Andy Hamilton, chief executive of business growth centre The Icehouse, offers advice on how to handle things when a larger player comes knocking
When you are first approached by a major player about producing a line for them, what questions should you ask them?
The first question I would ask would be of you - does this fit with the strategy for the business? How will it help you achieve the goals
you have set for the business? What market segment are they targeting with your offering, what are the key terms of trade they will offer you and in particular the terms relating to ordering, stocking and returns? The key risk you have in dealing with a player who is a lot bigger than you is cash flow - so you need to focus on the small print. Find out about other similar suppliers who have dealt with them so you know how they are to deal with. Once you have developed a relationship, ask the buyer why they chose you, this will help you understand what the market thinks of your products and company.
How do I protect my mainline brand if I am going to be launching a different line? How do I make sure my main brand is not diluted?
Ideally, the offering will be targeting a different market segment and will have a different brand, otherwise it can get messy and you will likely upset your existing distributors and retailers. To build a successful business today you are likely to be in multiple retail offerings, so it is more about management of this conflict than anything else. A major player helps you get volume sales over which you can marginally reduce your fixed costs. The trade-off is that they normally want a lower price so you need to make sure the increased volume makes up for the lower margin.
How do I make it clear to my main brand customers that the materials I use for their line are far superior to that of the different line, without belittling what I am doing in the different line?
Open communication is important. Explain why you are doing this, what segment it is targeting and how it will not impact on them. If necessary give them some extra incentives to ease them through this change.
Should I expect to make a fortune when linking up with a big retailer? What are the advantages to these kinds of relationships other than the monetary side?
There are two things that these arrangements can provide. A volume side to your business, which could produce "profit and scale" while also providing credibility that you can work with the major players. They may also be a stepping stone to dealing with other retailers. Keeping an eye on the costs is critical.
How can I leverage this relationship with a big player for new business, potentially overseas?
Once you have done a couple of seasons with a big retailer, it is no longer "new". You understand the system, you know what it takes to be successful and you can likely move on to adding further retail partners either in different segments of your existing market or if you are really adventurous, into new geographies.
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