Guest Blog: 10 Commandments of Export Marketing by Coach Bengo (Part 3)
Make sure your Agent has adequate cash flow to finance the business
I still remember my choice of agent in this caribbean island. He was short, plump and jolly with an ample belly and an infectious smile, now that I think of it, a sort of Santa Claus type. He was very knowledgeable of the island, the industry and on friendly terms with the supermarket buyers. He had access to a small converted house as a warehouse. We hit it off immediately. There was no doubt in my mind, when I left the island, at the end of my visit, that he was the perfect agent.
And things started well, he ordered a first shipment and sold it and then another and another. As the orders climbed so did his outstanding balance, but I was not perturbed, because on my subsequent visits the stocks in the warehouse and his sales to the supermarkets seemed to balance. I was convinced that the only reason for the climbing balance was the extended credit to the supermarkets.
The sales attracted the attention of the local players in the industry and I was soon invited to a meeting with the market leader. At a friendly meeting over a sumptuous dinner and good wine I agreed to produce an identical product under his brand name as a competitor to my brand. Some of my readers may think this to be an unwise decision, but my thinking at the time (hopefully it was not the dinner and the wine) was the combined orders would certainly boost my sales and also it would delay the inevitable entrance of his brand, without my production, as a competitor, a sort of make peace with your enemy while still on the way to court.
Well my initial thinking proved correct, within a couple of months sales to the island grew rapidly. I was on top of the world. All sales to the market leader was paid promptly but my own brand agent further delayed in his payments. At first I ignored it, attributing it to initial competition and believing that the relative market shares would settle after a while, and the business to the island would stabilize. It didn’t.
On a visit to the island, after repeated unsuccessful requests for a cheque from my agent, I sadly discovered that my agent was in deep financial trouble. The accounts just did not balance. The stock in the warehouse, sales to supermarkets and cash on hand left a gaping deficit. To make a long, grim story short, my Santa Claus was running a type of ponzi scheme, his expenses were way over his gross margin on sales to the supermarkets and he was paying for past shipments from the proceeds of new shipments. While it was all growing it was invisible to me, bills were being paid but the credit limit was climbing. The entrance of the new brand slowed sales sufficiently for me to discover my predicament.
What can we learn from this experience? I believe that the choice of agent was bad on the basis of insufficient funds to finance the venture. Friendly faces may make good overseas friends, after all he did entertain my wife and myself to very delicious meals and expensive bottles of wine, but insufficient funds to finance your business is a cardinal sin.
How did the story end you may ask. Eventually I had to write off my losses to the agent and use the proceeds from the market leader to pay off my debt over the course of a year and a half. So my decision to make peace with the market leader was a good one, he was large, well established, profitable and financially stable and was able to make a positive contribution to his business from my product. In short he was an ideal Agent. AS A SMALL BUSINESS HAVE BIG BUSINESS AS CUSTOMERS.