Pay Your Valued Suppliers – They aren’t Creditors

I recently tweeted about the alarming trend of larger companies delaying payments – longer and longer – to smaller companies (article here: on.wsj.com/N6Zfjb).  It’s something that has been continuing to nag at me: large companies (like those on the S&P) have record cash holdings, yet are increasing the number of days they are taking to pay suppliers (yes, that means you APPL). They are basically using their large size to stiff-arm the smaller suppliers; becoming the school-yard bullies we all despised.

Oh yea, little company – what are you going to DO about it?!? Nothing! We’re the big company, we have the money and deals, and you WILL accept our terms!” The unstated (or often, sadly, stated) implication: there’s a line of suppliers lined up behind you to step in and take your place. Worse, the CFO organization within these large companies often views this “tactic” of delayed payments as “best practice.”

Well, guess what? Your practices suck, and while they may improve your cashflow in the short-run, they are actually damaging your business in the long-run. In fact, I could write an entire post (and probably will!) about the importance of moving to fewer suppliers, and treating them as valued partners…  but here’s the short version:

By bullying your suppliers, and pushing them hard on prices and payment; what you’re really doing is pissing them off, lowering their profit (which is a bad thing, as it means they aren’t able to put their best resources to the task), and incentivising them to deliver lower quality overall. They begrudgingly work with you – and from an attitude like this, you don’t get loyalty, innovation, and amazing customer service. You get the bare minimum.

I recently had two experiences where customers paid me – *ahead* of time. Yes, they paid my invoices faster than the terms in the contract. Imagine that.

The first, a long-time customer I really love, have consistently paid their invoices within a week of receiving them. I sent a note of thanks to their manager, expressing true gratitude for their promptness. She sent me back, in return, the following great statement:

“My motto is: when you have cash in the bank, pay valued partners ASAP!  Glad to be appreciated :)”

Now, in my book, that’s class. Thanks Robin, our hat’s off to you! The second recent occurrence was from a brand new customer. Now, if you’ve had a small or medium sized business yourself, you *know* how important it is to you to get that first invoice paid from a new customer. Our new customer pays straight away (awesome!), and I shoot off a message of heartfelt “Thanks!” With a nod and a wink, Patrick replies the following:

“You’re welcome. We try to pay everything as soon as possible. Its clear we don’t have a working capital manager yet :)”

With a clear dose of sarcasm towards the “Best Practice” of using your suppliers as creditors, Patrick acknowledged the beauty of treating suppliers who do a good job as true partners. Bravo!

So why does this change? We all know it’s wrong, and we avoid the practice as small and mid-sized firms. Why is it, as firms grow, we begin to lose this sense of valuing those external partners we work with? And really, shouldn’t we be doing the opposite? The clear answer is yes, we should.

So if you’re reading this, go and do it. Walk right into your purchasing office, or supplier management department, or whatever it is, and change the policy, starting tomorrow. You’ll find that you spur more loyalty, increased service levels, and greater long term value by doing so. These qualities will easily offset the minor cashflow position.

The Myth of Big Company Stability

As someone who works in a small business, I can’t tell you how many times I’ve heard some variant of the following misconcept during job interviews:

  • “I have an offer from ‘X’ Co. They’re a big company, so they’re more stable. Since I have a loan, that’s very important to me!”
  • “Well, I’m looking to join a large company, as I want more stability and security.”

And you know what? It’s not exactly accruate.

  1. First off, small and medium sized business (SMB’s, or SME’s) hire the majority of the world’s work force. That’s an undisputed fact. SME’s are the backbone of the world’s economy. We hire the most people, pay the most taxes, and develop mos tof the innovation in the world today.
  2. Secondly, who says big is more “stable” for an individual employee? Sure, many big companies themselves have lasted for ten’s of years, but that doesn’t necessarily mean they are stable for the individuals that work there. Large companies routinely sacrifice valuable resources for the benefit of the shareholders.

Keep in mind, I’m not saying that layoff’s don’t occur at small and mid-sized companies: they most certainly do. What I am saying, is that there is often a massive misperception that layoffs occur either less frequently at large companies, or in smaller amounts – just because those companies have existed for many years, and are – well, BIG.

So for some time now, I’ve been thinking to start a running list of layoffs (at least those I hear about in the news) at big companies. I’d welcome anyone’s input regarding links to large company layoff’s which I’ve missed, so that I can add them into the table!

[table id=1 /]

 

The Importance of Culture in Business, Part 3

So we looked around at large companies, and see their slow decline. Their fall from former glory. Two questions come to mind when I think of the rise and fall of the company, as expressed in Part 1 and Part 2 of this series of blog posts.

