Bad Deals

I started off my business career in sales. I admit it. It’s not something I am particularly proud of…come to think of it, it is something that I am particularly proud of. I can honestly say that I spent time in one of the most difficult professional disciplines around, the professional discipline of trying to get someone to give you their money. I learned a lot in sales about dealing with customers. I also learned a lot about dealing with the internal mechanisms of the company that I worked for as well. I thought that any customer that I could make a deal with and get an order from was a good customer. As I have progressed through my career I have learned that not all deals and customers are good.

For the average salesperson an order is an order. The more of them you get, the more commissions you get. The more commissions you get the more money and personal esteem you acquire. Along with this comes better houses, cars, big screen TVs and along with the laws of natural selection an increased opportunity to pass your sales DNA along to future generations of sales people. In case you missed it, sales is a jungle.

The ideal sales deal is that you provide your customer with something they need, a product or a service, and they provide you with something you need, primarily money. As long as everyone keeps this sort of exchange arrangement in mind things normally go well, and for the most part they usually do.

Occasionally however there have been recorded instances where things didn’t go well. Many of these sorts of instances are attributable to honest mistakes or misunderstandings and the preponderance of them can be cleared up by honest and diligent work by both parties associated with the deal.

Then there are the outliers. Those deals that you have entered into that despite the fact that you’re doing everything right, either one or both of the parties to the deal are unhappy. Either the customer is not getting what they wanted, or you are not getting paid. Sometimes both. What do you do?

The first step is to find the nearest Home Depot store. Go there and go into their Bathroom / Plumbing section and find a really nice mirror. Buy that mirror, take it to your office, hang it on your wall and spend some time looking at and questioning the person in that mirror to make absolutely sure that you are in fact living up to your end of the deal. Try to look at the person in that mirror from the customer’s point of view. Have you told the customer everything the need to know? Have you done everything you need to do? Start with you.

If you have completed step one and are reasonably confident that you and your team are providing all the entitled goods and services to both the letter and the spirit of the contract then the issue may in fact lie on the other side of the deal, with the customer. This is usually a pretty rare, but not an unheard of event. You may have a customer that through either the normal or abnormal conduct of their business is difficult to deal with.

I have not had to deal with this sort of situation very often thank goodness, but when I have it has normally fallen into one of two categories: it is either a very small customer that for whatever reason has been forced into a position where they cannot adhere to the deal they made, or a very large customer who feels that they are either such a desirable customer or so dominant in their market that they do not feel that they have to adhere to the deal they have made.

Of the two scenarios, I prefer the first one. A company that can’t honor the deal for the most part will be willing to work with you. There may be a solution out there where the deliverables of the deal can be altered to where both parties can be addressed. A small customer company by its nature can be a fragile enterprise. There are risks associated with dealing with them. They will however usually try to work with you.

On the other side of the spectrum is the large company. These are companies that understand the role and position in the market and use it as leverage against all of their suppliers. If you want their business then they feel that you will have to play their game. Most customers want their partners to make a reasonable profit. This usually assures them of a continued available supply of the good or service that they want or need. Some however just want the deal now and will not care if you are around for the next one or not. They know there will be someone else there if you are not.

The usual response to this tactic is for the organization to agree to the terms because the organization decides that it wants the business bad enough, and the size of the business is large enough to warrant an agreement. There will usually be pressure from the sales team trying to convince everyone of the strategic nature of both the business and the customer in question, and how the profit will be made up on the next deal.

It never happens that way, and there is nothing strategic about unprofitable business. I have addressed this topic specifically in the past. You can talk yourself into just about any kind of business, but you cannot talk yourself into profitability.

Once you are into one of these types of deals where the customer is obviously leveraging you there are only a limited number of things you can do: You can look for a legal way out, or look for a way to minimize the damage and exposure while you meet your end of the agreement. After all, you signed it.

Exiting a deal because you don’t like the terms of a contract you signed is usually only an option of last resort. Unless you have been demonstrably misled by the customer, this really isn’t an option. But it is also a financial decision as well. If the fines and penalties for leaving the contract are less that than the losses expected from continuing, it needs to be reviewed.

That usually leaves buckling down, trying to reduce all costs associated with the deal in question, and then getting out at the earliest legal time. Issue the exit / cancelation notification and don’t take any argument from the sales team or customer. These are the teams that were responsible for the deal in the first place. Don’t allow them to prolong the inevitable.

Be polite. Be firm. Be gone.

Sometimes bad contracts are expensive opportunities to learn lessons. Other times they can just be plain expensive. They can be lessons about markets. They can be lessons about sales teams and their compensation incentives. They can be lessons about specific customers. The important point is that they need to be lessons that are learned.

If you have only a contract or two that fall into this category then they could be an anomaly. If you have multiple bad deals in a specific market or with a specific customer, you need to learn how to de-risk those types of deals, or avoid those specific markets or customers.

If you have multiple bad deals across multiple markets and customers, then you have a sales force issue, where their objectives and incentives are not aligned with the profitability objectives and requirements of the company. This is a key point. If you have a number of bad deals you have an issue with your sales team and their compensation plan. You probably need to make sure that the sales team has some sort of margin or profitability goal associated with their compensation in order to avoid this situation.

Regardless, the only person responsible for a bad deal is the one that agreed to it. Don’t sign a bad deal hoping you can make it better. Don’t specifically blame the customer, but if they are unwilling to create an agreement that is at least fair to both parties you need to remember and learn from it. Learn from it and put the processes in place to make sure it doesn’t happen again.

Bad deals happen only because you agree to them.

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