So you want to launch a business...

How big is big?

Question from a reader: A big company wants to sell my flagship product under private label.  How can I be certain that I'm getting a fair deal?

Short answer - you probably can't.  But - it doesn't have to be a fair deal to be a good deal.  That is a useful distinction that is often overlooked.

I'm reminded of the good old story of Steve and Charlie haggling over the price of a fish.  (I love good old stories.)  "I'll give you $5", said Charlie.  "Not a penny less than $9," replied Steve.  "$6," said Charlie.  "$8," Steve replied.  And, of course, they settled on $7.  As they parted Charlie called out, "Ha, I would have paid $10."  Not to be outdone, Steve's response was, "Ha, yourself.  I would have let it go for $3."

So, how hungry was Charlie?  How badly did Steve need fast money?  How much pride was at stake?  Was it Steve's first sale of the day or his last?  Was the fish really fresh?  Aaagh.  In the face of so much uncertainty, how can we ever define fair?

Only one thing is totally clear from the story.  Once Charlie offered to pay $5, the price was never going lower.  If Steve had spoken first and offered to sell at $5, the price would never have gone higher.

The various surrounding circumstances are not clear in the fish story; but in your own story you have the opportunity, in fact a personal obligation, to ferret out as much information as possible about the marketplace and your prospective customer.  Why, for instance, the big company wants your product is a key determinant of deal goodness to them.  They may be adding it for strategic positioning, rather than for the direct profit it might generate.  If so, they will likely pay a premium.

The same logic holds on your side of the transaction.  If you're doing fine without the proposed deal, you are in a position to hold out for a higher price.  But if that drives the big guy to do a similar deal with your chief competitor, you might be in serious trouble later.  Hmmm.

It's easy to say that it's all about the money.  But others say that timing is everything.  Etc.  Etc.  And so on.

You may never know whether a deal is fair.  But there are plenty of ways to make reasonably certain that the deal is good, at least for you and your business.

I recommend Jim Camp's book on negotiating - Start with No.  Go to the web, or to a bookstore.  Look it over.  If it's a good deal, buy it, whether it's a fair deal or not.

NOTE:  If you have a question, just email it to me, Jim Flowers, jimflowers@startwithmoxie.com. 

                                                                                                                                                   

I know who grows my arugula

"Each man takes care that his neighbor shall not cheat him. But a day comes when he begins to care that he does not cheat his neighbor. Then all goes well -- he has changed his market-cart into a chariot of the sun."  

    Ralph Waldo Emerson

Gwynn Hamilton and Robert Webster grow food for my family.  They garden at the Stonecrop Farm in Newport, Virginia, with the faithful assistance of their five-year-old daughter, Zoe. 

We always stop at their booth at the Blacksburg Farmers' Market.  They know our names, remember what we like, and apologize when we arrive late and they have sold out of our favorite, arugula.  But they definitely are not our private gardeners.  It's quite clear even to a casual observer that they genuinely care about all their customers, not just us.  And to reciprocate that caring, by being a friendly and faithful repeat buyer, just comes naturally.

What if each business relationship had that depth, that warmth?  World peace would be within our reach.  I'm sure of it.  Swords would become plowshares, no question.

Every entrepreneur makes a choice as to how to relate to clients.  The seller/buyer interaction is part of each business's Magic formula.  And I am convinced that people prefer to do business with other people, rather than with machines or systems.  There is intrinsic human value in community, even when the individual relationships are digitally enhanced.

It's not easy for a global company to create local relationships.  But it's not impossible.  Wal-Mart is not required to employ smiling greeters.  Rackspace is not required to provide "fanatical support" from pop-up, human "rackers."

So, I offer you this simple strategic consideration for 2010.

As the New Year emerges, fresh life rising from the composted past, I challenge myself, and you as well, to seize the opportunity to beat at least one sword into a plowshare, to change one humble market-cart into a warm and radiant chariot of the sun.

The power of principle

"A people that values its privileges above its principles soon loses both."

             Dwight D. Eisenhower

"Back of every noble life there are principles that have fashioned it."

    George Lorimer

A few days ago I was reflecting on corporate vision statements.  At the close of that post was this sentence, "Of course, that brings me face-to-face with what-should-come-next.  But I'll tackle that one later." 

Later has arrived.

What-should-come-next simply has to be corporate principles.  At least I think so.  It turns out, however, that searching on "corporate principles" delivers only a hodge-podge of anecdotal references to specific statements by individual companies.  There is no clear evidence from the engine-of-all-knowledge that there exists a coherent sense that a business should be "principled."

