Are You a Business Owner or a Puppet? If you're too reliant on a few big suppliers, products or customers you may be working for them instead of for yourself.
By Sam Harrop Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Being a business owner is exciting. You have the opportunity to make your own decisions and secure your future while doing what you love. However, if you are not careful you can end up becoming someone's puppet.
The other day we were at a party and I was watching this amazing puppet show. Most of the audience was focused on the puppet, but as I watched the puppeteer it made me think. How many business owners are puppets but don't realize it? The perception is that they are in control when in fact they are busy dancing to someone else's tune. They went into business in the pursuit of the lifestyle that every courageous entrepreneur deserves, however, along the way they lost control and in some cases are worse off than if they were still an employee.
They have lost control of what work they do, how they do it, when they do it and even at times, how much they charge, get charged, get paid or have to pay!
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As I watched the show I thought of two business owners who had become puppets. One to a supplier and one to a customer.Jane had a thriving importing business that had gone from strength to strength by selling a premium product. The challenge was that over 90 percent of her sales came from just one supplier. Jane didn't think it was a problem until the supplier changed how they manufactured their products, started using inferior quality parts and employed cheaper, less experienced labor. Literally overnight the quality of the product dropped. Over 50 percent of the stock in the next container was faulty and there were suddenly loads and loads of returns. Worse still, when she ordered her next container almost all the stock was faulty and she couldn't sell any of it. Not paying for the stock didn't solve the problem, since her sales were crucial to her making money so she could pay her now growing expenses. As her business grew rapidly so had her overhead, and now she was stuck in a larger location, with more employees and bigger long term commitments. Without the sales of this particular product she would go from a thriving profitable business to the brink of bankruptcy. Jane had become too dependent on just one supplier and the sales of one product. Jane had become a puppet.
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Bill had a carpet fitting business. Just after he started, he landed a contract with a large retail store to install carpets as a contractor. It was great to have the support of a large retailer, who paid reasonable rates and also paid quickly. Providing great service and doing a good job, Bill got more and more work from the retail store. However, Bill realized that this retail store was making up almost 80 percent of his company's sales which was growing rapidly. He identified this as a risk and decided to focus on marketing and finding more customers. He mentioned it to his friend Kevin who also had a carpet fitting business. Kevin told Bill he was mad and that he should take all the work he could since marketing was expensive and time consuming. Kevin had just invested in more vehicles and a bigger premises to handle his own work load from the same large retailer. But Bill informed the large retailer that he was too busy and would only be able to take on a set number of jobs per week. They first encouraged him to grow his business like Kevin, and when he politely declined they dropped him like a hot potato. For a couple of months Bill wondered if he made the right decision as he toughed it out hustling for business, while Kevin seemed to be busier than ever. Until a couple of months later when Bill got a call from Kevin who was in trouble. The big retailer was squeezing him on price and on payment terms. He was caught between a rock and a hard place. He had to accept their conditions because he now had massive overhead and commitments he needed to meet. Kevin was now making less money than before and was quickly going broke. I wonder whether this was the strategy of the big retailer or just coincidence, either way the reality was Kevin had become a puppet and ultimately paid the price.
Don't become a puppet, by making sure your business is not dependent on only a few suppliers or customers.
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Here are a few things to consider:
- Identify other suppliers for key products and be aware of the risks.
- Have a mix of products that make up your sales, ideally not all from the same supplier.
- If you are dependent on only a few suppliers or customers have formal agreements in place.
- When making longer term commitments like renting new space, make sure it matches the time frame of your agreements.
- Constantly be growing your customer base, so that your biggest customers over time make up a smaller percentage of your overall sales and profits.
- When you are making good money, put some of it aside for a rainy day. Repair the leak in your roof when the sun is shining, don't wait for it to rain!
You went into business for yourself so you could be the master of your own fate. Be aware and understand that small changes today can make a massive difference in years to come.
