Beermat Club:
Ask Mike
Making their mark against the retailers
Q. I am the co-founder of a mobile phone service that aims to answer any questions users throw at us. We have been expanding rapidly and were recently approached by a large retailer that wanted to use us as a "white label" service under their logo. Is it better for us to accept such white label services, which are a boost to revenues, or concentrate on building our own brand?
A. The answer to both parts of your question is yes. Your first big customer for a new service with immediate revenue is very important, but you should continue to build your own brand in tandem.
For the white label solution you now need to go from "hunting" mode (getting the first revenue from that customer) to "farming" mode (maximising the benefit from this account relationship).
This requires a different style of selling – much more consultative, typically involving your delivery people who are working directly with the first customer and uncovering new requirements. For example, other divisions or partners of the first customer who might also be interested in your white label service.
Although your client primarily wants to promote their own brand, it's worth asking if they are happy to put in small letters at the bottom: "this site developed in association with." This costs them nothing and is a genuine win-win situation.
You should also bear in mind that the style of their white label solution will probably be very similar to your own. This means that other potential new customers will know its origin, which can lead to further sales, including those for your own brand.
If these new organisations are not direct competitors this should not be a problem – your first customer may even be prepared to act as a "customer mentor" and provide specific referrals for you.
It's also common for the first customer to want a "special deal" to reflect the fact that they took a chance on you and are helping you prototype your new service.
This is acceptable, so long as they're not demanding dangerous levels of discount, which makes the project unprofitable. Do make sure your finance head looks over the detail of the contract – inexperienced sales staff often agree to unreasonable terms.
If you do discount, make sure that the customer keeps this highly attractive deal confidential and always ask for at least 50 per cent up front.
This should not be a problem, as their purchasing director will understand the cash flow challenges of a small company and should agree to better terms in exchange for a fair discount.
Mike Southon, co-author of The Beermat Entrepreneur and Sales on a Beermat
First published in the Financial Times: 11th April 2006