Frequently, so-called consumer regulation is coopted by large corporations to limit the ways competitors can try to unseat them. For example, limo services will get laws passed that all limos have to have certain features. Ostensibly, this is so consumers will be protected from having a limo without a wet bar, or whatever, but in fact its to prevent upstart competitors from taking them on with a different kind of business model potentially using different kinds of vehicles.
I find that this is frequently the case with regulated utilities. Utilities are able to get all kinds of crazy laws passed to protect business practices that would never survive the marketplace. Just today I was trying to open a business account with Duck River Electric in Tennessee. We are attempting to reopen a TVA campground that has been closed for several years. The campground is tiny, so I was flabberghasted when the utility told me that we had to put down a permanent deposit of $4100. I found this to be shockingly high. Apparently, it is based on the highest two months demand in the highest year (several years ago) in history. Since the campground is only open for five months, it means that we have to give the utility an indefinite interest free loan equal to half the annual business we do with them.
This is simply insane. Name one reasonably competitive business where one has to put down anywhere near this kind of advanced deposit to become a regular customer. If there was any sort of competition in this business, the sales people for the other company would have a field day with this. Sure, vendors often do a credit check on us, and a very few times (mostly early in our history) we had to pay COD for orders. But this is absurd.
PS- The only vendors we work with that are even close to this for abusiveness are the state authorities from whom we buy fishing licenses for resale. Many of these agencies require expensive payment bonds not required by any of our other (private) vendors. Arizona Game and Fish even forces us in January to accept an inventory of many products we do not sell (e.g. hunting stamps) and cannot sell by the terms of our lease. We have to keep these in the safe for a year and if we lose any and are unable to return them at the end of the year, we have to pay for them. Imagine Amazon.com sent you a bunch of crap you did not want and required you to hold them for a year, and then pay the expenses of returning them, and then pay for any item you might have lost. Anyone like myself who was dumb enough to fall into the Columbia House records thing will know the danger of this.
Every small business probably has stories about vendors who are particularly difficult to work with. Let me describe my most difficult and irritating vendor, someone who sells me products that we resell in our stores:
- Most vendors try to set your retail price for you, but are seldom successful. Only in countries like Germany that make retail discounting illegal are such attempts universally successful. However, this one vendor is always successful at setting my retail price.
- Most vendors allow me a retail gross margin of at least 30-50% of sales to help me to make money on the sale of their product. They like me to make money, since that gives me the incentive to sell more of their product. However, this one particular vendor only allows me a 5% gross margin. Ironically, this products is on of the most difficult and time-consuming for our stores to sell, requiring ten minutes of sales time to gather all the necessary customer information and complete the transaction. Every single one we sell is a dead loss to us.
- Every small business has some vendors it struggles with on credit terms. I usually have to fill out a detailed credit application, and as the owner have to personally guarantee the company's payment on the account. Sometimes vendors will require a few orders be consummated COD so we can develop a history before they will go to a 30-day invoicing approach. However, this particular vendor goes even further. I had to set up a dedicated bank account into which I deposit funds for this vendors products every week. In addition, I had to obtain a $4000 bond to cover any non-payment in the account, and I have to hold the bond as long as I want to do business with this vendor -- in other words, there is no credit given for a long track record of performance on the account.
- This particular vendor has an "in" with the State of Colorado, which protects it by allowing no other competitive product to be sold in the state.
Give up? Well, most of you have probably guessed that this vendor is... the government! Or specifically, the Colorado Department of Wildlife and the specific product discussed is fishing licenses. That is why this particular vendor can get away with practices that no company that actually has to compete in the market place would ever attempt, and, in a couple of cases, gets aways with practices that would be illegal for a private company.
When I bought this company, we used to sell fishing licenses at many of our locations. I have pared this down to only the bare minimum number of locations, like marinas, where customers absolutely expect me to be able to sell them a license.