  1. Why do we succumb to this process, time and again? And,
  2. What can be done to prevent, or reverse, this process?

These two questions, to me, have to be asked – and answered – if we ever want to arrest the negative development of the firm. My answers, at the moment, are along the lines of:

  1. Stop inertia thinking, and
  2. Elevate culture to the importance of profit.

Intertia Thinking is what I’m calling the belief and adoption of old, or inherited, limiting beliefs. We tend to do things, and to think things, just because “they’ve always been done this way,” or because they are considered, by the indusry as a whole, as “best practice.” Heck, it’s gotta be the best way, it’s even called “best practice!” Fundamentally, when we adopt these limiting belief systems whole-heartedly, and forget to constantly evaluate these concepts, and examine their relevance for our situation, time, and environment, we accept, implement, and adopt legacy solutions and actions – rather than create and develop new, more relevant, ones!

 

Regarding culture, there’s a lot we can discuss. Suffice it to say, I’m beginnign to believe that once you lose your original focus, your spirit and passion, and instead allow others to impact your business (through either accepting and adopting external Inertia Thinking and limiting belief systems, or directly hiring people who believe in these, into your firm), you stop being able to propel forward with passion, verve, and a sense of purpose towards making the communities around you better off (whether those communities are fellow employees, customers, or your neighbor).

A lot of ideas come to mind when I think of how to expand on these answers, and I think they’re best left for subsequent posts and musings!

The Importance of Culture in Business, Part 2

What hapens when a company, which started off as innovative, flexible, and passionate, becomes “professional” as we understand it today? When it grows, and matures, and ulimately puts in place those “structures” and “processes” which seem to be the thing to do?

The same thing that happened, according to Toynbee, to civilizations. They begin to decline.

In the very least, these changes will bring about an inability to positively and creatively react to changes in the competitive environment – as Toynbee would say: to step up and positively respond to challenge and response situations. What helps make civilizations, and companies, great, is the ability to adapt, respond, and overcome challenges with amazing responses – solutions that work, and which improve the former status quo.

I’d argue that once “maturity” happens, a switch from focusing and nurturing creativity and an entrepreneurial attitude – to one of “big company bureaucracy” occurs, and it’s potentially impossible to respond positively to challenges. At thsi point, responses that work actually require massive restructuring, rethinking, and removal of at least some of these bureaucratic beliefs – along with a re-focusing on the customer. Which, until now, had been largely forgettn by the giant corporation. Think IBM – they almost crashed and burned a few times, only to be reborn after some deep soul-searching.

You see, these “best practices” are actually old beliefs, held over from ages past, and they are typically founded on fear. They were put in place during an age when we tried to make humans act like corporate slaves; robots to be subjected to time-and-motion studies and efficieny of movements.

Ultimately, they spark fear, create inneficiencies (the opposite of what we’re told they do), and create silos and barriers within the organization. They mark the beginning of the end of a company, however long that end might take to arrive.

 

Toynbee argued that, depending on the original strength and size of a country, the actual decline can take a very, very long time. Think Rome.  The same notion can be applied to companies – once they apex, it can be a long, and slow, end. Imagine Kodak.

Take a look around at every large company. By and large, as soon as they diminish the importance of culture, they apex and begin to decline. I’d say Google has hit that apex already. It used to be like Microsoft, in the beginning: Google was cool. Now… it’s lost it. Speaking of Microsoft, it’s at a cross-roads. It hit the apex, it’s on a slow decline, and it has to either wake up, shrug off the tyranny of bureaucracy, or continue it’s long slow slip into irrelevance.

What can be done?

 

The Importance of Culture in Business, Part 1

I read a great article in Forbes today, and I have to say that it’s totally spot-on! The article discussed a British historian, named Troybee, who wrote prolifically on the rise and fall of civilizations. I hadn’t heard of Toynbee’s work on countries before, but he’s basically saying that:

“… civilization flourishes when it motivates insiders and attracts outsiders with its creative dynamism and culture. The civilization breaks down when its leadership loses this creative capacity and gives way to, or transforms itself into, a dominant minority. When this happens, the driver of the civilization becomes control, not attraction.”

 

The guest author, Philippe Silberzahn, pointed out that it’s not just countries and civilizations that this process happens to, but to it also occurs in businesses. And he’s right. In the beginning, you’ve got the entrepreneurial start-up. The passionate, excited group of people that have come together to change the world – or if not the world, some little piece of if. They want to make an impact, however small. They’ve invented a new product, or developed an innovation which does something better. Together, they work hard and smart to get it out there in the world. As they become increasingly successful, they grow…and grow…and grow.

 

And at some point along the journy, they lose that initial spark of passion, energy, and drive.

I believe that we have a set of limiting beliefs regarding management “best practice”, which we’ve largely inherited from the industrial revolution, and which no longer serves the way people want to work today. At all. These beliefs favor control and process as a company grows, rather than a sense of purpose, empowerment, freedom, and creativity.

You hear it said that as your company “grows up” (gets bigger), you need to “become more professional.” What does that mean? Probably things like:

  • Tto switch to centralized strategic decision making,
  • Create “mature” HR processes,
  • Implement strict finance controls and audit procedures,
  • Build and stress the overall importance of process (to the extent that it surpasses common sense and freedom),
  • Create formal organizational structures (e.g. administration and hierarchy),
  • Centralize and standardize procurement,
  • …and on and on…

It’s just “what you do.” It’s “Best practice…” But what happens next?