No. of Recommendations: 11
Every time I here that our administration will do well because it is run by a good businessman who will use his skills at negotiation to get us the best deal, well, I sort of gag. I then looked at a comment on another thread that the diner which charged us (well, including tax and tip) 60 bucks for a pair of omelets and coffees was making "tons of money" and I decided to look at my own actions and conduct as a businessman.
Essentially, I had two parallel and symbiotic businesses. The first was basically a "general purpose" unionized electrical contractor presenting itself in a number of markets as "specialized". That wasn't as much of a misrepresentation as it might have seemed as "the boss" (moi) actually had a very diverse list of electro/mechanical/datacom/IT backgrounds and perceived my employees as extensions of myself.
That diner I ate at had to pay Manhattan rent, congestion pricing premiums on deliveries, etc., etc. The finite cost of the food material was trivial compared to the overhead structure they had to deal with. They were likely paying more for that hole-in-the-wall on the Upper East Side than I had been for 18.000 square foot of office/shop/warehouse space at the nearly glamourous Brooklyn Army Terminal.
Early on in my business, I decided that selling piles of cheap stuff at high markups might look good on paper, but you could make a lot more money selling a handful of expensive things at much lower (but still rational) profit margins. People were willing to pay a premium for getting all their dreams sated from a single source.
I was meticulous by delivering at least what our customers expected and tried to exceed those expectations if possible. In order to pull that off, by understanding the nuances of various competitive bid government contract vehicles, we ended up with a couple of hundred thousand items on contracts. So our selling prices were fixed annually, so we took the risk of freight costs, labor contract negotiations (tariffs would have been a big deal for some commodity groups.
From the day I started doing business, despite what they taught in my MBA program (string out payment as long as possible and ask for longer credit terms, to get interest on the money you otherwise would have paid), I paid every invoice on time (and took any prompt-payment discounts offered by paying quicker). This strategy gave me essentially unlimited credit and better pricing than a company my size would otherwise expect (as everyone wanted our business).
So here's where things became potentially off-center. Since our sales price on "stuff" was fixed, any incremental profit was made on the procurement side.
I would never resort to the type of strong-arm/extortion favored by some NYC real estate guys, but approached things differently. We set up procurement agreements with dozens of different types of distributors and manufacturers - in many cases, some represented by others. One of our procurement strengths was a database program I wrote to eat up the entire inventory/pricing structure of these guys and then search for the cheapest (delivered) price of each item we purchased. It was easy to demonstrate to distributors why we had stopped ordering from them because their line items were no longer floating to the top when their competitors lowered their pricing structure.
Things got even more interesting when manufacturers segmented their sales into "channels" and sold the same product at vastly different prices to end users, installers, OEM's, distributors, value added resellers, export prices and so on. It was part of our modus operendi to find the cheapest pricing for each item and then try to sell the idea that we complied with that channel category. Sometimes. we actually met all the criteria, but manufacturers tried to protect their customer base from our "poaching". As an example, one of the major vendors of large format commercial monitors and ceiling-hung auditorium video projectors sold to A/V installers at significant discounts compared to computer value added resellers. Well, the "official" installers had to hire electrical contractors to hang projectors from theatre ceilings. But since we WERE electrical contractors who owned every conceivable tool (including the scaffolding required), we claimed to be (and in-fact were) installers - but since we had originally dealt with them as computer VAR's, it would mean punishing their current sales organization to switch us to one who had loyalties to their own resellers.
We would (sub-rosa) team with OEM's (original equipment manufacturers) who got a price break based on volume and buy products at their cost to help them hit their numbers. This could sometimes save us quite a bit - at the expense of the salesmen who should have been selling us the product. My rationalization was that, if a company was willing and satisfied to sell a product at a price, I had the "right" to try to get it at that price - even if their policies said I should be paying more fore it - and I shouldn't be penalized by their chaotic and frequently Byzantine pricing structure.
OK - this post has gone on too long, but goes towards my rationalization of saying it was OK to trash the policies of the manufacturers whose product we sold by variously being known by a variety of channel specific titles (even occasionally re-importing their exports if they were "dumping" products abroad at crazy-low prices - called "gray" market). While most of our money was made by innovative design-builds (mostly my designs) of data-center, network, datacom, audio-video and power infrastructure, I enjoyed "beating the system" on the procurement side more. So was it ethically questionable to act the way I did – or just being a good businessman?
Jeff
