CAN A COMPETITOR BE THE ANSWER TO OUR PROBLEMS?
By: Mike Mesch
As a business consultant I have the privilege of working with many small businesses in the Corridor. We consult on a variety of topics including but not limited to; succession/estate planning, contract CFO work and bank financing. These are all a part of what I like to call "Dream Maintenance".
Dream Maintenance is essentially finding a way for the client to realize their dream. Sometimes things are going well and their dream is to figure out how to retire when they are in their fifties. Other times Dream Maintenance involves the much more difficult reality of "how do I manage to open my doors for business tomorrow?"
We have many new clients coming to our firm who, unfortunately, are struggling to keep their dream alive. This is a unique time in history with its own set of obstacles and opportunities and I feel it is up to us as advisors to step up and be proactive with our clients. We have an obligation to help them achieve their dreams.
Many times being proactive with our clients means getting them to understand the situation that is staring them square in the face and helping them react in a positive way. In keeping with the theme of this issue I thought I would touch on one opportunity that has presented itself over and over with many of our clients in the last year - merging or partnering with a competitor.
As sales have decreased for some of our clients due to the ailing economy, they are finding it increasingly difficult to cover basic overhead expenses such as rent, utilities and payroll. Many times expenses have even increased over the last year at the same time that sales have decreased. Generally the answer to their problem is pretty easy, they need to cut expenses and increase revenues. So why doesn't everybody do that? The reality is there are only so many revenues available for the taking in this market and expenses can only be reduced so low before you run out of office help! Clients who come to us have usually already overhauled their expenses to cut everything possible and do not know what else to do.
During our first meetings with the client we discuss the strengths and weaknesses of their competitors both local and, if applicable, on a national level. Even if a partnership is not feasible, this process will help the client to think about how they might capitalize on their competitors' weaknesses or learn from their strengths. This is a great way for the advisor-client relationship to begin because it makes us both think outside the box and look at the business in a new light. It also helps the client begin to see if there might be an opportunity to partner with one of his/her competitors.
Partnering does not necessarily have to mean ending your current business. It could also mean working with a competitor to promote each other's unique business skills or taking advantage of the other's strengths in order to eliminate some of your own weaknesses. If the line of communication is not already open between our client and his/her competitors, we suggest they open that line immediately. There is a wealth of knowledge and experience that can be gained by speaking with your peers.
In some situations our clients realize they need to make a more comprehensive move in order to keep their business alive. These clients might benefit from an actual merger with a competitor whereby overhead can be decreased and sales brought up to a level where both owners can once again realize a profit. The key to this strategy, as with any partnership, is to make the proposition a win-win situation.
Many clients we meet with are initially soured by the thought of merging or cooperating with a competitor, but once they realize the potential exists for a positive solution to their problems, they are willing to take a look. Further, it is important the advisor understand their client's goals because it is often possible to structure a partnership that leaves everyone's dreams intact.