Momentum Podcast: 138
Don’t Buy Blind
by Alex Charfen
As the CEO of your company, one of the responsibilities you have is to determine how your organization will buy the things that it needs, how it will acquire the services, the software, the consulting, the hardware, whatever it is that your organization needs. And the challenge for most CEOs that I work with and that I've seen is that they are all buying blind.
As an entrepreneur, part of what you do is determine what your company will spend his money on. What you need to buy in order to grow and make more profit.
You will soon have to buy things you know little or nothing about. You may try to become an expert in everything that your company needs to acquire. I know I did, it almost killed me.
I was so afraid of spending money in the wrong place that I obsessed over every dollar we spent and did far more research than I needed to.
Once I created a purchasing system, not only did things get easier, I had confidence in every decision I made.
Full Audio Transcript
I'm Alex Charfen, and this is the Momentum Podcast, made for empire builders, game changers, trailblazers, shot takers, record breakers, world makers, and creators of all kinds, those among us who can't turn it off and don't know why anyone would want to. We challenge complacency, destroy apathy, and we are obsessed with creating momentum so we can roll over bureaucracy and make our greatest contribution. Sure we pay attention to their rules, but only so that we can bend them, break them, then rewrite them around our own will.
We don't accept our destiny, we define it. We don't understand defeat, because you only lose if you stop, and we don't know how. While the rest of the world strives for average and clings desperately to the status quo, we are the minority, the few who are willing to hallucinate there could be a better future, and instead of just daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters. Clearly, the most important people in the world, because entrepreneurs are the only source of consistent, positive, human evolution, and we always will be.
Don't buy blind. As the CEO of your company, one of the responsibilities you have is to determine how your organization will buy the things that it needs, how it will acquire the services, the software, the consulting, the hardware, whatever it is that your organization needs. And the challenge for most CEOs that I work with and that I've seen is that they are all buying blind.
Here's what that means. You're working with your CPA, and you're getting the company books done, and they mention to you that they know of a good employee management platform or an HR platform, and if you just add it for $75 per person per month, it'll protect you in all kinds of ways and make life easier. I can't tell you how many times a CEO I've worked with has said yes to one of those requests without any research at all. And it doesn't stop there. It's not something as simple as a $75 dollar a month platform. It's printers, and computers, and real estate, and resources, and what we need as a team, and services, and consulting, and anything else that you buy.
Buying with one option means you are buying blind. See, one of the things you want to do is if your company is going to grow, which I want it to and I know you do too, you should build a purchasing and acquisition system early in your company's history. This is something I've done in every organization I've ever had, because here's a fact. I'm not an expert in buying just about anything. I was at one point, but these days, I can't claim expertise in how to purchase anything that there is. In fact, most of the time, I really don't know what the pricing should be on something. Couple that with the fact that I coach and I consult with dozens of companies. How often do you think one of them asks me, "Hey, I've got (insert whatever it is) to buy. What should I do?"
Well, I solved this in one of my earliest organizations. I had a company where, very quickly, I lived in Florida, but very quickly I had to start opening offices in Latin America. We were a consulting organization. At the time, we we're working with some major companies to roll out Latin America for them. We were working with Targus computer carrying cases, with Logitech computer hardware, TDK. At one point we were working with Samsung, Monster Cable. I was opening offices, not just in the U.S., but we ended up with offices in Argentina, Paraguay, Brazil times two, Mexico City, Panama ... I'm leaving some of them off ... Miami, Texas. Not only was I dealing with a situation where I didn't know how much things should cost, I was dealing with how much they should cost and exchange rates and different costs for different things in different places.
It got near impossible to understand how the heck I could make decisions on buying things, so I created a process in my company. If anyone wanted to buy anything, they had to get me three different orders, or three different estimates, or three different prices, or three different options. If it was a service, I wanted to see three quotes. If it was a hardware product, I wanted to see it quoted from three different places. If it was a building or a lease option, a lease that we were going to go into as a business, I wanted to see that they had considered three viable options, and especially, if any of my team was going to hire someone, they had to show me that they had three qualified and able candidates and they picked the best one.
Because in business, if you're buying anything without comparison, you are literally buying it blind, but if you create a process where you teach your team to always evaluate three alternatives, to look and get you information, and then to create the intelligence to make these decisions on their own, you as a company can buy anything anywhere and ensure that you're at least getting a good deal, something that is viable, something that's going to work.
