Entrepreneurship Success: Contract negotiation (I)

Most entrepreneurs know that making sales is critical to the short-term survival and long-term success of their businesses. Sales could be made by selling simple commodities like soap and honey by a business. But more often, sales is achieved through a “contract” that includes components of both goods and services, as well as other legitimate […]

Most entrepreneurs know that making sales is critical to the short-term survival and long-term success of their businesses. Sales could be made by selling simple commodities like soap and honey by a business. But more often, sales is achieved through a “contract” that includes components of both goods and services, as well as other legitimate “terms and conditions”. For instance, a poultry farm may enter into an agreement to supply a certain weight of dressed chickens to a wholesale outlet. Other terms, than the total weight of all the chickens to be delivered, may include the minimum weight of each chicken, the day of the month for the delivery, the type of packaging, as well as the labelling on each package.

Unfortunately, many entrepreneurs, in the hurry and excitement to clinch a deal, tend to just focus on pricing. They end up accepting other terms even if they are far-fetched or will come at additional costs to them that may make the complete deal unattractive. Some other times, inexperienced and unwise entrepreneurs knowingly accept terms that they do not have the sincere intention of fulfilling. They just assume that once they get the business, the client must accept and live with what they ultimately deliver. The consequences of this includes cost overruns, likely delays, poor or incomplete deliveries and failures that make the client dissatisfied at the end of the transaction.

The failure to make final deliveries in full compliance with all the terms agreed to with a client has several negative immediate and long-term repercussions on the entrepreneur and their business. In the first instance and at the minimum, the client is disappointed. The failure could also hurt the client tremendously that they could successfully sue you and claim damages. Besides having the right to sue and claim damages, a client may likely never again patronise you. Beyond that, they may strongly advise their business associates against patronising you.

Not meeting with what you promised your customer, whether your agreement was documented or not, and whether there was an initial formal intent to seek legal remedy or not, is a failure that must be averted.

To avoid the likelihood of such failures, it is essential that entrepreneurs consider each transaction as a contract irrespective of scope and value. This is important so that the entrepreneur can take the deal seriously and do what needs to be done in a way that makes the transaction profitable and the relationship mutually rewarding. When customers are happy, they not only give us repeat businesses, they also recommend us to their families, friends and associates.

How do we inspire a farsighted approach in, and a relationship-biased contract-mindset of handling our transactions in our businesses?

Think of the lifetime value of customers: The way to take all the terms and conditions of a transaction seriously is to appreciate the potential lifetime value of the customer. First, realise that each fully completed transaction helps build a lasting and mutually rewarding relationship with a customer. A lasting and mutually beneficial relationship with a customer means the value you stand to gain over the coming years is worth more than the costs of the relationship. Similarly, you should appreciate that there is no amount you can benefit from the customer on a one-off basis that will be worth a sustained relationship and the benefits of the recommendations that they are likely to make to others on your behalf if they are happy with you. Therefore, look beyond one-off benefits and instead seek to build a relationship by doing the right things.

Consider each transaction as a binding contract: Seeking to build a relationship with a customer means you have to take each transaction as a contract irrespective of value and details. As mentioned earlier, and also discussed in our previous series, “Keep Your Word”, you must always strive to be true to your word. Regardless of the levels of formality and documentations made in respect of the transaction, ensure that you word remains your bond. Simply put, take each commitment you make as sacrosanct.

A special attention that needs to be drawn here is that as an entrepreneur, you must strive to always do what is right regardless of the general proclivity to do wrong in our society, in the misguided belief that “you will get away with it”. What we need to realise is that we actually never get away with wrong-doing. We either pay a price now or later. We may or may not discern that a price we pay has to do with a specific wrong-doing. But there is always a price to be paid for each wrong-doing in our lives. Somehow, somewhere. Always.

Understand what a contract is: In its simplest form, a contract is a promise that is enforceable by law. For instance, it may be a promise to deliver a product of some quality by a certain date. In its more comprehensive form, a contract is a binding agreement that defines and governs the rights and duties of the parties to the agreement.

For our purposes here, any commitment the entrepreneur makes and agrees to, should be viewed as a contract regardless of whether or not it is enforceable by law. The point is for the entrepreneur to take the highest moral and professional standards of ensuring that their word, explicit or implied, is their bond. This mindset is very important if the entrepreneur is to be able to take each business discussion seriously.

The sincere willingness and ability to meet all contractual commitments, irrespective of details is crucial to the long-term success of every human being and business. Today, we just brought out the importance of meeting contractual agreements. Next week we will discuss how we can develop ourselves and our businesses into always being able and willing to deliver on what we agreed to.