Markkula Center of Applied Ethics

The Vendor as Investor

An Interview with Bob Lorenzini

A start-up has many stakeholders: investors, employees, customers and—a group that is often neglected in the discussion—vendors. What is the start-up's responsibility to its suppliers—the businesses that provide everything from the parts to the bottled water in the cooler? Bob Lorenzini had this to say:

Vendors are in some sense investors in your company because they're extending you credit. They don't have to do that. They could say to you, for example, you can't take this furniture out of our showroom unless you pay us cash. But typical vendor terms are payment within 30 days.

When companies are in a cash bind, one of the first places they use to help to finance the business is the vendors. As a company runs into a cash squeeze, they begin to stretch the payment period out. They might go from 30 days to 35 days to 45 days. Pretty soon, the vendor will check the payment record and say, "Hmm. I better have a conversation with this company." Typically at that point, someone will call from the vendor and say, "Hey, what’s going on here?"

I believe it's very necessary for the company to be absolutely, positively honest with the vendor because the vendor is the lifeblood of the company. If you try to pull the wool over the vendor's eyes–oh, this is just an oversight, the check’s in the mail—you might get away with that one time. But the best policy is to be absolutely honest and say something like, "We’re experiencing a cash squeeze. Our customer is late on payment to us,"—to fill in the vendor with any information that he needs or asks for.

That's a good policy because vendors are not used to being treated that way, and they'll appreciate that honesty. I've experienced several cases where because of that, the vendors go overboard and try to help the company through a cash squeeze. When you come out the other side, you remember how you were treated, and you go back to the vendor and say, "We really appreciated that, and you will have our business forever.

Bob Lorenzini pioneered silicon crystal growth at Elmart Corp., a company that he founded and subsequently sold to General Instruments. He founded Siltec in 1969, took it public in 1980 and sold it to Mitsubishi in 1987. Currently, Lorenzini is chair and co-founder of SunPower, a manufacturer of ultra high-efficiency silicon solar cells. He is an active angel investor and a fellow of Santa Clara University’s Center for Innovation and Entrepreneurship.