Walmart Effect

The Walmart Effect: 4 Best Practices for Dealing with that First Huge Order

Christopher Koch, SAP

A boy looks at snack foods and drinks at the Grand Opening of the new Walmart Neighborhood Market in Panorama City, California. (Image credit: AFP/Getty Images via @daylife)

When a small business gets its first big order it can seem like manna from heaven. But wipe those dollar signs out of your eyes because it’s really more like a shock to the system.
That’s not necessarily a bad thing—we’re at our most alert and energized during such moments—but for small businesses, getting a big order from a giant company like Walmart can be a classic be-careful-what-you-wish-for moment.
“When you get that big order, it’s often a mandate for change, because even if by nature the management team is conservative and risk adverse, it knows it has to make changes to satisfy that customer,” Mark Lehew, SAP’s national VP of strategic growth enterprises, told me and journalist Rob O’Regan recently.
You Will Need to Change the Business
In interviews with companies that have experienced the Walmart Effect, Rob is indeed finding that change—rather than champagne—is the order of the day. Orabrush, maker of an innovative tongue-cleaning device was not prepared when Walmart suddenly called in 2011 with an order for 735,000 of the candy-colored devices to be distributed in 3,500 stores.
“That was one of the big wake-up calls for me,” says Jeff Davis, an early Orabrush investor who became CEO in August 2010. “I was worried that we didn’t have sufficient capability.”
How do you deal with such a situation? Here are four best practices that have emerged from our research so far for dealing with that first big order:

• Start with on-time delivery and work backwards from there. If that first big customer doesn’t get what it’s looking for, word spreads quickly and the chances of another big order—from them or anyone like them—is unlikely. That means prioritizing the responses necessary to scale up and hit the date, says Lehew.
• Get help from specialists. To supplement its own warehouse capacity, Orabrush entered into an agreement with UPS Global Logistics to supply some of the Walmart stores. “UPS was a critical partner for us because they helped us to ensure that we could deliver to Walmart the way Walmart wanted it,” he says.
• Be open to a change in the business model. “For us, Walmart’s order was a big a-ha moment,” says Marty Metro, founder and CEO of UsedCardboardBoxes.com. In 2009, Metro’s startup was three years into its plan to sell used cardboard boxes to individuals and local businesses. But when Metro got the call from Walmart one afternoon (100,000 boxes by the end of the week, with more needed in the following two weeks), Metro re-jiggered the business model to include building a B2B marketplace that supports delivering tractor trailers full of boxes, not just small lots to individuals and small customers via the company’s existing e-commerce site.
• Don’t be blinded by scale. UsedCardboardBoxes.com’s B2B business has taken off—with orders now averaging $7,000—but Metro learned an important lesson about what can happen when the big boys come knocking: not all of them will be profit centers. “We realized that Walmart is so huge that you have to be careful,” he says. “If you don’t want to sell at the price they want they can always find someone else who will.”

What do you think? How did your company deal with its first big order?