Customers For Sale

By Lloyd Graff

You can’t buy love, so they say. But can you buy a customer? If you can, how do you do it and what does it cost? 

This is a question that I think about from a number of angles. One of my jobs at Graff-Pinkert is to help people buy and sell businesses in the machining field. I don’t use the term broker because I see my role not so much as a matchmaker but more as counselor, an advisor to both buyer and seller as they go through the arduous task of developing and completing a transaction that has a decent chance of surviving and possibly even thriving. 

I often know both parties interested in a deal. This may be because I’ve been around for a while. Also, my life is more of an open book than most folks in the business because of the blog, magazine, and podcast, and because I care about the people involved almost as much as the fee. This is a good thing because in this field the fees are highly elusive.

People and companies want to buy machining businesses to acquire new customers, sometimes in a field that is unknown to them. If the selling company has a long-term, closely entwined relationship with a client, and the person who built that connection is leaving soon upon closing, establishing a new relationship is not easy. Introductions are helpful, but the team that does the crucial work must believe in the new folks who are buying the business. The acquirers need to show the proper respect for the previous ownership and team, while attempting to discover how they might do things differently and better. They have to anticipate that the staff they inherited are not going to be enchanted with them, particularly at the beginning. 

Businesses are often sold because they are old and/or rotting. They have held on to the old customers because of goodwill, inertia, and proximity, but family grievances, age, illness, clients changing ownership, and a myriad of other factors may be hidden by rosie looking cashflow and nice looking machinery and buildings. 

Sellers almost always ask too much for what they are selling. They leave it to the would-be buyer to discover the skeletons hidden under the 6061 aluminum chips. 

This is where the advisor in the deal may have to become a business therapist, telling both parties to get real if they have any chance to finally make a deal. 

You get to a point in a lot of deals where the lawyers have mucked things up to balloon their fees, the accountants have made the numbers hopelessly confusing, neither side trusts the other–usually for good reason–and everybody is tired of one another.

This is when I may actually earn my fee, reminding the seller that they might as well get realistic about what the business is really worth and advising the buyer that every deal has psoriasis, but at least this one has a unique aspect that will make it a winner if they just stick it out a bit longer.

Usually that underlying basic value resides in the customers the buyer will acquire and how they can add their special sauce to make the company even more appealing over time. 

Headphone Maker Beats Acquired by Apple

The therapy occasionally works, and sometimes it’s even true. The smart buyers, who have been through the process many times before, know how hard it is to get to the finish line. They will ignore their cautious lawyers and believe in their own conception of value, knowing that a lot of what they thought was valuable will prove to be a dream. But they will make it work anyway. 

That’s the deal game, whether it’s Apple buying headset maker Beats for $3.2 billion, or Joe’s Machining Team buying Jimmy’s Machining Team to get Jimmy’s customers.

Question: Can you buy a customer?

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5 thoughts on “Customers For Sale

  1. AvatarDRB

    It’s called bribery and we have laws against it but for some unknown reason, it still exists. oh wait, it’s greed.

     
  2. AvatarGordon Erickson

    A larger company may be able to buy customers by buying the business, but I can assure you one thing. The very first time the price is too high, it takes too long, or someone gets insulted, market forces will come RIGHT into play, and that customer will be gone.
    Pretty much the same as it ever was; Either you treat the customer right or they go elsewhere, which is why you have any customers in the first place.

     
  3. Lloyd GraffLloyd Graff

    Buying a company means getting access and knowhow and pricing information and the makings of a relationship. Don’t underestimate the value of that. If they screw up it will go away, but without the foundation of the relationship developing such a connection would probably be hopeless. Also many companies have long term contracts which have considerable value.

     
  4. AvatarDave Bradley

    What do you think drug reps are doing when they visit doctors and hospitals???????? Ohhhh that’s right, they go there to talk about the CUBS.

     

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