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 isnâ€™t really a hook-up, itâ€™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 donâ€™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 itâ€™s going to be you. Letâ€™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. Youâ€™re thinking, â€śWell, itâ€™s not so bad. I recouped my cost and I still have $5 left.â€ť 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 youâ€™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, â€śNo, they donâ€™t get free clothing. Ralph Lauren is a publicly traded company.â€ť (Eye-opening moment!) Ralph Lauren, who is on the Forbes list of 400 wealthiest Americans with a net worth of $5.8 billion, doesnâ€™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 itâ€™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 youâ€™ve given out hook-ups you have doomed your business because thatâ€™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 havenâ€™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 havenâ€™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 sheâ€™s worth it. But I was in the same position as you and sheâ€™s really cool. She understands how it is; sheâ€™ll work with youâ€”she helped me out.
- Admirer: Oh good. Can I have her number? Girl, Iâ€™m on a budget (as the valet pulls up in the Admirerâ€™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; itâ€™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. Thirdâ€”and this is the biggieâ€”itâ€™s not so much about that one person and that one hook-up, itâ€™s about all the other strugglers and hook-up seekers theyâ€™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 makeâ€”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 wonâ€™t give you a hook-up but they will give you an amended experience. Follow suit.