Preparing for the First Waves of Recovery
Demand for product in turbulent times changes. Many of the larger companies in the marketplace see this and adjust their product strategy. For example, Tesco have made a dramatic U turn, from competing at the top end with their Finest range to secure Waitrose customers, to being the country’s leading discounter now focusing on the value ranges and being cheaper than its competitors.
Good products are those products that your “good customers” want to buy from you. Therefore all businesses that want to be in a fit state for coming out of recession will have a solid product strategy backed up with good research about their customers’ wants and needs. The test of a good product strategy is that the products do not disappoint the customers.
One major issue with recessionary times is that, in many sectors, innovation is stifled because buyers become more risk averse and there is a rush to “me too products” that are bought at minimum cost. Many of our country’s grocers have put blocks on new product introductions. However, in other sectors innovation is alive and well; manufacturers are looking for innovative solutions to improve their own efficiencies. Colin Mills of The FD Centre explained, “one of our service company clients has been very innovative – packaging up their services to be paid as their customers receive the benefits.”
A sales perspective of a good customer is frequently very different from a financial perspective of a good customer. During the last 12 months Colin Mills and his colleagues at The FD Centre have been reviewing the customers of their SME clients helping them to identify the good from the “not so good” customers. The result is that businesses find that a significant proportion of their business is unprofitable or distracts the business from its main target markets. Downsizing can frequently increase profitability and improve cashflow generation.
Here are some of the guidelines that Finance Directors of large companies often use:-
- Revenue potential is important but reliable revenue is much better.
- We are in business to make a profit and to generate positive cashflow. Good customers appreciate this.
- The good customer is the one that buys your core products rather than wanting everything bespoke.
- A good customer is very clear about his needs and understands yours as well. A two-way relationship is important for both parties if a good customer status is going to exist.
- Financial strength is important but is not the be all and end all. For example, customers that are representing your brand like distributors need to be good at selling your product first and then strong enough financially.
A customer that refers you to other companies or acts as a reference site is definitely a good customer. These “happy customers” are tremendously valuable to the business.
Reliable Supply Chain
One of the major difficulties in recessionary times is when supply chains break down. Companies become obsessed with the financial strength of their customers and reducing costs and frequently miss the fact that their suppliers may become bankrupt and the supply of an irreplaceable component of a product takes away the businesses lifeblood and destroys the reputation the business has with its customers. Colin Mills of The FD Centre explains, “One of their companies is a Plant Hire Company specialising in niche machinery and a consumable where part of that machinery became unavailable because the company had gone into liquidation. There was a 3 month gap in availability. It was a nightmare for the company because not only did the business lose sales – it lost its reputation with its clients.”
During discussions with suppliers it is important to consider reliable supply whether it relates to components, IT services, or telecoms.
Legals to Support This
Many businesses do not want to engage lawyers because it’s too expensive. This is a false economy. Finance Directors of large businesses understand this and pay particular attention to this. There are many reasons for this but a few examples would include:-
- If your customer does not pay, you have a contractual right to the money.
- If you have a dispute with a supplier over faulty product or a time critical delivery, you have a contractual right to compensation.
- If you have spent a lot of money developing new products, you want to protect those designs from being copied by your competitors.
- If you employ a fellow director and he fails to perform, how will you avoid an unfair dismissal claim if you fire him/her.
To save money with lawyers The FD Centre would recommend that you prepare a list of the key terms in laymans language about what you want to achieve. Using this sort of Heads of Agreement saves considerable lawyer time identifying what is agreed.
If you have a dispute, the most common mistake is to send everything you have got to the lawyer and tell him/her everything, hoping that something sticks. Lawyers perform best when the dispute is summarised on a single page and with documentary evidence, eg. the contractual documents, purchase order, delivery notes.