This month’s focus: Thinking One Has Leverage Only To Find They Are Levered Up And Out
A crucial element in any negotiation is finding if, or where, one has leverage. Then, to use that leverage to help elicit an outcome that favors your side. Leverage can be used to both bolster an argument such as, “We have the logistical tools to get things done that our competitors don’t.” As well as to politely warn such as, “Let me remind you if you so choose our competitors over us – we would just like to make it clear an immediate response if thing don’t work out because of their inefficiencies to handle your needs might not be readily available.” Both are two sides of the same coin. It just depends on the situation on which one you may deploy. Careful use and knowing the unintended consequences of each is paramount to any skilled negotiator. Far too many have never thought through these leverage points. One common one is: “If I owe the bank a million dollars – that’s my problem. If I owe the bank 100 million – it’s the bank that has a problem.” Well yes, but that doesn’t mean the leverage is yours. Quite the contrary.
Case Study: I directly worked under and reported to a CEO of a nationally branded manufacturer. The concern was a multi-million dollar concern employing hundreds of people and distributed via its own in-house transportation nationwide. The products were a nationally recognized branded label developed and manufactured by the company on store shelves across the U.S. They are still sold today.
The CEO was what many would deem as ruthless. And this was being kind. He was in many ways what one would expect to see played in some fictional “underworld” type movie portrayal. However, he was the real deal. He used rules and laws in ways that took one’s breath away for the brazenness of application to suit his needs. Leverage was a tool used mercilessly. And, had been a go-to weapon of his arsenal he both coveted and used his entire business career with great effect. I must reiterate: he used leverage as a “weapon.” Not “as an art form.” So another saying such as “Live by the sword – die by the sword” should not have been forgotten by this CEO.
A few years later after I had distanced myself I received a call from one of my former co-workers who was this CEO’s right hand at the time. He called to explain to me a stunning chain of events in the world of “leverage” which still takes my breath away, and should pose a cautionary tale to anyone who thinks “There’s nothing they can do – I have all the leverage!”
What transpired was the CEO wanted to refinance his terms and other arrangements with his bank. The bank for what-ever the reasons balked. He then decided he would take his argument and fight this bank (with name calling and innuendos of unfair practices, and more) in the local press. He believed he had all the leverage for the city had just renegotiated his tax allowances and more on both the business and factory. He had negotiated tax incentives and more when he agreed to build his manufacturing and warehouse in a specially incentivized industrial park with the city’s blessing as well as urging. For he was now employing hundreds upon hundreds of local residents. And now “the Bank” wasn’t playing along to his idea of what they “should” be doing. So, he started to not pay on his notes just long enough so that the bank couldn’t foreclose yet, were stuck with late payments and a bashing in the press they had to address near daily. This went on for more than a year and it seemed as if the bank was tiring of it all. And they were. Which was precisely what this CEO wanted. He felt it was just a matter of days when the bank would finally submit to his demands. After all, the premise was “He held all the leverage.”
On a Monday morning as the CEO arrived at his company, a day like any other day he had assumed; he was met at the door to his office by a group of police officials along with representatives of not only the bank, but also – a representative head of his largest competitor. A competitor that was multiple-times the size, as well as a global concern rather than just a national.
In a legal reading and declaration he was informed on-the-spot that: all the company’s notes (all meaning buildings, trucks/cars, inventory, equipment, sales, lines of credit et all. i.e., everything) had been sold in total to: his largest competitor. And – this competitor was foreclosing (or calling them in) then and there – on the spot. He no longer owned both the company. Nor had a job. As a matter of fact was made to surrender the keys to his car (which was a company car) on the spot and call a cab to get home. He couldn’t call his wife for if she had come she too would have had to do the same thing, (which was demanded to be done later that day for hers was also a company car) He lost everything. It seems that in the end – he didn’t have as much leverage as he thought.
The company still thrives to this day. And both the products as well as the markets they were once in also remains, as well as have been expanded. The only difference? On the bottom of the label, where the decades old logo still remains are the tiny words: “A subsidiary of XXXXXXXX Co. Inc.”
The CEO who devoted his career and business acumen to gaining “leverage” to build his company lost it all due to his neglect to remember that leverage can be used in ways even the most proficient never imagined.
© 2015 Mark St.Cyr
Profiting At The Bottom Line™ is a monthly memo, which is pithy, powerful, and to the point. It focuses on innovative techniques and or ideas that you can put to work immediately in your daily or business life.