4 Reasons for Small Business Owners to Stop Giving Hook-Ups - Black Enterprise

4 Reasons for Small Business Owners to Stop Giving Hook-Ups

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Unless your business is mature, you have free time to kill and you already have all the money you want, stop handing out hook-ups. Budding entrepreneurs are approached by many (friends, family and then some) to share their work, time and resources as a “favor.” These freebies may seem innocent at first, but they can destroy the business you are working hard to build. There are many reasons to avoid hook-ups like the plague. These are my top four:

A hook-up isn’t really a hook-up, it’s shifting a real cost from them to you: Often a hook-up comes in the form of a discount. You own a business selling a product or service. A friend or family member wants to buy from you, but they want a discount. You don’t want to be pegged as selfish, greedy, arrogant or a tight wad, so you cave. This is the ultimate self-swindle because somebody has to pay the cost of that hook-up–and it’s going to be you. Let’s say you pay $10 for your products and sell them for $20. You give a discount to a friend or family member so they pay only $15. If you collected $20 as you normally would, you would be able to buy and sell two more of the product, doubling your revenue. But since you gave a hook-up, you can now only replace the one you sold and have $5 left over. You’re thinking, “Well, it’s not so bad. I recouped my cost and I still have $5 left.” A business is a self-replenishing entity. The business should be paying for itself and paying you. Since you just gave away $5, you now have to cut back somewhere else to make that money up so you can re-stock your inventory. A measly $5 may not seem to matter but if you give one hook-up you’ll probably give others and it all adds up.

Ralph Lauren was recently on Oprah and she asked if his children get free clothing. He said, “No, they don’t get free clothing. Ralph Lauren is a publicly traded company.” (Eye-opening moment!) Ralph Lauren, who is on the Forbes list of 400 wealthiest Americans with a net worth of $5.8 billion, doesn’t give his own children free clothes. Why should you hand out discounts?

Word-of-mouth is the most powerful form of marketing and people looking for hook-ups refer more people looking for hook-ups: No matter what you sell, at some point, if it’s a quality offering somebody is going to ask one of your customers where they got it from or how they have achieved an outcome. If you’ve given out hook-ups you have doomed your business because that’s going to be the word-of-mouth message passed on about your company. The conversation will go something like this:

  • Admirer: Wow, I really like your website. Who designed it?
  • Your Customer: Oh, Sharon created it. She is amazing. Really great work.
  • Admirer: I see. I haven’t been able to find anyone reliable enough and talented enough to do my website. For what I want to pay (as the admirer powers off her brand new iPad and places it in her Louis Vuitton bag) I haven’t been able to find anyone who can create a design I like. How much does Sharon charge; is she expensive?
  • Your Customer: Well, her regular rates are a little pricey, but she’s worth it. But I was in the same position as you and she’s really cool. She understands how it is; she’ll work with you–she helped me out.
  • Admirer: Oh good. Can I have her number? Girl, I’m on a budget (as the valet pulls up in the Admirer’s leased BMW).

Though you may understand the struggles of other business owners or people who want to buy from you because you have struggled at some point yourself, giving a hook-up to help them out is a sure way to keep struggling yourself or send you back in that direction.

First, people can usually afford what they want; it’s often their priorities that are out of balance. Second, that person is going to want a hook-up every time they do business with you. Third–and this is the biggie–it’s not so much about that one person and that one hook-up, it’s about all the other strugglers and hook-up seekers they’re going to drag to your feet.

If you want to offer a lower price point, come up with a product or service that costs less to develop, acquire or make–then you can help people and manage your business professionally at the same time. This is why a lot of luxury brands now have lower cost sister brands. They won’t give you a hook-up but they will give you an amended experience. Follow suit.

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