Recently, Bill Morneau, Canada’s Minister of Finance, made a clumsy and patronizing analogy between the recent United States-Mexico-Canada Agreement (USMCA) and running a small business. This got me thinking- I can also be clumsy and patronizing, and even though I don’t know much about international trade, I do know a thing or two about running a successful small business. Here’s my attempt to frame the recent trade deal in business terms.
If Canada is a business, we are a small business. We are Home Hardware, not Home Depot. We have a reputation for producing quality products, being fiscally responsible and for treating our employees well. We would definitely make a few Best Places to Work lists.
Let’s talk about the market. We sell our multitude of products to about 200 customers, with more than 50% of the purchases made by the top ten customers and 33% by the top two customers alone. To keep this scenario absolutely theoretical, let’s call the two biggest customers Donald and Xi.
Keep in mind, just like any small business, we have to work hard to retain our current customers and to attract new customers allowing our business to grow.
In our market, we are lucky enough to have our biggest customer, Donald, right next door. Donald has been a long time customer and, while we have disagreed on some things in the past, we have an excellent working relationship. Because Donald is such a huge…. customer, our competitors want to sell to him as well, so we have to work very hard to keep his business.
We also buy a lot of stuff from Donald, so you could say we have a symbiotic relationship. The difference is that while Donald buys almost 70% of everything we sell, we buy less than 20% of what Donald sells. We are a great customer, but it’s not exactly an equal relationship, instead it’s risky business. It would be much healthier for us to have 100 small to medium size customers rather than having all of our sales concentrated with a few very big customers. The term too big to lose comes to mind.
Now, Xi, though currently a smaller customer than Donald, is getting wealthier and buying considerably more stuff all the time. We have been pitching our products and services very aggressively to Xi and hope to keep growing that relationship. Sales is very competitive, so naturally all of our competitors want Xi to choose their stuff instead of ours. Here’s where it gets complicated – even though Donald is our biggest customer, he is often our biggest competitor, as is the case with Xi. To make it even more awkward, Donald and Xi aren’t getting along very well right now and we have to be careful not to get dragged into their drama.
Let’s consider the USMCA in this context as Minister Morneau did; Donald has said he is going to keep buying from us, which is good news, but we’ve had to give him some freebies to seal the deal. Not great, but he is our biggest customer, so what choice did we really have? Sacrifice from a few sales departments for the good of the entire company, blah, blah, blah…. Yes, our sales to Donald might drop slightly, but it could have been worse, right?
Though it wasn’t part of the agreement, as a small business, we would like our biggest and best customer to help bring us referral business. If the rest of the market knows that he values the relationship with us, we can use that when selling to prospective customers. But when Donald trashes our company very publicly, we need to consider the message this sends.
But then it goes further – we are trying to sell to Xi and Donald is trying to sell to Xi – in this, we are competitors. Donald has used his leverage as a customer, backing us into a corner, so that if we get serious about selling to Xi, or any other new customer for that matter, we need to first go to him (our competitor) and share our sales strategy and competitive position. Even Bill Morneau should be able to see why that’s a bad idea. Then, if Donald decides his company doesn’t want the business and it doesn’t hurt him in any way he will allow us to proceed. And, if we dare to cross Donald? He will threaten to pull his business from us again.
Finally, there is our reputation to consider. Our other customers have been watching this trade deal with Donald unfold. Donald has proudly (and publicly) proclaimed that he beat us and bullied us into making concessions. So now that our customers know the precarious position we are in with Donald, how does that change how we grow our business moving forward? What does it mean next time we have a disagreement with Donald?
This is opinion and speculation, but as in any negotiation, if the person across the table knows you are never prepared to walk away from the table, then what?
Well, it appears you end up with a deal like the USMCA, and your small business suffers a serious setback.