Business Advice Memo on Negotiation, Production, and Customer Management

Don’t manufacture product in large quantities to increase margin unless your product and marketing are tested and ready for rollout without changes. If a limited number of prototypes cost $10 per piece to manufacture and sell for $11 each, that’s fine for the initial testing period, and essential for limiting downside. Sacrifice margin temporarily for the testing phase, if need be, and avoid potentially fatal upfront overcommitments. 8. Negotiate Late— Make Others Negotiate Against Themselves Never make a first offer when purchasing. Flinch after the first offer (“$3,000!” followed by pure silence, which uncomfortable salespeople fill by dropping the price once), let people negotiate against themselves (“Is that really the best you can offer?” elicits at least one additional drop in price), then “bracket.” If they end up at $2,000 and you want to pay $1,500, offer $1,250. They’ll counter with approximately $1,750, to which you respond: “I'll tell you what—let’s just split the difference. I'll overnight FedEx you a check, and we can call it a day.” The end result? Exactly what you wanted: $1,500. 9. Hyperactivity vs. Productivity — 80/20 and Pareto’s Law Being busy is not the same as being productive. Forget about the start-up overwork ethic that people wear as a badge of honor— get analytical. The 80/20 principle, also known as Pareto’s Law, dictates that 80% of your desired outcomes are the result of 20% of your activities or inputs. Once per week, stop putting out fires for an afternoon and run the numbers to ensure you’re placing effort in high-yield areas: What 20% of customers/products/ regions are producing 80% of the profit?) What are the factors that could account for this? Invest in duplicating your few strong areas instead of fixing all of your weaknesses. 10. The Customer Is Not Always Right—‘‘Fire” High-Maintenance Customers Not all customers are created equal. Apply the 80/20 principle to time consumption: What 20% of people are consuming 80% of your time? Put high-maintenance, low-profit customers on autopilot— process orders but don’t pursue them or check up on them—and “fire” high-maintenance, high-profit customers by sending a memo detailing how a change in business model requires a few new policies: how often and how to communicate, standardized pricing and order process, etc. Indicate that, for those clients whose needs are incompatible with these new policies, you are happy to introduce other providers. “But what if my largest customer consumes all of my time?” Recognize that (1) without time, you cannot scale your company (and, oftentimes, life) beyond that customer, and (2) people, even good people, will unknowingly abuse your time to the extent that you let them. Set good rules for all involved to minimize back-and-forth and meaningless communication. 11. Deadlines Over Details—Test Reliability Before Capability Skills are overrated. Perfect products delivered past deadline kill companies faster than decent products delivered on time. Test someone’s ability to deliver on a specific and tight deadline before hiring them based on a dazzling portfolio. Products can be fixed as long as you have cash flow, and bugs are forgiven, but missing deadlines is often fatal. Calvin Coolidge once said that nothing is more common than unsuccessful men with talent; I would add that the second most common is smart people who think their IQ or resume justifies delivering late. —JUNE 24, 2008 The Holy Grail: How to Outsource the Inbox and Never Check E- HOUSE_OVERSIGHT_014005