In business and in life we often allow ourselves to fall into a total dependency trap. We become totally dependent on a person, enter exclusive contracts or use unique providers. In many situations, that will end up very bad for us or our businesses.
Sometimes we realize we do something wrong, and sometimes we don’t. In any case, we are often way to comfortable with the status quo to challenge it, to open up to alternatives (or too scared to change).
Someone I know well has a middle-management job in a local factory (part of a larger private group). That’s a relatively new factory in a very specific niche, and at first they tried to market themselves to potential clients all over the world and made on-site visits to provide maintenance or to better understand their (prospective) clients’ needs and come up with improved solutions for them.
Not very long ago a decision was made to enter an exclusive contract with a huge company that was interested in buying off all of their production. Their new and unique customer has plans for at least 10 years to increase their productivity and provide training, so workers and even management feel safe about this arrangement. Management is even off the hook about trying to find new clients and test new in-house solutions, the factory has a lot of work and a well-painted perspective.
The downside is this: they gave up freedom of choice and entered into a total dependency situation, which to be honest, isn’t so uncommon in the business world. So why do I believe it to be a downside?
- They will no longer have direct contact with and feedback from any other potential customer.
- They most likely stopped researching, testing and marketing new or improved solutions, unless requested by their client.
- If their unique client decides to terminate the contract or move to a different provider they will be in a situation with no clients and no fresh contacts in a competitive market. That’s a tough position to be in!
I shared my opinion with my acquaintance, but he seems to have great confidence in this client. This is a story with just a beginning, and no ending. I can only guess why they changed the strategy, but what I know is it’s better, but harder, to write our own story, or forge our own future, and that’s not possible in a total dependency relationship.
Risks Of Total Dependency
If a company A has a unique customer for the long term, if the customer decides to terminate the contract, A will be left with
- no clients and only cold contacts (by ‘cold’ I mean the relationship needs to be re-built from scratch, if there was one to begin with)
- no production or increased stocks
- no revenue
- probable layoffs
- no marketing strategy (who would be interested in marketing if there’s only one client, right?)
Conversely, if a company B has a unique provider for a critical product or service for its operation, if the provider goes bankrupt, drops the required service or product, drops B as a client or arbitrarily doubles prices that will severely impact the normal operation of company B.
Examples in the Online World
Negative Example: Online payment processors facilitate online purchase transactions and are widely used, both for personal and for business purposes.
When an online business T offers multiple payment solutions, they have the chance to tap into a larger market. And if one payment solution fails or restricts the business account of the company, T has backup alternatives.
When only one payment solution is offered, the above scenario becomes much more complicated, because the transition to another payment solution takes time and the entire business funds are blocked inside the restricted business account. With no money coming in and no money going out until a new payment solution is ready, the business can be on the verge of collapse.
To make things worse, these restrictions are imposed disregarding the negative impact to the business being limited and without a transition or grace period that gives time to set up other arrangements.
Now, if you are an online business owner, do you find these perspectives desirable?
Positive Example: All online businesses need a webhosting service to operate. Changing the company which provides your hosting service usually comes with a stressful time and probable temporary disruptions of service.
Recently, a company many of us used for its hosting services, decided shared hosting plans is something they don’t want to support in the future. So, what did they do? Suddenly drop the service and leave many customers in a difficult situation? Not even close!
They negotiated with another webhosting service provider to pick up their clients with shared hosting plans. They designed a timetable and made the transition from one service to the other very smooth for the customers (with a few hiccups here and there). All this at the expense of a lot of work behind the scenes, from the crews of both companies.
Now, that’s what I call a positive example. That means to care about your customers (and even former customers). That means to show your customers the respect they deserve and leave an open door for the future.
Solutions and Bottom Line
The solution is obvious: don’t put yourself in situations of total dependency, or if you already are in such a situation, open up to alternatives. Don’t hesitate, you need this! [I should take my own advice sooner!]
As for the big companies which offer critical services or products, allow your “undesirable” customers (!?) a smooth transition to an alternative solution! If you find no other reason to do it, then this should be it: a negative experience lasts longer in the minds of those affected and is more likely to be shared than many positive ones.