The alternative to that is that you're in an organization where you buy as things come up. You buy when you get a good idea. Heaven forbid, you buy because you go to a conference, or an event, or something like that and someone says, "Hey, I use ..." (insert whatever product it is), and so you run out and buy yourself without any comparison, any knowledge, or any understanding of options.
This was a huge wake-up call for me. When I was younger, and I ran that company with all of the offices everywhere, there was a month where even though we had an amazing month, we weren't profitable, and I couldn't figure out why. So I started looking at what had happened with our expenses, and because we had gotten busy, and because our organization was overwhelmed, my team had just started taking whatever the first quote was.
There was a month where we had a lot of travel. They just booked whatever hotel they looked at first. There was a month where we had a lot of expenses and a lot of stuff that we had to buy, it was all in the same month, and they just bought whatever came up first. There was no use of our system, there was no comparison of three, and that wiped out our profitability for a month and part of the next month. I was furious.
That lesson was indelible. I never wanted to be in a situation where because we didn't put the process in place, because we didn't go through the steps of actually evaluating, we spent money we didn't have to. That drives me crazy. When I know that money's gone out the door that we didn't have to spend, I want to run out and get it back. Can you feel that? Do you understand what I'm talking about? I bet you feel the same way. Like when you've errantly given your money away and you don't have to, and as an organization, here's why it drives me crazy. If we did it once, I know, if we don't put a process in place, we will do it again. Any mistake, any issue, any challenge you find in your business, if it's happened once and you don't fix it with a project, a process, or a person, it will happen again.
As soon as I discovered that had happened, I put the system in place. You want to buy something? Three evaluations, present them to leadership, and then we'll approve it. And since then, we've had some of the most intense purchasing that there is. In fact, when I compare my expenses to a lot of other people's they're shocked at what we get, because often we'll take three proposals from three different companies, stack them up, send all three to each of the three of them. They'll come back and give us even better offers, and we end up with best-in-class pricing and service almost across the board.
If you think it's mean or unkind to send the answers for each company to all three of them, I'm not trying to be nice. In fact, I think it's the nicest thing I could do to them because I'm showing them exactly what their competition's doing, and I'm giving them a chance to keep my business. I'm not trying to make a lot of friends with vendors. What I'm trying to do is get the absolute best deal and make friends with one vendor.
So if you don't have a purchasing and acquisition in place right now, if you're not evaluating at least three viable alternatives for every decision you make, including people, then you're buying blind. As a business owner, it never makes sense to do anything without the right information if you can get it, and you will find that if you put a process in place where you get three viable options then make the decision, that you and your team become efficient and effective acquisition machines.
My team can buy anything because I've taught most of them this process, and if I ask Lewis to evaluate, hey, to get me anything and evaluate three different options, he will come to me with a good, better, best scenario, an explanation of the pricing, the differences between the company, and his recommendation, because we've been doing this together since 2009. And for you, if you don't have that in your organization right now where you can offload the decision to spend money, where you can have someone help you with that research, where you have a purchasing system, you're buying blind, and you can stop it right now.
So, make a note to yourself. The next time you buy anything in your organization for the first time, the next time you open up a new relationship with a vendor for the first time, the next time you bring in hardware, software, whatever it is, slow down. Evaluation three options. Make your decision, and one of two things is going to happen. You are either going to confirm the original decision you would have made, and it will make you that much more confident and create momentum moving forward, even if you don't change anything. But just as likely, you might find out you would have spent more money than you needed to, gotten a lesser service than you thought you were going to get, ended up with not as much as you're going to because you did the evaluation.
Building a purchasing system in your company is a game changer, because when your company gets to 10, 20, 30, 40, 100 million, there's no way you will ever be involved in every purchasing decision, and you want to make sure that anyone who's pulling the trigger with your money has a system that you trust. So don't buy blind.
Thanks for listening to this episode of the Momentum Podcast. If you haven't yet, take two minutes right now and download my book, The Entrepreneurial Personality Type. It's available at freemomentumbook.com. Freemomentumbook.com. When you download it, read it. It will take you 45 minutes to 90 minutes to read it, and it will tell you more about yourself than anyone ever has, and if it doesn't, contact me and let me know, because if you're an entrepreneur and you are navigating the world of people who are different than people like us, I want to show you an entirely new way to look at who you are, what you're capable of, and what you bring to this world. Go to freemomentumbook.com.