Blog: Dealing with Mr. Big
One of the reasons for startups failing is because they lose their focus. This can happen when a new market segment looks like the way to go, or a big company is willing to give them very big offer.
The danger is a small startup company is not prepared for either situation. What happens is they divert from their strategy plan and their business plan, while not being prepared for this.
So, if the startup does get an offer of a big order, here is what to expect. The cultural mismatch between companies of different sizes can create real havoc. It is dangerous to want to do business as in the past with handshakes or without a documented agreement. First off, it should be clear that working without a document or contract is the worst kind of an agreement. When a disagreement occurs, there is nothing to fall back without a clear specification of how to resolve differences, or what product delivery or service performance is required to justify payment.
Small companies often do not even have a documented policy for the terms and conditions for accepting a purchase order. A small company is at the mercy of Mr. Big because of a lack of experience. Where this may be a completely new experience for the small company, it is likely Mr. Big does it every day in their world.
Here is the advice I would give on what a small company can do, to prevent a disaster from the cultural mismatch:
The first step is to get an attorney for your side. Don’t expect a two-page agreement, as there are many conditions that may crop up that you would not consider and you need someone protecting you.
- Avoid penalties for bad schedule performance.
- Do not agree to give away the company jewels for nonperformance. Do not enter into a relationship that may cause you to lose your IP if the program goes sour.
- Have strong cancellation charges if the customer decides not to go forward.
- Try to get a commitment to cover start up out-of-pocket costs like paying for the material up front needed to meet the customer schedule requirement.
- Build files to help cover all changes along the way in case trouble comes up.
- The CEO should expect to be the program manager even if the president.
- Try to establish a single channel of communication so the customer won’t overpower the employees, who are most likely outnumbered, and are subsequently prevented from doing their basic jobs.
- Protect your other business in case Mr. Big goes away. Be cautious of increased spending across the board and the neglect of existing customers. Try to structure the organization to split the business between Mr. Big and the other customers who got you where you were before Mr. Big showed up.
Sales and Marketing
- Make sure the customer has a champion for you INSIDE so you can continually get a fair deal. You can bet there will be someone in the big company trying to get your company replaced by one of their other contacts.
- Maintain knowledge of the customer’s product and market to insure no big surprises occur should the customer stumble and bring you down with them.
- Analyze the impact upon the schedule and cost before agreeing to any changes suggested by the customer, and try to get additional revenues when warranted.
- Don’t fight the customer if they eventually decide to do the job them self, but instead support him, because it will take longer than they think, and this will provide you with continual revenue and a more efficient phase down.
Above all treat the relationship like a honeymoon—enjoy it while you can, but expect it to eventually end, and be prepared should this happen.
Be sure to be ready when a Mr. Big comes along. I have seen companies destroyed when trying to play in the big leagues only to strike out.
Here is the worst example I can remember. There was a modem company selling $1 million in revenue a year and making hundreds of thousands of dollars of profits. A “great” opportunity came along from a big Mr. Big offering a potential for all their new planned modems and potential sales above $20 million in revenue. A program was put together and expenses were put in place at three times the floor space and several senior staff.
When the company got above $6 million in sales from Mr. Big, the world collapsed. Mr. Big was having problems in the new computer market they had entered, and since the project wasn’t meeting milestones, they decided to shut it down. As you can imagine, this wreaked havoc with the small company, and by the time they reduced significant expenses, it wasn’t enough. Within a year, they filed Chapter 7 bankruptcy.