Relationship Advice for New Start-ups: Let the Vendor Woo You
As with any successful long-term relationship, the new start-up must align itself with the right vendors, people who are just as passionate about your business as their own. Most entrepreneurs simply do not have the luxury to work with anyone that sees their business as just another revenue stream. I tend to see working with new vendors like an old-fashioned courtship: I want to be dazzled by what a vendor can do for me.
The goal of every successful entrepreneur is to get the most from each vendor—services, product, materials, etc.—while at the same time preserving cash, which is typically in short supply. Essentially, you are looking for a trusted partner to help your start-up grow.
Whether I am looking for a vendor for my own project, or advising a start-up client how to negotiate with contractors, I like to stick to the following guidelines:
- Always evaluate at least three different vendors.
- Only negotiate with the decision maker.
- When you think you have found the right vendor, give them a small and well-defined project to test the relationship.
- If the project goes well, assign the vendor a larger project.
At this point in the relationship, the vendor should be working to win your business by earning your trust and demonstrating how they are the best choice to fill your company’s needs. Think of it as a kind of dating process before making a larger commitment.
As you interview vendors who want your business, consider the following agenda:
- Pitch your company’s vision the same way you would pitch an investor. Make sure you are talking with the decision maker.
- Communicate your company’s needs clearly to the vendor.
- Ask the vendor how their services will help your company. Now is their opportunity to ask questions and sell you on what they can do.
- Inform the vendor that you are looking to begin with a smaller project to gauge the relationship. Provide them with a budget and payment terms that are lower than market rate. Explain that as the company gains traction the scope of work and its budget for that work will expand.
- Put actionable steps within a realistic timeframe.
Pitching your vision to vendors as if they are an investor allows you to sell your idea to a decision maker, giving him a stake in the long-term success of your start-up. By thinking of any vendor as an investor in your company, you are asking them to provide maximum resources for the least amount of money. The vendor clearly understands your needs, and, in return, they continue to benefit as your company grows.
Similarly, starting on a small scale with any new vendor will eliminate those that are only in it for the money. A vendor that comes back with a proposal that fits your start-up’s budget requirements has clearly been sold on your company’s vision. He’s bought into the opportunity, and wants to build the necessary good-will to develop a long-term partnership.
After this first round of courtship, you should have a pretty good sense of how a vendor conducts business. Have they completed the work they promised in the agreed-upon timeline? Was the work performed to your own standards of quality? Did the vendor communicate with you during process if new questions arose?
An answer of “no” to any of these questions may be a sign that it’s time to look for a different vendor.
In my experience as an entrepreneur and business consultant, I’ve seen too many start-ups dragged down by long, drawn-out negotiations with vendors. In almost every case, the vendor is trying to price his services at the highest margin, while the start-up is hoping to negotiate within a tight budget that ensures the company’s survival. My advice to the entrepreneur: Be direct and simply lay out the opportunity your business presents for the vendor. Those who see your vision and show enthusiasm for it will want to join you for a longer-term and potentially larger opportunity as your company grows.