Lost Leverage with your Suppliers
One of the most persistent problems faced by IT deal makers is the phenomenon I call “Analysis Paralysis” -- the inability to plan an acquisition strategy until all the requirements are known. Even though most deal makers have the skills to build a realistic demand model and negotiate effectively, many cannot bring themselves to approach a deal until they pin down the requirements. There are several reasons for this, including:
Customers are risk-averse, and over-forecasting demand creates risk
Customers fear under-forecasting demand because it might result in business delays or cost over-runs
Customers take the path of least resistance and just wait for the sales team to provide a quote
Customers confuse financial planning with deal planning; deal planning focuses on leverage while financial planning focuses on price
Analysis Paralysis leaves customers in a very vulnerable position because it enables the supplier to take advantage of time elapsing and pre-empts the customer’s ability to create leverage.
As a former sales person, I confess that whenever I saw a customer that had not fully vetted their requirements, it made my job easier: it gave me time to create the deal, socialize its benefits, and drive the deal on my terms. This tried and true tactic is specifically designed to take advantage of Analysis Paralysis, and can be found in every sales playbook in the industry.
Savvy customers prevent this situation when they take control and simply “put a stake in the ground”. They consider the value of the deal for their organization, and what it will cost if they do nothing. They know that if they wait until all the requirements are finalized it will be too late to negotiate. By then, they forfeit all their leverage because the supplier has had the time to figure out everything they need to know and can use that to control the deal.
Seasoned deal-makers start long before the needed execution date. They craft a low-risk conservative profile for the acquisition, and let the supplier’s sales team react to it. They know they can always make the deal bigger down the road.
This way, the customer co-opts the sales process. He/ she creates a story, still based on elements of risk, letting them know very little definitively (shifting the real risk to the supplier), using phrases like:
Our final requirements are not yet known
Our proof of concept is not done
It's not totally approved yet
We're unsure about the deployment schedule/timing of the deal
We're still looking at the competition
With this approach, the customer builds leverage by creating deal uncertainty, and risk, for the sales team.
Sidestepping Analysis Paralysis
To approach a deal this way, the customer must first assess how confident they are that they will use everything they may have profiled in their requirements or longer term planning. Next, they select only those items they’re sure of, year by year, project by project, product by product. When they do this, they get a better feel for deployment, and the quantity of products typically declines. As a result, their confidence in their “Business as Usual” increases, while the level of risk decreases. They realize it’s OK to have some gray area in the deal, as long it achieves its conservative goals. This is the moment to put the proverbial stake in the ground.
We see customers consistently come out ahead when they stay focused on the deal’s value and timing – not the price. By developing a demand profile, adjusting for customer-risk and refreshing it periodically, they create leverage with their supplier; leverage that arises out of uncertainty and the urgency to make a larger sale. In so doing, the customer puts themselves in the driver’s seat of deal execution, and avoids the lasting impact of Analysis Paralysis.
Prepare for a Surprised Sales Team
A word of warning: sales teams do not expect customers to be proactive and find it disruptive. They’re used to presenting the deal on their timetable, based on their assessment of the customer’s business.
We advise our customers to avoid Analysis Paralysis by identifying their own leverage and taking advantage of it quickly…putting that stake in the ground and creating a deal position based on their conservative objectives with a high confidence level. Remember, you can always make a deal bigger AND you can always bring a deal in earlier. There is no sales person who would not accommodate both and provide more value to you for doing so. The proverbial win/win (wink/wink).