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May 20, 2009

Complementing Instead of Competing

Complementing Instead of Competing

Summary

Where do you draw the line? Have you ever spoken to a potential customer who wanted a product or service your business could provide, b

Where do you draw the line?
Have you ever spoken to a potential customer who wanted a product or service your business could provide, but which falls outside its normal offering? Did you take the extra business, and also take a chance that the customer might be disappointed if your delivery was below your regular high standards? Or did you walk away, because you wanted to safeguard the reputation you had built up? Small businesses are faced with dilemmas like this all the time. There are always going to be some customers looking for something that sits just outside of your normal range. Saying yes or no to an extra sale may be a very tough choice. However, there is a third way - by working with other small businesses that complement your offerings instead of competing with them.

Conventional logic is that you should always take every extra sale. That approach is often best in the short run, and is especially safe in an economic downturn. However, I also know of small companies that went bust because they over-reached. Insufficient sales will kill a company, but so can unhappy customers that refuse to pay for sub-standard results, especially if the customer is much bigger and can afford to swap suppliers or pour time and money into a legal fight. Another approach is to focus more on the importance of repeat sales to the same customer, and to keep the range of sales narrow but of the highest quality. The downside with this approach is that potential new customers may have taken the trouble to find your business, but after making contact they get nothing in return because you do not have what they want. That opens the door for your competitors, who will sell what you do not, and also offer a range that overlaps with yours. That potential customer may never return. An alternative is to give that customer a positive impression, without over-promising, by directing them to a partner business with a complementary range of products and services better suited to their needs. That way the customer gets some return for having made contact with you, gets the quality and value they wanted, and has every reason to come back to you in future when you can provide them with exactly what they need. Your business partner gets an extra sale, and depending on the relationship, you could earn commission or at least benefit from the reciprocal pushing of new customers from them to you.

Finding complementary businesses
How do you find complementary businesses? I offer professional services, and I need to give advice on the products of other companies to do my job. That means regularly researching what is happening in the market. Some of the companies I research will pretend to offer professional services as an add-on to what they do they best. Others just stick to what they are best at. Whilst I will be a professional in the advice I give, I naturally favor those companies that are happy to split any project with my business, or at least do not try to compete with it. I spend more time doing research than would be the norm for most small businesses, but the same logic that I use can be applied in general. Put your marketing hat on, then turn it upside down and think like a customer. How does a customer find you? What competitors might they find instead? What are the similar and related businesses that they might want or find instead? If you are not sure of the answers, try asking some of your most trusted customers for advice. From that research, identify those companies that have a range that would appeal to the same target markets as you do, but where the overlaps in products and services are small or nil.

The best complementary relationships tend to be with companies that offer very different solutions - or parts of solutions - to those you do, but where the customer’s problem is much the same. My customers are communications providers. The right solutions for them may involve new hardware, new software, changing the way their people work, or a combination of all three. Some of the software companies will sell hardware too, even though it is not their core business. Similarly, the hardware companies might find themselves making software-related promises they cannot keep. Either one might pretend to have skills with training or process change which they simply do not. When looking for partners, I ignored the companies that had a track record of trying to be all things to all people, and spoke with the directors of those businesses that preferred to work within a well-defined niche. To begin with, I just asked them to tell me more about what they offer, their experience, and how they work, so I could give better advice and better referrals when customers speak to me. Of course, I was happy to answer the same questions about my business. There are no guarantees, but you have to trust your instincts about people, and these conversations are a good way to get a feel about potential business partners without any risk other than that your time may be wasted. Even then, your time is not completely wasted, as you will not want to direct your customers to a company that you found to be unhelpful.

Establishing symbiotic relationships
After performing the initial broad survey, you can then select those companies which have the best potential for complementary relationships. Make a point of asking your customers to mention referrals from you to the other suppliers they contact, and to tell those other suppliers about the customers you sent their way. It may not happen overnight, but try to pick up on patterns that would indicate the best potential partners. This might be positive feedback from customers about another supplier they have used, or it might be increasing demand for a particular specialist service. Bring up the subject of commissions with partners when the time is right. This might be straight away if there is the potential for a big one-off sale, or it may be better to wait until you have established a history of making referals. At the same time, keep an eye on your potential partners and be sensitive to changes that should cause you to rethink your relationship, such as them diversifying to become a direct competitor, or indications of decreasing quality in their work.

In my experience, business relationships tend to boil down to your relationships with the individuals who speak for their business. It will be easier to form relationships with businesses that employ people you have had dealings with in the past, so make the most of your contacts and encourage them to be open and honest about the potential for a partnership. Some business people will always look for the quick advantage - which may be at your expense - so be wary of making a great effort to help businesses run by people you are unsure of, unless there is also a measurable commitment to help yours. Be careful as a symbiotic relationship may always turn parasitic. Saying that, you have to trust some people and that means taking some risks. You can build up relationships through referrals, and try to reinforce that by having follow-up meetings with your counterparts in a prospective partner. It helps if you can socialize with them informally as well. Try to lever the mutual benefits of partnerships and place yourself at the heart of your business connections by being willing to introduce your partners to each other. In the final reckoning, be pragmatic. If you generate ten extra sales for your partner, and they generate one extra sale for you, it may seem like a poor return, but do not think in terms of what you gain versus what your partners gain. Think only in terms of whether your business is better off. If your customers are happier because of they found another good supplier, and that one extra sale is greater than the small investment in time and courtesy involved in pushing business to your partner, your complementary relationship will be worth it.
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