“Will Our Customers Bail
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.