Are you the cheapest or the best?
Thursday 1 October 2020
"That horticultural sector is really penniless. That has always been the case. If I am not the sharpest, my competitor is and I lose trade. So don't come up with great stories about new revenue models, because that just doesn't work for us! "
Every business and sector has its own specific ingrained patterns. But when it comes to the price, it seems like the race to the bottom is a sport. Who is the first at the bottom. In every sector, however, this leads to a continuous focus on cost reduction through economies of scale and a rigid displacement strategy in which only the cheapest survive - until that too is overtaken. It can also be done differently.
Because that age-old strategy is of course not sustainable. How long can you keep that up? The only investments you then make are in innovations that lead to efficiency and thus lower costs. That immediately betrays your intention: you only do it if it serves your interest.
What is wrong with self-interest? It is the old economy: the transaction-driven behavior between customer and supplier, which is based on a win-lose game. Whatever you lose today, you will take back tomorrow. It is as if you are always in the fighting mode, with which you are especially wary to protect your own interests.
Let go of that old economy
In a world where we are slowly becoming aware that more prosperity does not lead to more well-being, you have to wonder how long you can justify this course of action to yourself, society, your employees and your customers. Moreover, with a continuous focus on price, it is impossible to invest in innovations that create sustainable value.
In addition, you run the risk that your entire supply chain will eventually spiral into a downward spiral. As long as you tolerate that status quo, that's exactly what you get every day!
But in conversations with me, entrepreneurs express their frustration that they are being pinched off and that as the winner of the race for the lowest price they are ultimately losers. While I note that they tolerate everything they do not want in their own company. Because what do you actually want?
Yes, what do you want?
That's why I ask those entrepreneurs:
How would you ideally like to work with suppliers and customers?
What value would that bring to the end user?
How sustainable would the trading relationship be with your chain partners?
What impact would that have on your revenue model?
How happy does that make you?
Seemingly simple questions, but make no mistake, for this you need to step out of your comfort zone. Everything you now take for granted should be thrown overboard and recolored from a blank sheet with the end user in mind.
A growth media supplier was charmed by my vision and asked me to do an internal workshop to raise awareness of the MT. The entrepreneur wanted to apply services as a revenue model in the existing market and first wanted to be supported internally.
Three months later, we would finalize the Services Business Case. Only a year later I finally got hold of the entrepreneur. We had another pleasant conversation as if I had last seen him yesterday. I asked him what the status of the Services Business Case was.
"It's good that you asked, nothing has happened yet, because the daily reality was given priority: we have changed the structure, hired new people and added new customers."
"Well that's nice," I said, "then you're definitely ready to accelerate on services?"
"Yes, we will do that. I am going to mobilize my colleagues and next week we will make a video call with the MT, in which you can pitch the follow-up process. "
In the video call with the MT, I enthusiastically started to summarize the results of the workshop from a year ago: their ambitions and the approach to their Services Business Case. But the team was completely resisted. Their arguments were that they were actually very far, because the organization had made great strides in structuring, so a Services Business Case was not necessary, they could do it themselves.
I was stunned when the entrepreneur went along in the same mode.
To top it off, he said, "If you know so well how to make services profitable, why don't you do it for us right away, we'll pay you in a year."
The race to the bottom
Only then did it become clear to me. This entrepreneur does exactly the same as the big growers who put pressure on him during the annual price negotiations. But services never become a revenue model as long as you tolerate such behavior from your customers!
Of course I have not heard from him yet, it is now six months later. I discussed it extensively with my colleagues. It is not in line with my values and vision and therefore I should not tolerate it from my customers. Even though it seemed an interesting customer and I had good conversations with the entrepreneur. I couldn't convince him that it doesn't work like that. Hopefully you will see.
I can imagine that this is how you become when you as a relatively small player are so pressured by your customers. But ask yourself:
- How do you want to be treated as a supplier?
- What do you get energy from in partnerships?
- What are the conditions for this?
If you want to make services a sustainable revenue model, mutual respect in a collaboration is the first condition. So that is two-way traffic in a sustainable relationship, based on the continuous development of value for the end user. If you want to do that right, you can't tolerate what detracts from that. Practice what you preach and take your fate into your own hands!
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