It's easy to say "I'm smarter than that" when you're not in the situation, but we all have blind spots. I'm not here to critique, but to help prevent others from fates similar to CCM's. In Stephanie Gleason's WSJ article, July 12 "Supplier Feud Threatens GM Plants", and in Clare Goldsberry's article, Plastics Today article, July 13, "Another automotive supplier victimized by General Motors' purchasing strategies", we see the fallout of discounting and low pricing. In summary, Clark-Cutler-McDermott Co. (CCM), at 115 years old, unable to continue supplying parts 'below cost' to General Motors (GM), went bankrupt.
Here's hoping this is a wake-up call for you, if you're afraid to charge what your products and services are worth because "no one will buy" or "it's better to make some money than none". In "Pricing. What's Your Strategy?", I touched on what goes into pricing. This is simply an example of what happens when you haven't thought this through. This is the same trap that:
- CCM fell into when they failed to walk away from GM.
- GM fell into when they didn't tell their Labour union in 2009, "we cut salaries or we go out of business".
- Keeps so many 'entrepreneurs' working 'part-time' - giving their less productive hours to building their businesses.
Each of the situations above can be "in the meantime" situations, but only if you're committed to keeping them "short-term". Once you get comfortable in any of the above, your business isn't really sustainable. What's sad is these are avoidable outcomes!
The Industry Argument
It's okay to explore your "you don't understand my industry" and "no one in our field would pay that" arguments, but if your industry goes down, are you willing to go with it? Isn't it worth it to either disrupt your industry OR get out while you're still financially equipped to build elsewhere? Think back to our most recent global recession:
- Financial Industry-driven: Was it poor regulation and 'complexity' of sub-prime mortgage calculations that lead to the 2009 recession? or Did no one really think it through?
- Automotive Industry-driven: GM was bailed out by taxpayers so it wouldn't fail. Did this save a company with a sound business model? or Did it perpetuate a deeper problem within GM?
The "no one is really responsible" argument won't put food on your table at the end of the day. Whatever your reason for going into business, you want it to last (or at least you want someone to buy it).
We also tend to argue that we should do anything to hold on to our biggest clients, but if they're taking you under, I say invest that time and energy into a better client.
What's the solution?
Prevention is better than cure. That is all. Yes, CCM can absolutely rebuild. It's just an expensive and heartbreaking lesson. A few preventative cost considerations are mentioned in "Pricing. What's Your Strategy?", but in summary:
- Operations costs: those incurred to produce and deliver products (and services).
- Administrative costs: those incurred to maintain your business as a going concern.
- Marketing costs: those incurred to keep you visible to your primary client audience.
- Maintenance costs: those incurred for contingencies, buffers, equipment maintenance.
- Cash flow timelines: those that ensure you pay bills on time and can afford operations.
Make the time to think this through for your unique situation. There are still industry upgrades in education, software and technology and a myriad of other considerations that we tend to ignore until they arise. Document these and put a maintenance plan in place.
Have the Pricing Conversation
ICG's founder Tim Williams, sat down with DG, Paul Bainsfair, to discuss "the art of pricing". Here, he talks about how to broach the conversation of Price around Value, rather than your costs. Audio: http://ow.ly/ikAY302gZ5E
Need a Hand?
Again, getting clear on Why you charge what you charge strengthens your resolve to walk away from anyone who expects to negotiate price with you, particularly when they go below the cost of production/delivery. Find me on Twitter or LinkedIn (see below) or subscribe to my e-News for more on this topic. Need more? Let's chat! Explore more on pricing in my consulting options.
Crystal-Marie Sealy, MBA, is a speaker and business strategy consultant focused on pricing, social media and more, for established small businesses, entrepreneurs and executives. President, founder of Successiory and her signature E.A.S.Y. Strategy process, Crystal-Marie works with professionals who want to build sustainable (livable) business models around their lifestyles and create sustainable client community on social media. She also speaks and delivers workshops at business and motivational conferences on business entrepreneurial strategy for pricing, your schedule and client social media community. Connect with her and subscribe at www.successiory.ca