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Beware! A Big Contract Could Destroy Your Business If You Don't Avoid This Common Mistake

Each step in the process of setting up a business offers its own challenges.

Joel Block

September 15, 2006

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Tom, a former Fortune 500 senior executive had a vision. He'd pulled together a team and invested a great deal of energy, time, money and resources into building what promises to be a remarkably profitable business. They were ready to roll out this promising new venture.

I listened with great interest as he shared his excitement about the upcoming roll-out of his new product with me over breakfast. All the pieces appeared to be in place. This was a major accomplishment. It was his first attempt at building a start-up business and one he could be rightly proud of.

Tom was certain his new product would be perfect for Fortune 500 companies like the one he had worked at. Financial models, PowerPoint presentations, and spiral bound presentations were all ready for the roll out. Everything was going according to plan. Everything was absolutely perfect.

I congratulated him on his successes and listened to him recount the rest of the story…

He was about to give away the store!

Tom decided that he could outsource much of the production work to an outside vendor. He found an off-shore enterprise in Asia who seemed to be ideal. The vendor was obviously excited by this opportunity and immediately agreed to advance a substantial amount of capital to ramp up its outsourcing capabilities. In the process, this vendor began to posture the business in such a way that Tom and his company would receive commissions for sales of the product. Tom didn't see a problem with this. He felt as long as he was making a profit everything would be perfect.

Tom was at a crossroad that, all too frequently, is a defining moment that determines whether an entrepreneur will succeed or fail. He was on the verge of giving up control of his company. In his excitement, he didn't even see the danger.

I explained. If Tom agrees to accept a commission on future sales, no matter how large that commission might be, he might make a very nice profit in the short term. But, he would be giving up control of his business.

This would give the vendor the option of restructuring the business and replacing the sales department (him). It would be much better if Tom simply paid the vendor for delivery on orders. This way he would maintain control of his business and the ability to change vendors if it should be necessary.

The Bottom Line: It's always better to control your destiny than to be at the mercy of someone else. After all, isn't that the reason that you've started your own business?

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