Leadership

When to Say No to a Client

Linda Collier made a pricey investment to keep a marquee customer happy. Then the client turned on her. Could this entrepreneurial nightmare have been avoided?

Written by As told to Deborah Aarts

It’s been an entrepreneurial nightmare. In the past year, Linda Collier, the CEO of Mississauga, Ont.-based Tri-Ad International Freight Forwarding Ltd., saw one of her biggest customers—a multinational that represented a quarter of her firm’s revenue—fail to renew a warehousing contract Tri-Ad had spent millions to honour. The ordeal has battered the 25-year-old company, but Collier is unbroken. As she tells PROFIT senior editor Deborah Aarts, the fiasco has made her a much smarter entrepreneur.

How did this trouble start?

In 2007 we opened a distribution centre for an existing client in a market we wouldn’t have entered otherwise. They needed us to do it; they’d been to two other freight forwarders who said no. I had become known as someone who’d say, “Yes is the answer. Now, what’s the question?” We all love to chase the big, big accounts.

On paper, the deal looked very profitable. And it would have been if our client hadn’t changed all the terms and conditions after we had put pen to paper on a five-year lease. They came back with a list of requirements that hadn’t been in the initial deal, including the installation of a clean room that cost $856,000 to build. I wasn’t prepared for that expense, and I didn’t have that kind of cash flow, so I ended up having to go to a venture capital firm to get the funds. We lost $500,000 a year on the facility for five years. Only in the final three months of the contract did we get to the point of changing four quarters for a dollar.

Read: The Real Price of Success

Why didn’t you walk away from what was clearly an unfavourable deal?

I stuck by losing that kind of money to keep the customer. I had probably about $6 million of freight business from them. It was the single worst decision I’ve made in my career.

Also, I believed that when the five years were up, we’d be able to negotiate a new contract that would be profitable for us. After all, we had finally recovered the capital expenses we’d been forced to take on. I thought, “OK, I’ll lick my wounds. We’ll change what we need to in our contract, and we’ll make some money in the next three to five years.”

But that didn’t happen. Instead, the client went around us and signed an agreement with the warehouse landlord themselves. They took our employees, the building we had leased and the equipment we had invested in. We were left with nothing. It was awful. Even worse, two months later they pulled all their freight business from us and gave it to a U.S. firm, which quickly poached more of our employees. It’s been ugly.

Where does this leave your company?

It’s still so fresh. Our 2013 wasn’t too healthy as a result. But I’d say as a company it’s definitely made us smarter. We learned the hard way to never let one customer make up so much of our business. And we’ve rewritten a lot of policies and updated a lot of contracts. We now spell out clearly what the recourse will be if a client backs out of a contract or changes terms. Nobody can get angry or hurt. This won’t happen to us again.

Read: 5 Things I Learned From My Failed Business

How can entrepreneurs—especially those running young companies—play hardball with giant clients?

You can’t let the clients call all the shots, even if they’re a blue-chip customer you are dying to get. Sometimes, not doing it is better than doing it and losing.

What has this experience taught you?

I consider myself to be a risk-taker; I think most entrepreneurs do. But I let my ego get in the way with this deal. I saw the potential for growth and was blinded by the big numbers, so I didn’t shut it down when I should have. Then, at a certain point, I’d gone so far down the path that I became consumed with finishing what I’d started. I wanted to show the customer that we could do it. I couldn’t bear the idea of calling them and saying, “We have to stop,” even when it was clear it was going to be a financial disaster. That whole sense of failing terrified me.

The reality is, entrepreneurship is not all glory. The idea that our risks always work out just isn’t the case. The key is to learn from mistakes.

Originally appeared on PROFITguide.com
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