What a waste of time ...

I had an unusual experience recently which highlighted why so many  small firms never reach their potential.

I had been commissioned by a client based in the USA whose own manufacturing facility was at full stretch to source them a sub-contract fabricator in Europe to work on a potential order to be delivered to the Middle East.

The moment the client made the request I had someone in mind.

After a phone call with the MD it was agreed that I would visit their facility some 330 miles away, scope out their capabilities have some initial discussions on deal structure and report back to my client. The visit lasted less than 3 hours and involved the firm in no expenses about from 2 coffees!

The client couriered drawings for pricing – in order to quote his client – and I set about drawing up a commercial agreement and sent the draft to the MD for comment. The speed of the response indicated that a maximum of 30 minutes had been spent on review. In his response he indicated that his price would be based on my client providing the additional capital equipment (not unusual) in order for his workshop to meet the end clients requested delivery time and quality. This requirement was quickly agreed to and specifications for the equipment sent.

After a while the quotation arrived,  in a document of less than 10 pages much of which I was aware was simply cut and paste. My estimate of the time spent on this exercise was approximately 6 hours. A further meeting was arranged to discuss detail, this lasted less than 2 hours and the expenses amounted to one guest coffee.

At this point the reader should be aware that the fabricator’s business has annunal sales of approximately £5m and the value of the order to be placed by my client was £5m spread over 2 years production.

In other words this one order, with capital costs paid, would increase sales by 50% per annum.

I estimate in management time that the cost of putting together the fabricators quotation including discussions over financing, resources and suppliers meetings amounted to 70 hours at say £125/hour (plus the 3 coffees!!) which comes to £8,750 or put another way 0.00175% of the potential order. 

In anybody’s language that is a very low cost of sales. 

Incidentally my client’s costs where considerably higher including a sales trip to the Middle East, these were committed to willingly knowing the commercial risks.

In the end the customer in the Middle East in did not order from my client. The day after this announcement was made the MD of the fabricator called me and with little pre-amble angrily told me that the whole exercise had been a “Waste of time”.

This attitude struck me as rather bizarre; where else at a cost of less than 0.00175% of potential turnover did the MD expect to get business?

Expecting business to materialise at no cost is a short route to failure.