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The one giant deal

The one giant deal

2015 April cover

 

This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in April 2015 and is posted here by their kind permission

 

 

Opportunities and risks of getting the biggest deal ever

 

 

What do you do if you get the opportunity of a huge sale, one bigger than anything you have done so far, maybe bigger than your entire business? This is a potential game changer, the opportunity to grow spectacularly. At the same time it is scary. Will you be able to continue to supply regular customers? How will you finance this deal, what will happen if you do not get paid? Can you deliver? The opportunity opens up dreams; all the wished for things you will be able to afford for the business and your family, security for you and your workers…

Best and worst

The best things that can happen are really good. If you make reasonable margins on the huge turnover increase the extra cash can be used to increase competitiveness with additional resources, creative marketing, better buying terms and the best information systems. Once you have executed a large deal successfully, you attract other large deals. Big organisations like to deal with suppliers who other big organisations use, so your business may be at the start of an incredible growth curve.

The worst things that could happen are very bad indeed. Many suppliers have gone insolvent because large customers persisted with unreasonable demands or did not pay. You may not be able to deliver to specification or on time and have penalty or cancellation clauses invoked. If you have personal guarantees to any supplier your lifestyle can be at risk too.

Considerations

In making a decision to go ahead or not be aware that the prospective customer will usually be much bigger and more powerful that your company, and that you will need to manage this unequal business relationship. The prospect will know how important the order is to you and will use that leverage to get the best price and terms. They will be bureaucratic and have a wide separation between users and those who pay the bills. They will be driven by their own KPIs and budgets which may be different to the apparent requirements. Recognise and minimise these risks.

Two potentially fatal mistakes are not arranging to finance the deal and lack of clarity about obligations. If you enter a deal with poor specifications, no certainty about deliverables, unclear payment terms or undefined acceptance conditions, the deal is likely to go spectacularly wrong. The very worst kind of deal is one where the payment terms are conditional on supplier performance but that performance is not defined or ambiguous. Be careful of rose tinted glasses causing you to gloss over these risks; you must be prepared to walk away if the deal is unreasonable. Although the prospective customer may appear to be very arrogant they initiated the deal and if you are capable of delivering you have some leverage, use it and do not be bullied.

Many large organisations, including government departments have terrible payment records, or are continually reorganising so your contacts may suddenly disappear. Check complaint lines, contact existing suppliers. If payment is likely to be delayed make provision for this in your financing arrangements.

Negotiations

Decide how you will handle existing customers. You do not want to lose old and loyal customers, but if you cannot manage the big deal and all you existing customers you are going to have to sacrifice something. Do this consciously, do not let it be forced on you.

Never enter negotiations while you are still unsure about whether to go ahead or not. The customer will see your hesitation and either walk away or use your uncertainty to drive a harder bargain. Consider the known facts and risks and make decisions on the questions which you can answer, identify the unknowns which must be resolved with the prospective customer, decide on the non-negotiable conditions and the go – no go points. Then go negotiate a fantastic deal.

© copyright Entrepreneur Media SA (Pty) Ltd. All rights reserved. No part of this article may be reproduced, stored in a retrieval system or transmitted in any form without prior permission of Entrepreneur Media (Pty) Ltd. Permission is only deemed valid if approval is in writing.

 

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