Contracts and Their Future

 A long time ago, a new customer came to us to work on a project. Many years before, we had talked to this customer through a referral from a design engineer. At that time, we created a referral bonus for that person. If the customer gave us the contract to manufacture their product, we would pay some percentage of the revenue to the engineer. That particular project didn’t happen. But then the customer came to us directly ten years later on a different project that didn’t involve that design engineer. We struggled with the question of whether the engineer should still get the referral bonus or not. Was there a time limit/expiration on the contract? No. Were there any qualifiers, such as the involvement of the engineer in the project? No. After asking and answering many other considerations, we ended up paying the engineer a bonus but rewriting the agreement. At the time, the original contract was written, we had not foreseen or we had ignored the possibility that a customer would find us on their own and we might still have to pay a referral bonus even though an engineer had not made any effort in the project or involved in making an introduction.

Recently, I was involved in a discussion as a real estate broker was contemplating how to hook a construction company with an exclusive marketing/listing deal. An option under discussion was offering a portion of the commission (or ownership) to the construction company, besides providing a benefit of faster turnaround on their properties and spec homes, as well as improved cash flow and quicker repayment of construction loans. One of my questions was: Currently, they focus on residential construction, which you’re interested in, and they only dabble in multi-family rental unit construction. What happens when that shifts and you end up paying them a percentage of residential sales for which they have no involvement?

After pondering that for a bit, the broker admitted that wouldn’t be good so he was going to draft an agreement that was limited to the units the construction company built. I also encouraged him to consider other scenarios that might instigate a voiding of the agreement.

Too often we project situations as continuing in perpetuity. We don’t foresee that something may change for one of our business partners: divorce, death, distraction with another business venture, dissolution of their company in its present state (sale, merger, acquisition) and so on. So we don’t prepare for those “inevitabilities.” 

I strongly encourage you to project any contracts or agreements into the future and at least explore more likely and foreseen scenarios.

Grocery Shopping and Other Business Traps

 When you go to the grocery store, or your partner does, how often are you purchasing a different brand or style of food? If you’re like most of us, you thoughtlessly wander down the aisles pulling off those same, familiar packages or produce. In the “name of efficiency” we don’t often stop to reevaluate our previous decisions unless there’s a hiccup in our system, like a stock shortage or dramatic price increase. Once we’ve made the decision about the most economical, most trusted, most nutritious, most flavorful, most delightful food stuffs, we make our shopping trip as short and painless as possible by getting the same old, same old. 

Likewise, in business, we have the same habits. Once we decide on certain service providers and suppliers, we thoughtlessly just “reorder.” Once we decide on our strategy, we rinse and repeat. Same with marketing channels and job advertising. If we make any adjustments, we increase the intensity: more, faster, harder… If one person is making the grade, hire another high-powered, more experienced person. If the sales leads aren’t happening, up the advertising budget, put it in more places, make it more frequent.

Rarely do we stop and question whether we’re heading in the right direction, targeting the right audience, seeing the gaps in competitive offerings. If there’s a problem, we want a magic pill to solve it. It’s true in our health—90% of heart disease patients don’t change their detrimental lifestyle—and it’s true in our decision-making habits. We rarely change how we do strategic planning, how we explore the unknown unknowns, etc. Even a crisis doesn’t make long-lasting changes. With a stock shortage, we go back to the comfortable, purchasing once again what we used to buy when it’s newly replenished. With strategies, we see glimmers of success and so we continue on blissfully unaware that this may lead to a dead-end, a trap.

You can reinforce habits, even business habits, with good feedback mechanisms. You can also create new habits by “burning the ships” so you can’t go back to the old way of doing things, the old standby “recipes” of strategies and decisions. Beware: even change programs don’t create lasting change.

When was the last time you made a long-lasting behavior change? When was the last time you made a significantly different, countercultural, revolutionary, industry disruption? Please don’t just thoughtlessly go down your business “aisles” plucking the same old, same old decisions and strategies off the shelves.