Don't Panic Over New Competitor

When Kaufmann’s department store opened in the Town Center Mall in my hometown, the Diamond department store closed its doors. The Diamond’s management (Federated Department Stores) had fought the mall and other changes to retail (they fought for the blue laws keeping stores closed on Sunday, for instance). But practically to the day that Kaufmann’s (now Macy’s) opened, they closed. I was reminded of that when a printer friend in Boston panicked at the threat of competition and felt compelled to sell. I said, “Not so fast.”

Here’s what Barney wrote: “A 20-year-old promotional products company is moving their location to about three miles away from me and wants to buy me out so they can go into printing. They don’t have any experience in production, but they’ve brokered, so they have some printing knowledge. The plan is that they would add a couple digital machines and then buy the rest out, so they don’t want my equipment. The plan is that my sales would largely be bought from other printers. Now, since he’s new to printing, I question his ability to service my customers on a timely basis…my concern is how much of an impact will a new aggressive print shop have on me?”

Barney went on to describe his finances and the amount he needs to survive and then got around to the offer. There were two different ones. First one was $0 down and 15% commission on sales for three years. The second was $25,000 down and 8% commission on sales for three years.

Now, usually, I see a company selling their accounts receiving 10% commission on significant accounts for a period of three years—sometimes only two years, and the commission bounces around some. So, this offer isn’t really that bad.

But the offer is bad for Barney. Why?

It’s not Barney’s idea to sell; he’s simply being panicked into it by the thoughts of a competitor taking a big swipe out of his sales. And that’s probably because he’s not real close to his customers. Nonetheless, and more importantly, Barney’s not financially secure enough to retire.

So let’s base this decision on facts, not feelings.

Barney questions the potential buyer’s ability to service his accounts, which would cut into his earnings under both proposals. Additionally, neither the buyer nor his staff has ever printed. So that should be a concern.

Barney needs the $25,000 down to pay off his loans and he needs at least $40,000 per year. So, I suggest he say, “No thank you, but I will be glad to do it with $35,000 down and $50,000 a year for four years” (fill in the numbers). Just go above what you need, not below because the final number will be lower than the first number because that’s one of Mother Nature’s rules.

The real bottom line, however, is how much of an impact will an aggressive print shop have on Barney’s sales. If he knew that, then he wouldn’t worry so much.

Relax, Barney. It won’t have much effect on you.

According to the company’s Top 25 report I have from 2009, half your $429,000 in sales was from these accounts. But only four, maybe five, accounts are major (more than $12,000 per year). In all, you only have 17 accounts doing more than $5,000. So, you only have to protect 17.

Now, the competitor’s highly paid professional salespeople, however, would see all but three of your accounts as chump change. They are valuable to you at $5,000 sales, but incidental to a commissioned salesperson, unless there’s a lot more there, and I doubt it.

So, these sales guys might bump into you every now and again, but I doubt if you are really exposed.

However, on another subject, you sense you are exposed, which tells me you haven’t seen your top accounts in a long time. Remember, a sales call is where you are in front of a new customer asking for new business or in front of an old customer asking for new business…it’s always about new business, not a delivery or delivering chocolate bon-bons or just saying “hey.”

And since I feel you have to reconnect to your top accounts, I often suggest these questions as discussion starters when you’re in front of them:

1) How are we doing for you?

2) Anything you would like to see us change?

3) Anything I can do to help?

And that’s the end of the story. Hope this helps.