Why You Need a Trusted Partner - Part Two

This is part two in a three-part series on why you need a trusted partner. You can find part one here.

In part one of the series, I covered the difference between a vendor and a trusted partner, and provided some benefits to having a trusted, strategic relationship with a partner. The benefits are numerous, and incredibly valuable, but everything has a price, and everything involves risk.

In this post, I discuss the risks involved in such a relationship.

All those perks sounded great, but what are the risks?

With any vendor, there are obviously risks when working with them and being so open about your strategies and challenges. Any commitment you make to them could be taken advantage of in many ways, so there are risks to this kind of relationship. Just like in marriage, you are (albeit loosely) committing to one another for mutual benefit.

So what risks are involved when trusting your partner?

Your partner might not lower their margins despite the relationship

This is probably the first thing you’ll worry about. I’m trusting them with this information, sure, and they’re giving me these benefits, but how do I really know they’re saving me money? You’re committing to working with your partner, either exclusively or with a substantial portion of your budget spend, and you need to know you’re not being gouged on every deal. But how do you really know that you’re getting the value you expect out of the relationship?

There are three answers to this:

1. Talk to other customers about this person/partner – Are they honest in their answers, even when you might not like it? Are they humble? Do they admit to their mistakes and make changes? Have they been caught charging significantly more than another partner on a deal, and the value they added doesn’t justify it? Just like getting employee referrals for hires, referrals for vendors, and interviewing other customers of your partner can help you choose whether they’re worth your energy in building trust with them. The partner should be willing to be open and honest with you about what they’re making and why it’s a good deal for you compared to others. If they can’t produce referrals of other executives who already have trusted partnerships with them, move on.
2. Trust, but verify – Procurement teams often have policies requiring purchases over a certain amount to be bid out. This is a double-edged sword for a few reasons, but it lets you spot check whether your partner is truly giving you a better price. Keep in mind, though, that some manufacturers don’t give price advantages or discounts to some vendors because they don’t do a large volume or don’t have a long relationship established. Manufacturers might prefer another vendor over yours, and withhold protection so a competitor gets a better price. And of course some vendors will sell at a loss to undermine a competitor. The key here is balance between the value you’re getting out of your partner, versus any potential difference in price if a bid process reveals someone will sell it to you cheaper. When it happens, though, and it will eventually, ask your partner about it. They should be transparent with you and explain what’s going on behind the scenes. Remember, it’s not always about the currency but the value.
3. Open book pricing – If you can pull this off, congratulations. The best way to ensure you’re getting the best deal is to negotiate open book pricing so your partner tells you their margin on every deal. Either you agree on a margin for everything, or certain margins on certain categories, or you simply want to see what they’re making vs. what is “standard”. This is very hard to secure, but some vendors are willing to do it.

Your partner might try to sell you something you don’t want

When I say “don’t want” I mean something you don’t need, isn’t appropriate for you, is a poor fit, they know isn’t necessary, etc. Even a trusted partner will try to sell you on something you don’t want, but that’s because they think you need it and will want it. Or at least might be interested in it. They won’t get it right every time.

The key, however, is that a partner won’t try to sell you something that they try to polish and make it look good for you for some reason. Regardless of the reasons for why they might do this, a regular vendor will try to sell you the thing they’re pushing the most, or the thing they know the best. And if you’re sharing valuable information about your strategy and needs, they might try to use that not to find the right fit for you, but something that will make them the most money.

This is obviously dumb on the part of the vendor/partner, because if the customer doesn’t like the thing they bought, they will likely turn around to the vendor and blame the failure on them. But it doesn’t stop manipulative vendors from trying to play the victim and saying they had the wool pulled over their eyes by the manufacturer too. It’s vital that your partner have integrity and honesty, otherwise this risk is very real.

You can help mitigate this by giving your partner direct feedback as they present things to you. If your partner is honest, they may simply have a different idea of what you need than you do, or they don’t really understand your challenges and what you might need. If they’re dishonest, and trying to pull one over on you, you should be able to glean that after several interactions with them where their ideas and suggestions are repeatedly lacking. Just keep in mind your own biases, and make sure you’re being honest with yourself about what they bring or tell you, and you’re not penalizing them for talking about areas you need to improve.

Your own reputational risk

If your partner fails to deliver on a project, or sells you a bad product, you pay the price. You might fire them, and they obviously don’t want that, but your boss won’t be happy when the project implodes or revenue is lost, or the product you bought doesn’t perform as advertised. Ultimately, you are responsible for your vendors, just as much as you are responsible for your own team. If you choose poorly, it could cost you your job and your reputation.

The same goes for their advice. Your trusted partner should be wise, and competent, and therefore give you good advice. If they give you bad advice, and you follow it, you pay the price. Be selective of what advice you follow, but also be cognizant of your own biases when doing so.

Reputational risk can only be alleviated through the mitigation in other areas. If you’re careful about the products you buy, and you do your due diligence, you minimize your risk. If you’re shrewd about evaluating the resources engaged on your project, and be sure to set expectations clearly and manage them well, your projects are more likely to succeed. An open, honest, and healthy relationship will minimize risks to your reputation, as long as it’s well managed.

Conclusion

The risks involved in building and maintaining a strategic partnership with a vendor are many, but they can be carefully controlled and mitigated. Like any relationship, both parties need to feel like they’re getting more value out of it than they put in, and that it’s worth the effort in the long term. For both parties, the benefits should far outweigh the risks, as well as the costs.

In part three of the series, I’ll discuss what a real partnership looks like, and how to begin building that relationship.