would you mind sharing a little more of the background for anyone like me who is slow on the uptake?
It sounds like vendor V sells you components which you build into systems which you then sell to customers C; it is not clear if Cs are end users or are installers of your systems. Vendor V has prohibited you from selling any of your systems containing their components to customer C1, who represents about one eighth of your revenues (and maybe more of your profit?). Presumably vendor V is trying to make customer C1 buy systems similar to yours from one of your competitors (or from V itself). Is that the picture?
If vendor V can do this with one of your customers, then presumably V could do this will ALL of your customers. Definitely time to look for alternative vendor V1 and maintain good relations with customers C1 to Cn, as you plan to do.
If vendor V is thoroughly messed up (DIE’d?), but still capable of manufacturing good components which you trust, maybe it is time to begin to organize resources so that at some point in the future when V sinks deeper into problems you could buy out from V the facilities which make those components — upstream integration, they call it.
Customer sounds like a large and very dysfunctional company–what are they? A lower-tier distributor? An HVAC installer? An OEM? Some combination of these things?
@David – a very large OEM
@Gavin – Its a really, really long story and would get super boring. The shortest version possible is that this OEM is doing all kinds of crazy things in the market and they are becoming more toxic by the day. My story is just one of many. It is going to cost them share for sure. We will make this up and then some.
As somebody said; “Living well is the best revenge.” Turns out it’s one of those things that nobody knows just who:
https://quoteinvestigator.com/2018/09/02/living-well/
The ability to grit your teeth and just go on with something productive is a greatly underrated skill that probably isn’t taught in business schools.
Balancing revenue with profit is one of those things that seems so easy from the outside, simply drop anything that is low profit. If you look at the news, you’ll have seen many statements from CEO’s about jettisoning “non-core” business with no few being so successful as to whittle the core down to invisibility.
Dan: “The shortest version possible is that this OEM is doing all kinds of crazy things in the market and they are becoming more toxic by the day.”
Sounds like the familiar story of a management team focusing on the Quarterly Returns they report to the stock market in order to maximize their current share price (i.e. their stock options) while letting the business slide. See (eg) Boeing.
Consider yourself to be in a privileged information situation. You have advance knowledge that the OEM is going downhill — and will likely at some point start divesting assets; assets which might be quite valuable in the hands of a competent business manager such as yourself. Hang in there!