"Well, well," he said sarcastically. "Isn't that a great big surprise?" 

Corporations are carefully designed to limit the personal liability of the people who own them.  The very same mechanisms that protect investors from undue business risk, also nicely protect them from inconvenient responsibilities.  When Union Carbide managed to kill thousands of people in Bhopal, India, none of its actual owners lost a single penny beyond their loss in the value of the Union Carbide shares they had purchased on the New York Stock Exchange.

Here are two examples of public statements of principle by corporations.

RTI International - Corporate Principles

As we pursue our mission of improving the human condition, we adhere to the values that have served as RTI's foundation throughout our history: integrity, excellence, innovation, respect for the individual, respect for RTI, fiscal responsibility, and objectivity.

Balfour Beatty - Guiding Principles

    * To fulfil our responsibilities to shareholders, customers, suppliers, employees and the wider community.
    * To treat all groups and individuals engaged in or affected by the business with the highest standards of integrity.
    * To conduct all aspects of our business at the highest level of excellence and professionalism and have regard to the traditions and practices of the markets in which we operate.
    * To pursue our financial performance goals without losing sight of longer term objectives or of the wider context in which our business operates.
    * To seek continuous improvement in all aspects of the way in which we operate and do business.
    * To ensure we conduct our business and make our decisions within a clear ethical framework.

Call me crazy, but I just don't believe that these go far enough.  Mentioning a clear ethical framework is good; but what, pray tell, are the specifics of that framework?

Tim Ferris, in his bestseller, The 4-Hour Work Week, speaks proudly of winning a kick-boxing championship by circumventing the spirit of the rules of the competition.  His triumph denied some other kickboxer a trophy.  Loosely-regulated financial institutions, in a frenzy born of unfettered greed, precipitated a global economic disaster.  Union Carbide killed people.  The only difference among these three events was the scale of the unfairness.

As an entrepreneur, you are preparing to launch your own company.  Perhaps you have already launched.  In either case, I encourage you to weigh in heavily on the side of broad responsibility for future corporate actions.  Here are some principles to consider, tweaked for appropriateness to the business context:

• The fundamental importance of honesty, integrity, and responsibility;
• The inherent worth and dignity of every single person;
• The importance of justice, equity, and compassion in all relationships;
• The enlightening power of a continuing, free, and responsible search for truth and meaning;
• The right and the responsibility of each individual to act in good conscience in moderating behaviors, both personal and corporate;
• Respect for the interdependent web of all existence upon which we all depend for survival.

By the way, upon reflection, I would have to say that a clear statement of principles should precede composition of a vision story.  I had the order wrong.  And this time I know what comes next - commitment.  More later.

Magic, Mutuality, and Moxie

"Good ideas alter the power balance in relationships, that is why good ideas are always initially resisted. Good ideas come with a heavy burden. Which is why so few people have them. So few people can handle it."

Hugh Macleod

"Relationships of trust depend on our willingness to look not only to our own interests, but also the interests of others."

    Peter Farquharson

It's really tough to work your Magic on a Market, even one with a truly compelling need of some sort.  There's typically somebody who stands to lose when you win.  In the strange and wonderful world of business writing, we most often call those losers competitors or substitutes.  But, to be honest, that's a bit too simple and obvious to deserve any extended commentary.  There are, however, other important groups of potential losers that should be considered by innovative entrepreneurs.  They are lurking in the bushes waiting to derail your magical train.

Take, for example, suppliers to the competitors.  If your entry stands to hurt them, they will work against you.  Period.

And what about distributors of the competitors' products?  Same story.

And, horror of all horrors, individual customers may be personally wedded to the competitor by a bond forged in the "old" technology.  The internal client expert may have bet his or her career on your competitor's product line.  To switch to yours may invalidate a lifetime of subject-matter-expertise.

What to do?  These impediments to your success cannot simply be overwhelmed by your Moxie.

Build relationships with them.  Align with the potential losers.  Figure out how to make them winners, too.  Use your competitor's supplier.  Make a sweet deal with his distributors.  Transform the internal technical gatekeeper into an expert in your technology.

In a complex, competitive environment it's well-nigh impossible to make everyone into a winner.  But you can quite often prevent some of them from being losers.  That frees you to focus your Moxie on your strategic center.

“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.”

Niccolo Machiavelli