Who "OWNS" your business? – A Michigan Survival Guide Installment

Several years ago a law firm specializing in workers compensation was told by General Motors that it had to shave their hourly rate to roughly $30,  or risk losing GM’s business.  The irony was that to keep the large seemingly “lucrative” account, the firm needed to bill an hourly rate, less than the lowest paid employee anywhere in a GM facility.  The firm decided it would eliminate the 5 or 6 workers it had rather than lose money by accepting the new terms.  GM was able to find another firm which accepted the terms, a firm which is now out of business.

The reason I mention this, is that the original law firm had a significant amount of its resources tied up into the handling of General Motor’s business.  There was a very thoughtful consideration of the viability of continuing at the proposed rates with efficiency measures put in place, and serious consideration of the consequences on the families of the attorneys who had to be let go.  But in order for the firms ultimate survival and for the continued profitability the hard choices had to be made.

GM ALMOST owned this business.  However, it apparently DOES own many others.

Not in the classical way you and I view ownership, but rather in a way which causes you to make decisions in an unnatural manner. One that considers not the general profitability of your company, but in a way in which you must negotiate through your customer’s troubles as well.  A manner which puts you at the mercy of your biggest contracts and their reliability.  And now this is seen locally as well.

A recent report from the Traverse City Business News Ticker highlights troubles that a local provider for GM faces in the midst of this crisis.

“If GM goes into bankruptcy, there’s a pretty good chance we’ll be doing the same thing,” said Tom Crandall, president of Great Lakes Trim, a Williamsburg-based auto industry supplier.

“Ninety percent of our products go to GM,” said Crandall. “One directly to the manufacturer and the rest to Tier 1 suppliers.”

In the context I have set up, it is clear to see GM “owns” Great Lakes Trim.  This isn’t to say it is not a well run company, but rather it is one which has put itself at the mercy of a company which is nearly its sole buyer.  Even without the troubles the automakers are facing, the monopoly of a “General Motors only” customer count had placed this company at risk.  What if GM had decided they wanted a 20% price cut just because?  Now understand this story is being repeated hundreds of times in many places around the state.

The bottom line.

There are many folks who have decided that owning a business is the way to go.  I am one of them.  Consider however, that historically this country has seen ups and downs in a variety of markets, and to expose your efforts to the whims of one entity or even one industry for that matter could bring disastrous results in the failure of a single market or even a singularly bad economic event.  Diversity, that word which has been usurped for all the wrong reasons, is the key to continued prosperity especially in the most challenging of times.  Spread your efforts around, and develop new markets.

Though hardly a “quick” fix in a tough economy, this should help you re-align your planning to consider future strategies.  Consider that recent events are a warning shot for any business which still exists.  Set a rule for your business.  Determine what % a slowdown in business might be bearable or even survivable.  Take that number, and assign it as your red flag.  If any of your customers or singular industries approach that number, consider a re-emphasis on new customer development and re-marketing to new developing industries or customer bases.  This will assure you aren’t hit by the unpleasant surprise that you never truly “owned” the fruit of your labors.

2 comments for “Who "OWNS" your business? – A Michigan Survival Guide Installment

  1. Jack McHugh
    December 16, 2008 at 12:11 pm

    Interesting. It’s another aspect that old maxim about a debtor “owning” the bank if it’s loans represents too large a portion of the bank’s portfolio.

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