When Sharing the Pain is a Bad Downturn Strategy

How should you do business in a recession?

Answering that question is the new growth business in the blogosphere.  Naturally, some common themes get voiced with frequency.  And some of those are not good.

Example: John Caddell points out in If Your Key Suppliers are in Trouble, So Are You that the common strategy of stretching out payables has some serious downside effects.

Anyone with payables has to be thinking of stretching out payments.   I don’t have stats on just how that’s playing out, but my educated guess is, it’s pretty common.

Free cash flow on the backs of someone else.  Your suppliers.  It has to look tempting, particularly if you grew up on the mother’s milk of competitive strategy in the last few decades.  One of the Five Forces of competition, after all, is the competitive dynamic of a company and its competitor-suppliers.

But this ain’t your father’s supply chain anymore.  Caddell points out that sticking it to your suppliers just could have downstream consequences in a year or two when the economy rebounds that don’t look so great.

On one level this is nothing new.  I remember a paper wholesaler explaining to me why supply agreements with paper companies always broke down: “because the paper cycle lasts 7 years, and the tenure of an individual in that role is 4 years.”  Self-interest and short-term gain have been the bane of business relationships for a long time.

What’s different now is that the structure of commerce is fundamentally changing.  The corporate boundaries are porous.  Business is no longer done in vertical, hard-walled entities; it’s done across them, in the white spaces and the contracts between and among companies.  The action is not in internal collaboration and external competition, it is in collaboration across corporate lines.  Collaboration is the new competition.

Which is why I noticed two things lately. 

One client suggested to me that they were cutting my rates because “times are tough and we’ve all got to share the pain.”  It clearly wasn’t meant as a way to keep their consultants happy; it was a way to gain advantage over them in a tough time.  That ticked me off.

Another client suggested they were having to cut back on my business—but they were very welcoming of other ideas, and never suggested issues with rates.  That made me like them.

I think that’s just how people work.  If they keep you but try to gain advantage, that stinks.  If they fire you but apologize for having to do it, you don’t feel so bad.  One you want to work with again, and one you don’t.

That’s the thing about tough times.  The people that treat you well when it counts are the ones who earn your loyalty.  This is not a recession: this is the down-half of a business cycle.  How you behave now determines the profit impact of the up-cycle.

Is your business model to make money by squeezing your partners when they’re down?  Or is your business model to make money by having committed partners when times are up?

You’d think that would be a no-brainer.