business

The Importance of Being Up-Front

Giving clients bad news is hard, but businesses that confess early and make amends can save a relationship, says author Dave Stein

Parents do it, teachers do it, employers do it -- even politicians do it (sometimes). At one time or other, almost everyone has had to deliver bad news. The manner in which businesses tell their suppliers, customers, or employees that something has gone wrong can either kill a relationship or actually make it stronger, according to New York-based sales consultant Dave Stein, author of How Winners Sell.

Smart Answers columnist Karen E. Klein recently spoke with Stein about how small-business owners can dole out bad news without losing their livelihood. Edited excerpts of their conversation follow.

Q: When do entrepreneurs typically have to break bad news?

A:

If they're a manufacturer, they might have to tell their customers that the product they make is going to be three months late. If they have investors or employees, they may have to inform them that the company missed its revenue targets or suffered a loss.

As company owners, we sometimes have to tell clients that one of our employees acted poorly and caused a problem with the account. Even on a personal level, you may have to tell someone you lost their records, or you forgot to get back to them. So this happens not just in business-to-business relationships, but also in business-to-consumer and employer-to-employee relationships.

Q: Is there a distinction between delivering bad news that results from something out of your control vs. bad news that's your fault?

A:

In either situation, if the bad news is something that the people on the other end will find out anyway, you must communicate it honestly. And if it's your fault, it's the right thing to own up and accept responsibility. In fact, if you handle bad news the right way, you'll have an opportunity to recover from the problem and wind up with a net positive result.

Q: How does something positive come out of a negative situation?

A:

First, it's a learning experience for you, and you have the opportunity to change things personally or within your company so this problem won't ever happen again. You may change a process or a behavior or personnel or whatever. And then you have a chance to explain to the recipient of the bad news how you'll make the changes, and how much you'll appreciate their support in the meantime.

Q: But how supportive are people going to be if the bad news is a result of your lax practices or lazy screwup?

A:

It's not always going to work. Some people will just slam down the phone and tell you goodbye. But I've been in situations like this and used a process for delivering bad news. Most of the time the recipient wants to move forward with me. Sometimes, within a day or two, I get a call thanking me for the way I handled things.

Q: What's your technique?

A:

I've broken it down into seven steps. First, you prepare the recipient: "I have some bad news, and it's going to be very disappointing to you." Second, you lay out what has happened. Third, you explain why it happened. By the way, this is not a chance for you to make excuses, it's a chance to show that you understand what caused the problem.

Fourth, you demonstrate that you understand the impact of the bad news on the recipient: "I understand this is going to make things tough for your company." Fifth, you explain what will be done to make sure that this problem doesn't happen again: "Our computer system is going to be revamped so we can't overlook orders in the future." Sixth, you provide the recipient with a token gesture or more to make amends.

Q: You mean an apology?

A:

You need to apologize, yes, but sometimes you must also do more. For instance, if you contracted to provide equipment for a client, but you're unable to deliver it on time, you might rent the equipment for the customer and give them a 70% discount off the rental fee. This step is not always mandatory, but it can help a lot in a tight circumstance.

Q: And what's the final step?

A:

Seventh, you get the recipient's commitment for continued support going forward: "You're very important to me personally and to our company. Can I count on you to stick with us during this difficult time?"

Q: Should you deliver bad news immediately, or wait to gauge its impact?

A:

Bad news doesn't go away if you ignore it. In fact, it gets worse with age. Also, you want to be the first one to tell the truth. You definitely don't want a competitor getting a hold of the information and spinning it against you before you get a chance to deliver it the right way. And believe me, competition today is so ruthless that if you're not at your customer's office at 8 a.m. the morning after you get the news, the other guy will be faxing the press release over at 8:15, slamming you.

Q: Everybody's tired of hearing excuses from people just passing the buck, but how much should business owners admit to before they start worrying about lawsuits?

A:

Everybody in this litigious society is afraid of getting their butts sued if they admit to doing wrong. But I believe that if the information is communicated right, it could actually prevent a lawsuit. Of course you do want to be careful, so it certainly would be wise to talk things over with your lawyer, particularly when there's a lot of money at stake.

Generally, though, I think you're better off taking the first step in being up-front about the problem and giving out the whole truth. If a project's going to be three months late, and you know it, say it. Don't talk about "a little delay" when you know it's not going to be little.

Q: How do you proceed after you break the bad news, and you find the customer is willing to stick it out?

A:

Apologize, accept responsibility -- and then go forward and don't continue to beat yourself up. If you continually refer to the problem and keep apologizing, that will only dilute your efforts to build credibility. Discipline yourself not to revisit the issue, but to move on in a positive manner.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues

Edited by Rod Kurtz

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE