…FROM THE FOUNTAINHEAD (Apr, 1978)
I’m not too sure Adam Osborne was the best person to get business advice from…
…FROM THE FOUNTAINHEAD
By Adam Osborne
The responses I have received following my warnings against paying for goods in advance lead me to believe that a very serious problem exists within the microcomputer industry.
It seems to be the rule rather than the exception that companies big or small will hold your money for months at a time, and in a few cases they may never deliver anything. Moreover, a number of microcomputer hardware manufacturers, including some of the largest, are staying out of bankruptcy only by exercising day-to-day financial agility.
This whole industry could blow up in our faces, and none of us would want that. Let us therefore look at the problem and its solutions from the viewpoint of both customer and supplier.
You, the customer, have brought problems onto your head by ordering sight-unseen merchandise and paying with your order. What are you buying? Florida swampland? You must stop this practice immediately. There are exceptions. Bill Godbout, Newman Computer Exchange, Seals Electronics and SD Sales all have good reputations for either quickly filling orders or returning cash. (Other mail-order houses: send me the data to prove it, and I will add your names to the list in future columns.) Also, when you buy low-cost items you must frequently pay in advance, because it is simply too expensive for the seller to go chasing a bunch of unpaid $5.00 invoices. I believe our policy at Osborne & Associates is as fair as any. We require cash-on-delivery for orders of less than 10 books, because we have found that the cost of dunning for delinquent payments on small orders is usually equal to the entire profit for all small orders. When anyone sends pre-payment for a book that is not either in stock or at the printer, we send back the pre-payment. If anyone asks for their money back at any point before the books have been shipped, we immediately cancel the order and return the money. But why order directly from us, by mail, anyway? Our books are available at exactly the same price in any computer store, where you will obtain immediate delivery.
I propose the following set of guidelines for all pre-payments:
1) Never pre-pay or buy through the mail what you can buy at your local computer store.
2) Never, under any circumstances, pre-pay more than $150.00. The bookkeeping costs associated with these larger dollar amounts are not so horrible.
3) Expect to have your pre payment held for a maximum of 45 days.
However small the pre-payment, you should demand and receive a complete refund after 45 days. Let us now look at some of the arguments manufacturers put forward when they demand pre-payment.
Many companies say they will not accept your order without pre-payment. Fall for that one, and you have given the supplier a long-term, interest-free loan with no guarantee of repayment.
Companies argue that by prepaying, you get yourself ahead in the line for early delivery. In a few cases that may be true, but in most cases paying in advance puts you at the end of the line. When the supplier finally has a few products to ship and is strapped for cash, whom do you think will get the first shipment? You, who have already paid and will do their cash flow no good, or the next customer, who did not pay, but will now take delivery ahead of you and provide some badly needed cash? It is a safe bet to assume that by paying in advance you get yourself at the tail-end of the delivery schedule, behind customers who will pay cash-on-delivery.
Paying cash in advance is supposed to guarantee that you are getting the most recent products. It also guarantees that you will be the guinea pig who finds the design errors in products which were delivered early. You also stand a sporting chance of finishing up with the oddball version that has poor resale value. Your wisest policy should be to buy nothing unless it has been on the market for six months to a year and is readily available in computer stores. Then you will buy products that exist — and work. Being the first on the block with a new piece of computer hardware does not show how resourceful you are; rather, it shows how stupid you are.
Customers, confine all of your business to your local computer store. Computer stores are set up to take risks with deliveries; part of the hazard of running a computer store is in dealing with manufacturers. If all end-users would buy only through computer stores, and then buy only what they had seen on display—and working—our whole industry would be in much better shape.
Turning now to manufacturers, if everyone immediately stops paying cash with their orders, where will that leave the manufacturers? Financially, it leaves them in very bad shape. But, that may in the end be for the best, since the present habit of cashing customers’ checks in order to build the product (which was supposed to be ready) is a financial time bomb. Ultimately the bomb is going to explode; the only question is when.
Manufacturers can get themselves out of this dilemma by obtaining adequate capital in order to run their businesses. Right now, there is plenty of capital available. I receive more telephone calls from people who would like to invest in microcomputer hardware manufacturing companies than I receive from microcomputer hardware manufacturers seeking investment cash. Manufacturers are greedy. They want the whole barrel of apples for themselves. My question is this: Are you better off owning a whole barrel of rotten apples, or would you prefer to own a portion of a barrel of good apples? If you are a manufacturer currently raging at this column for suggesting policies that will drive you into financial ruin, then stop a minute and try to think of me as your friend. The money is out there to turn your company into a viable enterprise which you will control (if you know how). You will own a piece of it, but not all of it. Do you need financial investments in your company? If you do, call me at (415) 548-2805. Do you have cash you would like to invest in someone’s company? If so, call me at the same number.
Let us get our industry into reasonable shape. Most manufacturers are not crooks, they just do not have enough money to run an honest operation.?