I would take exception to "everything is open for negotiation" if it's interpreted that you don't need to honor your word and your commitments.

Also, a lot of the time economic stress forces you to make the changes in habit and self-discipline that allow you to thrive as an entrepreneur. CatDancer makes an excellent point that lack of profitability ("economic stress") is a signal to improve your business.

I don't think that is what he implied by "everything is open for negotiation".

What it does mean is that this situation makes you lose any bit of your laziness or ego or threat of embarrassment. Where as previously you may have been shy to tell your hosting company you can only pay $100 instead of $600, now you may have NO OTHER OPTION but to pay $100 instead of $600.

Of course the hosting company can refuse and pursue another route such as collection. But from my experience, most small businesses aren't looking to pick a fight if you talk to them genuinely and explain your situation. In hosting, this is even more true because it is a high margin business. ie. the $600/month you are paying may only be costing the provider $50/month.

We have weathered similar situation on more than one occasion in last one year. What has usually worked for us is to go "broke": tell the folks you need to pay that you cannot pay until x date or that you can only pay $y/month. Most vendors will work with you especially if you have been doing business with them for some time.

It's a fair point but I wouldn't characterize it as a negotiation. You are making a commitment to pay $100/month to pay off the debt. They can take you to court or a collection agency for not honoring your original contract but if you honor your new commitment they are very likely to be willing to work with you. But it's not a negotiating posture because you are reneging on an earlier commitment and asking for their forbearance.

Ridgely Evers wrote a great post about this back in March "Guiding Your Business Through the Recession" http://blog.netbooks.com/index.php/2008/03/24/guiding-your-b...

5. Conserve creditworthiness. Just like you don’t want to be your customers’ banker, don’t get into the position of being overextended with vendors, especially the ones you really depend on. This is often the opposite of what your instincts are--we all think our key vendors need us, which is true right up until they decide they can’t afford you as a customer. If you have to stretch payments, do it with ancillary vendors, and don’t wait for them to call you--tell them that you’re going to pay them later than you think you can, so you then pay them sooner than you said you would.

6. If things are tight, pay off all the little bills first. You’ll spend as much time and energy answering calls from the little guys as you do from the big ones. And remember the old adage: "If you borrow $1,000 and can’t pay it back, you have a problem. But if you borrow $100,000 and can’t pay it back, the lender has a problem." Your bigger vendors will work with you--they don’t want to lose you if they can help it. So pay off the little guys, and then communicate with the big ones openly and frequently. And pay something--it shows good faith, and makes it harder to cut you off.

"It's a fair point but I wouldn't characterize it as a negotiation."

I think you are just playing with semantics;) In general, trying to change your agreement with a vendor is negotiating in my books. Remember if I proposed $100/month, the vendor could well come back and make a counteroffer of $110/month. I might sleep over it. And then agree to it. I'd call that negotiation.

I can see value in Ridgely Evers book. But I see NOT negotiating aggressively as a bigger problem than negotiating too aggressively. Totally agree with Ridgely in that you have to have a sense of to what extent the vendor will go to accommodate you before it is not worth his time and investment.

For hosting, it is not too difficult to calculate that point. ie. say we are paying $3000/month for a high-end server. We know the hardware cost $6,000 to the host. We know we have been with the host for 6 months and paid them $18,000. We know, thus, that the host has already recovered the cost of the hardware. In addition, we know that the bandwidth at the datacenter costs the host no more than $500/month and the rackspace for our server ~$200/month.

With the server cost paid, we are costing the host ~$700/month and making them a rough profit of ~$2300. At this point, we may be tempted to start our negotiation by telling them we can only afford to pay $1500. Realistically, we can settle on $2,000...saving 33%/month.

All the numbers above are almost real from our recent negotiation with a host.

There isn't a quid pro quo in offering to pay less than you have already agreed to. He isn't promising them future business or renegotiating on a contract boundary, he is trying to stretch out payments because of cash flow issues.

I am completely in favor of negotiating aggressively, but I like my word and my signature on a contract to mean something, if only because that has value in future negotiations.

As to your situation I don't understand why you didn't negotiate a better deal up front if all of these numbers were available to you? Why not break out hardware reimbursement from bandwidth, rack space, and other services and work out a payment schedule that meets your needs and theirs in parallel with negotiations with other vendors? You have far more leverage when negotiating in parallel than when you are refusing to pay.

Why sign a contract and then renege six months in? The impact on your reputation (based on who else they may talk to or get called for a reference) and your next negotiation with this vendor has yet to be felt but I wouldn't rely on it being negligible.

"I like my word and my signature on a contract to mean something, if only because that has value in future negotiations"

Hey, now you are implying that my signature on a contract does not mean anything and that, that is how I prefer to run things. We are talking about ONE certain contract...and in this case, it involves a month-to-month contract.

As for negotiating earlier, again, you sound like you are reading from a college textbook. Nothing wrong with it, but I run a start-up and things are not usually as perfect as books may make it seem. ie. We did just as aggressive negotiation at the time of signing up and got the best deal in the market at the time. Also note that at the time the server was given to us, the host had put in money that they had yet to recover. When we went back to renegotiate, that cost had been recovered.

"Why sign a contract and then renege six months in?"

Usually because some unexpected variables change. Happens all the time, especially in a start-up. And right now, in this economy, even more so!

Lastly, your point that you should negotiate just as aggressively at the beginning is well taken. However, doing that and re-negotiating to get the best deal at all times are not mutually exclusive.