How to loose a business – quickly

Back in 1993, after an over 20 year career at a multinational corporation, both in Germany and in Australia, I was given marching orders, due to recession imposed cut-backs.
At this junction of my life, I had to decide, if, at the age of early 40, would I want to join another corporation, a smaller business or start on my own.
For a larger corporation, the options were limited in my industry. In particular here in Australia. Since part of our market was at the verge of massive changes, imposed by the digital revolution, any corporate job was either not existent or possibly short lived. In particular in the audio visual sector. Besides, no major manufacturer was in Australia, only branch offices and distribution.

So a smaller business. But being on the wim of a boss in a smaller company without the security a large multi-national is offering, was not really my taste and industrial relations were not as advanced as they are nowadays. Though stronger IR in turn led to an increased casualisation during the last 20 years. But that is another story.

So starting my own business was the way to go. Not easy if you have only $2400 in the bank. Mind you the internet and social media were non-existent in the early 90’s and mobile phone were just starting. The real asset I had was a stack of customer contacts. While my dream was always to produce audio visual programs with a strong entertaining element, I ended up staying mainly in the ‘old’ groove of importing and re-selling.
During the next 7 years the industry was undergoing massive changes. I grew up with high quality slide projection and film based production, but Australia, different to Europe, decided that this was old fashion and waved these technologies rapidly good bye in favour of much more expensive and lower image quality video projection.
But while slide projection had a product life of 30+ years, these video systems became obsolete much quicker and we did not had the skills to make these technologies pay.
So the business soldiered on over the next couple of years without making real good money. Compared to my corporate times and allowing for inflation I had a 70%lower income over a 7 year period and possibly 30-40% more working hours.
But I was still optimistic and formed closer relationships with European suppliers, which had some unique products I was keen to bring to the market.
In 2001 came the break-through, or we thought, with one of our suppliers having invented a product which would subsequently be accepted with great enthusiasm by the marked and in fact benefitted from the technology changes which brought different aspect ratios and brighter projection technologies.
So the product was shown in the USA and in Singapore in 2001. As a result of the positive responses, the owner of the factory and I made a handshake deal that we would distribute the product in Australia, New Zealand, SE Asia and Japan.
In fact a Japanese company ordered a sample order in June 2001.

But this sample order was not immediately supplied, since the factory discovered that a European Standard products would not sell in the USA or Australia. Subsequently the product was changed, but manufacturing delayed.
In August the Japanese company threatened that they would cancel the order if the samples would not arrive soon. So I took some of our last capital and flew to Tokyo to try to rescue the sale.
I was sheer luck that the manager in Japan and I had worked for the same multi-national. On that we bonded somehow and he agreed to wait another 4 week.
Well, the shipment left in early September. But….

But we had not really counted with September 11.

So, while the product arrived in Tokyo and would be subsequently evaluated, the terrorist struck the USA and everything came to a stop. Events, travel, everything just died down. No more sales.

But cost keep running. So in early November I said to my business partner that we would be out of cash by the end of the month and would have to shut down if no sales would be forthcoming.

But fortune meant different. In mid November we received a large order with pre-payment from the Japanese customer. These profits carried us through to April and by then the market had picked up again and we started to make money.

As it happened, we were so busy that we did not really worked hard on the distribution of other products. Some here and there, but that would maybe 10-15% of total sales.

For the next 10 years all was fine and in fact we did well even through the GFC.

It was around 2012-2013 when the first cracks in the relationship with the factory appeared. Triggered by the behaviour of one customer.

Somehow the story leaked to other companies and a friend of mine took me aside and asked “to what percentage do you rely on this supplier?”.
70-80% was my answer.
“That is bad. You should not rely on one supplier by more than 40%” he told me and proceeded to tell me how the collapse of a large distribution deal almost ruined his business. Like us he was reliant on the deal by 80% of his business and mind you, his company was 15 or 20 times the size of our business.

But the waves smoothed, the issue resolved and we kept going. For various reasons, we never increased the proportion of other brands to become a substantial mass. In fact, 4 years later, the adding of another brand, which had similar, but not competing product produced some serious issues with the factory and when the old owner went into retirement in late 2018, we were told a few weeks later that our distribution arrangement was to terminate, virtually immediately.

To be fair, it needs to be told that the same also happened to the USA distributor and a number of other partners who essentially had made this product the leading international brand in our industry. But loyalty is always a different story.

To this day and more so because of the pandemic, I doubt that the factory and its new owner really benefitted from the move. They created enemies and helped fostering competitive products, which could, in an anyway declining market, caused by technology changes, erode their superior position. But this is not the base for this write up.

So far we managed to survive the pandemic. We have now our own new competitive brand and building strong relationships with other manufacturers. We diversify our product offering and even plan to branch out into other industries so that we would be less vulnerable.

But the lesson is, nether be to reliant on either a supplier or a business partner. Nether more than 40%, because otherwise if the relationship fails, you could loose all. Quickly.

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