This post is by Jason Calacanis from Calacanis.com
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When I first started doing events in New York City in the 90s, the first one called “Ready. Set, Pitch,” I realized that vendors would give us wildly different quotes — often for the same exact thing.
That is when I came up with The Three Vendor Rule.
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I told my team to obtain three quotes for everything we did, from A/V to space to food to furniture rentals.
As anyone who has done any management will predict, I got pushback … but not from the vendors, from my own people!
Why do we have to do all this redundant work?
Why couldn’t we just use the same vendor as last year?
In my younger days I would simply say “do it” and walk away. Later on I would say “either you can do it or I do it.”
Of course folks would take weeks to get this done, waiting on the third quote, melee fighting and more. “I love this vendor” and “they were loyal to us” and “this is a waste of my time.”
My team was fighting me on saving money. It was bonkers.
So, I re-stated my rule to be:
“Ask seven vendors for a quote, bring me the first three complete ones.”
The results were stunning across the board. We would have vendors we used last year charge us 2-3x as much for the same thing, a year later! Some vendors would charge us $1,500 to rent a monitor that costs … wait for it … $1,500! One vendor would charge $1,000 to rent a projector while another, $2,500 — for the same projector.
My team started to understand we were being ripped off and they started to join my team to work the vendors, as opposed to working their boss (me).
So, I further amended the rule to be:
“Ask seven vendors for an itemized, apples-to-apples quote, bring me the first three complete ones in a spreadsheet with the % difference in pricing highlighted.”
By doing this we immediately found a range of prices from, say … $15,000 to $50,000, for the same thing.
Then I would ask the team to work the quotes, pointing out things that were bonkers to the vendors. I would give them language to use that was non-accusatory, like:
“I notice that this projector is $2,500 on Amazon and you’re charging us $2,000 to rent it. Perhaps you can look into that for us?”
“Right now your quote is amazing, thanks so much for the effort. As a final step I emailed you four items that are a bit outside of market pricing. If you could review them and make any changes before I submit my recommended vendor to my manager that would be great. Again, thanks so much!”
That’s called the shit sandwich in the business: say something nice, drop the bad news and then finish up with more pleasantries.
Of course, once vendors had completed two hours of work, they were more likely to come down on price because they were invested in working with us.
One time we had a surplus so I told the team “if we use that projector (or other item) 3x we can just buy it and own it. Look into that.”
Now we own our own video switchers and cameras. We can run our own events and we no longer have to ask for quotes on these items.
We could do this because we had the data.
As a final step, when we have two or three vendors in the same zone we simply ask them if they can do it for 10% less. This works every time, because we’ve created a competitive marketplace.
Now, the three vendor rule is a best practice more than a rule, stated as:
- Ask seven vendors for an itemized, apples-to-apples quote, bring me the first three complete ones in a spreadsheet with the % difference in pricing highlighted.
- Ask the vendors to update non-competitor parts of their quotes.
- Ask internally: Should we consider rolling our own (service) or buying this item outright?
- Have a second person ask the top 2-3 vendors to give us a 10% discount.
- Pick the most reliable vendor with the best product.
Now, when we onboard a new team member, we share the best practice with them and tell them “this is important work,” and they just do it.
This is the big lesson: Management is about explaining how to do things, why to do things and codifying everything. Then, refining it, repeating it and making your team feel 10 feet tall when executing.
When you become great at something and establish true understanding, you can name it well. In this case, my team will say “three vendor rule” at a meeting and we all know what that is and why it’s important.
Now that I’m older, and hopefully wiser, I try to focus some of my time on codification of the most important things we do. Writing is clarity of thinking, so being able to write this very post means I’ve obtained clarity.
This is why writing is such an undervalued skill in the world — and why I’m focusing on it so much.
[Wrote this on my iPhone, slopeside at Sugar Bowl in a blizzard. My daughter just showed up for breakfast, so I gotta bounce. Please say something in the comments, so I know people are reading and I keep the streak alive!]