IS THIS ANY WAY TO RUN YOUR BUSINESS?Don't Fall in Love (Chapter 52)

Don't fall in love with the deal when buying or selling a business, because "Breaking up is hard to do." When warning flags surface, especially late in the deal, it can be difficult to appropriately appraise them after all the time, effort, and money spent on the acquisition or sale of a company.

Consider it “sunk cost”.

It’s even more difficult to comprehend that the warnings may indicate you should scrap a deal. It's all too easy to justify that a problem can be solved after the closure, but if it can't, your organization has likely overpaid for more problems rather than answers.

In the instance of a business sale, I've represented business owners who lost out on a potentially lucrative deal due to a cultural mismatch between their organization and the buyer's. Although the sellers could have retired with their money, they wanted the transaction to symbolize a better opportunity for the many employees who had contributed to the company's value. When they realized it wouldn't work out, they looked for another buyer, even if it was at a cheaper price.

This principle also applies to other parts of business and to the operations of your company. When asked why a particular technique is followed, I hope to hear, “We investigated the matter and felt this process was the best method we could afford”.

Don't get too attached to any part of how your business is run, operated, or functions. In fact, questioning everything is a good habit to develop. I'm not recommending you change everything or even anything, and interrupt your operations as a result of those changes, but you should research other methods, suppliers, and procedures. Adopt the new idea if one of them is demonstrably superior to what you've done previously. (See also Chapter 50.)

It's convenient to deal with a supplier you've worked with for years, but are the prices and terms that supplier offers the best you can get? Several of my clients with a small number of significant suppliers have established a standard system for soliciting competitive bids for their components at least once a year. The organization reaps the cost savings and other advantages of large volume purchases and consistent orders by purchasing on an annual contract.

Furthermore, each supplier understands that at the end of the one-year contract, they will be required to re-bid, and that their previous performance will be included in the evaluation. Ask yourself, “Is that supplier the best I can find?” if you've been buying the same thing from the same supplier for a long time.

Don't fall in love with the transaction or the other businesses from which you buy products or services. Do the long-term “dollarization” analysis.If your company manufactures a product, ask yourself whether you should make or buy it on a regular basis. In this context, I usually advise my manufacturing clients to consider their business as market-driven rather than production-driven.

You are in the business of making sales to gain customers. You are not in the business of making stuff.

Even if your business makes stuff. If you can increase the quality of your product and lower its cost by purchasing components or full assemblies from another provider, consider why you are manufacturing that item when you can acquire it better and cheaper. Outsource whenever you can.

Many of the world’s great businesses over the years began as manufacturing operations then gradually outsourced components until their production area was turned into an assembly, testing, and finished goods warehouses and distribution centers. They are enamored with their ability to sell it at a competitive price with a large gross profit margin. Why not yours?

Don't fall in love with an employee. “Eventually they all go lame”. Recall that an employee can be promoted until they achieve their level of incompetence. If an employee's talents, experience, or ability are not matched to their current role, they should be reassigned to one that is. The employee will be more satisfied, and your business will run more smoothly as a result.

The remedy to our natural desire to "fall in love with the deal" is to keep questioning it, whether it's a significant acquisition, an operational procedure, a make or buy decision for a minor part, or an employee who isn't right for their current position. Don't allow lethargy spread because it's easier to do things the same way they've always been done. Choose the most effective method and use it.