The Opportunity Trap

Thank you to all the loyal listeners. I’m truly astounded that The Real Estate Espresso Podcast now has listeners in 114 countries. Whether you are located on an island in the Pacific, central Africa, South America, Europe or the good ol USA. Thank you for listening. 

On today’s show we’re talking about the opportunity trap. We’ve all seen it happen. Maybe some of you have done it. I’ve fallen prey to my own desire to grow faster than I was capable. The picture looks something like this. 

You’re in business, you’ve got a great product. Let’s call it super duper. Customer orders are coming in. The growth has been good. Most of the sales have been online and the order fulfillment process is working pretty well. The marketing efforts have grown the company consistently month by month. Then one day Walmart calls and asks if you would like to supply Super Duper to Walmart. Simple math suggests that this one customer could increase sales by a factor of 10. The opportunity is so huge compared with your present business that the only correct answer is yes. It’s a huge stretch. It could possibly break the company, but the opportunity is so great that you can’t say no. You can’t say no for several reasons. You recognize that your product is filling a gap in the market. But there are some competitors who are a little behind you. So far you’re doing well. Walmart has recognized the gap in the market and is asking for Super Duper. If you say no, then Walmart will probably approach your closest competitor, and the explosive growth will go to the competition. Most importantly, the market share will go to the competition. Saying no is not an option.

Sure there will be problems. Walmart will negotiate pricing that will hurt margins, but the company will make it up on volume. The team will figure it out. They always do. 

Walmart pays their bills, but they manage their payment terms so that most of the time the product spends on the floor in the department store, the inventory is actually being funded by the supplier. That means requiring a huge increase in capital to fund that inventory. 

The scenario I’ve described sounds pretty compelling. Almost every business has encountered some version of the narrative that I’ve described. 

Now imagine you’re an existing customer of the company. You’re going to suffer terribly when the company starts to supply to Walmart. Walmart will get all the attention. Customer service will suffer. Order lead times will suffer. You were one of their best customers and now you’re a second class citizen. Super Duper is strategic to your business. You can’t meet your business commitments without it. Buying the product off the shelf at Walmart won’t deliver the quantities you need. The company has signed a supply agreement with you and they’re not living up to the terms of that agreement. They can’t be counted on to meet their commitments. They’re not an honourable company. They can’t be trusted. You are angry at the company because they’re harming your business. 

Does this scenario sound familiar?