Nivi · January 3rd, 2010
Mark Suster, entrepreneur turned VC at GRP Partners:
“When I was at BuildOnline (my first company) and things went ‘pear shaped’ we called all of our customers and said, ‘I know that we signed contracts with you. The reality is that the market has changed and I need to change to the new realities. We committed to product features. I can’t ship those as promised. I’m sorry. Do you like our product & service? Yes? Ok, thank you. Listen, I know that if you like what we do then you’ll want a healthy supplier/partner. I need to be able to earn a profit and with the contracts we’ve signed I cannot. I either need to cut product development staff (and therefore can’t ship products as promised) or I need to be able to charge you slightly more for our service or for features you want to see so that I can make ends meet. Help me understand which you prefer.’ I lost zero customers. In fact, we built tighter relationships. I had no choice and as they say, ‘necessity is the mother of all invention.'”
From What Makes an Entrepreneur (2/11) – Street Smarts. You can also find my favorite negotiation book, Bargaining for Advantage, in our bookstore.
Topics Negotiation
I am pretty open minded about stuff like this, but I think this rings more true in a buoyant market where you have little competition or where your businesses are entwined so that it would COST your client money and time to change suppliers.
It’s good advice though and they say if you raise prices by 10% and lose 5% of your customers, you still win.
I would actually disagree with Rebecca. I would rather do business with a company which calls me up and explains problems, etc. Or at least emails. Instead of announcing price increases or cutting staff without keeping your clients in the loop. I think most people would pay a little more, even if it was cheaper somewhere else, because of the relationship. People like knowing the person behind the company is real and cares. That’s how you reach quality vs. quantity.
Obviously I’m in Jeff’s camp on this one. In a booming market I’m a big believer that you honor the contracts you’ve signed — good or bad.
It takes unusual circumstances to have to call customers back with your tail between your legs and renegotiate terms. But when you’re faced with trade-offs including staff cuts or bankruptcy, I think most customers appreciate the candor and openness and if you provide a great product/service I think most people will stick with you. And I’ve been through it so I can say, in my case, it really worked.
I would much rather work with a company that was honest with me about their situation. Given the choice of paying slightly more, or having my supplier go out of business, or have my supplier unable to perform… I’d much rather have a small increase in charges.