Never Let Vendors Be a Single Point of Failure

There will be times during your company in which you will only have one source for a solution. This most often comes up with vendors and investors but may also apply to customers and employees. Ideally, you should always have several sources for a solution. In early stages, this is not always possible. When it is not possible, the party that is your only solution should not know that they are your only source.

“Companies always protect their self-interest.” 

What are some of the tools you can use to minimize this risk? Here are a few tips:

  • Create a Bidding Process. Conduct a bidding process and communicate to your vendors that you will be considering their bid against other bids. The bidding process can be formal or informal. Communicating that you are accepting proposals from multiple vendors will cause vendors to act accordingly.
  • Be Careful Sharing Information. When your balloon is full and you build a relationship with constituents like vendors, you tend to share the gory details of your business. While this can let air out of your balloon, this can also be detrimental to the business. When vendors hear a sense of desperation or a risk to your business, or know there is a customer deliverable in two months, some may use this information to alter pricing and terms or use this leverage to create relationships that are not balanced. Vendors should earn your trust by performing. At that future time, you can share more with them.
  • Have Alternatives. Even when you hire vendors, make them aware that you are constantly looking for ways to improve and always keep alternative vendors on call. It is like having a bench when it comes to employees. This keeps vendors on their toes.

Your job is to act in the best interest of the business. Of course, you would like to strike a vendor relationship that turns into a close one in which you ride the tide together. This is rare, especially since the early vendors who make sacrifices expect to be treated differently as the business grows. Like early employees who make sacrifices, early vendors who work for below market prices expect preferential treatment. The same rules apply to employees, customers and investors. When investors sense that they are the only game in town, they have leverage to negotiate more preferential terms. If a candidate knows they are the only one for the job, you may be faced with higher compensation demands. If a customer knows that they are your only prospect, you may be faced with pressure to lower your price or expand your offering to win their business.

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