Friday, June 14, 2013

An Expensive Relationship

“The client asked us to start the work because they had a ‘burning platform’. So we started even though we did not have a signed agreement.” Verdi sighed. “I know that was a mistake.”

Tyler Gitou shrugged it off. “It’s easy to spot our mistakes in hindsight. The key is to learn and not make the same mistake twice. So what’s the problem?”

“Well, the client had budget cuts and had to cancel the project, so they never signed the deal,” Verdi said. “Meanwhile, we already completed phase one and had billed the client $500,000 for it. The client is now challenging the invoice because the project was canceled.”

“So how much has the client offered to pay?”

“Zero,” Verdi said. “They said the work we did has no value to them without the project going forward.”

“Regardless of the value, do they recognize that they asked you to start the work, incur the costs of paying your people all on the basis of trust?”

Verdi nodded. “Yes. They said we should treat this as an investment in the relationship. They have a lot of other projects in the pipeline that they said we will be able to bid on to make up the loss.”

“What do you want to do, Verdi?” Tyler asked.

“My management is saying we should focus on the relationship. This is a client we are trying to grow so they see this as an opportunity to develop that relationship.”

“I see.” Tyler said. He locked his eyes on Verdi and said in a stern voice, “Verdi, give me $20.”

Verdi looked surprised. “Give you… why?”

“Because I asked you to. Verdi, you and I have been friends a long time and if you say ‘no’ to me, that is going to really impact our relationship. It’s just $20. Give it to me.”

Verdi sat back in his chair. “I have to admit, Mr., Gitou, I am confused.”

“What are you confused about?” Tyler asked. “I am asking you to ‘invest’ in our relationship. If you give me $20 it will be a better relationship.” Tyler let the silence overtake them both, and finally he smiled. “It’s awkward, isn’t it?”

Verdi sighed. “Yeah, really.”

“If you give me the $20 what type of relationship will we have? It will be a relationship where I ask you for money and you give it to me and get nothing in return. That’s not a ‘relationship’ that’s called being a sucker. And that’s an expensive way to try and develop a relationship.”

“So you’re saying we should never take anything less than the $500,000?”

“No, I am asking you to think about what you will get in return for the concession. For example, you said they have other projects. What if they awarded those projects to you?” Tyler asked.

“Well, they said we can bid on them.”

“Verdi, I can bid on them too. The janitor can bid on them. That is a valueless option. But if they awarded those projects to you, wouldn't that have value?”

“We’d save a lot of money in sales expense if we don't have to compete for the project,” Verdi said.

“Exactly. Maybe they don’t have $500,000 now to pay you because the budget was cut. But they have other things of value to offset your loss. Ask them to award that work to you and you can reduce the $500,000 to perhaps $200,000. A Deal Whisperer always gives to get. If we make concessions in negotiations for which we do not get value in return, we are training the client that we do not respect our own business and we will give money away because they say the magic word, ‘relationship’. A Deal Whisperer builds relationships on mutual respect and trust. Client’s don’t respect us if we give away money and they are wise to keep asking us to do it until we say ‘no’.”

“Thanks for the advice, Mr. Gitou,” Verdi said. “I am going to sit down with my team and put together some options to address their financial limitations and also make us whole on the sunk costs of the project.”