Articles by Rick

“Will Our Customers Bail Us Out?”
Harvard Business Review - May 2008

David’s guiding principle in talking with Clarinda’s customers should be to disclose nothing beyond what he has to. He’ll have to discuss the layoffs, of course, which will soon be industry knowledge, if they aren’t already. He’ll need to apologize to Red Bones, the Pearson buyer, for not telling him about the cuts earlier and explain that they resulted from the loss of the Reed Elsevier business. Otherwise, all is steady, and serving Pearson remains Clarinda’s most important goal.

David should not talk about Dan’s drinking problem—that has lawsuit written all over it—simply explaining, if asked, that Dan was let go as part of the cost cutting. And David should not mention his desire to sell the company or, worse, show his despair by asking for unusual favors or long-term deals.

In rare cases, you might go to customers with your plan to sell the business. For example, you might seek their input on potential buyers that they would find attractive because of, say, a reputation for efficient operations or fair dealings with customers. After all, customers may know your competitors—who would be potential buyers—better than you do because of their own relationships with them. Or you might get the word out that the company’s up for sale in order to flush out a buyer or two and even start a bidding war.

But this is a risky strategy, given that customer reactions to a sale are typically negative. In general, you don’t want to talk about a sale until a deal is almost done—usually just days before the purchase agreement is signed, after most of the details of the agreement have been hammered out. At that point, you can break the news to customers with a well-crafted case for how they’ll benefit from the sale—“The buyer can invest additional capital that will fuel growth,” “The buyer’s overseas operations will reduce operating costs,” and the like—after which the buyer can talk to them as part of the due-diligence process. Furthermore, telling customers could allow competitors to get wind of the sale and give them the opportunity to put a negative spin on the news: “Between you and me, the new owners are jackals; the company will now be overleveraged; customer service will suffer; and, by the way, the sky is falling.” Rivals will often portray the sale as a sign of desperation.

There’s something that’s even more important here, though, than deciding what to tell the customers. David has to figure out what to do about the business. My advice here: Buck up, get back on the horse, and try to whip the business into shape so it’s actually appealing to a buyer.

Yes, things aren’t going all that well: You’re in a declining business, facing cheap overseas competition; you just lost a customer representing one quarter of your business; and you’re on the hook for $2 million in personally guaranteed debt. But there are some bright spots.

To read the entire article from the Harvard Business Review, please click here.