Category Archives: Managing Risk

You Have To Chose The Right Clients and Opportunities

About a dozen years ago my wife and I were seriously exploring IVF or In Vitro Fertilisation. We were finding it difficult to find a clinic that was prepared to accept our case at first.

My wife and I between us had some personal connections that enabled us to be put in touch with one of the foremost fertility consultants in the land.

That person had a phenomenal success rate, something very important to us, less from a cost perspective, and more from a risk to the mother perspective.

The disappointment we ran in to was simple. This consultant wouldn’t accept us because to do so would significantly impact their success statistics. They had such an exceptional success record because they were very careful about who they took on. What we needed was a consultant and clinic that had more experience and knowledge about our particular circumstances. In the end it was not to be, and in time we turned our love & resources to other needy causes.

And so it is with you and your business. You have to be choosy about who you do business with and/or what kinds of opportunities you invest your time, energy, resources and emotions in to. Getting it wrong can spell doom for your business.

For example, one company I have worked with deliberately stays clear of some very big business opportunities, because it has realized that those accounts are very difficult and demanding to work with, especially given the low levels of returns they generate. It would rather work a greater number of other accounts and opportunities, do a great job, as it always does, but get a reasonable reward for the effort.

So take time out to identify the best kind of accounts and opportunities to work on for you, that also align with where you want to take your business. A great place to start quickly, is to look at the best accounts and opportunities you’ve had over the last 2 years, write down what it is about them that you like and value, and use that as a starting point to help you target new accounts and opportunities going forward.

It’s the Risk, Stupid!

In my last post I wrote about price being the issue – or rather, not being the issue.

It seems this is a subtle point that is easily and readily passed up by most.

I’ve just been watching the BBC tech show ‘Click’ (10 Sep 2011 edition). There was a review of the recent IFA tech exhibition in Berlin, Germany – the one where Samsung hastily withdrew their 7.7 inch new tablet following an injunction granted to Apple by a German court.

Lee Westaway, from CNET, stated that the price of most non iPad tablets was at least the same as the iPad, and that when faced with this choice, many buyers are going with the iPad because it’s established, it works, it’s proven, they know others who have one etc, and the new Android tablets are still a little bit “geeky” and unproven. He stated that if the price “was a lot cheaper, there’d be more reason to by one” (Android tablet, that is).

He’s wrong! And here’s why I think so – and it’s critical.

If the price were much lower, there’s be less reasons to NOT buy one – this is NOT the same as there being more reasons to buy one.

What do I mean?

Well, as I said before in my 29 Aug post, it’s really about risk. Or lack of it.

A lower-priced Android tablet means there’s less risk for me personally. If it was free, the electrical/technical/mechanical risks would be the same – it’s the same piece of equipment. And this would also be true if the price was $1 million. This is why the main risk variable is personal.

If I pay $99 for an Android or other type of tablet, it doesn’t matter too much if it sucks – I can say that for $99 you can’t go wrong with a device that’s clearly not an iPad and people shouldn’t expect an iPad experience. I can claim to be testing out the waters before deciding on whether I need a tablet at all, and if so, what capabilities I need.

This is the logical argument that hides the fact that the decision I make in buying it (or going with the iPad or none at all), like every other decision every human makes, is 100% emotional (see “Brain Rules!” by John Medina at www.brainrules.net and also “Buy-Ology” on Wikipedia…)

So the recent fire sale of the HP TouchPad device – at $329 these things weren’t moving – but HP says it’s bailing out of the retail PC/tablet business, lowers the price to $99 and these things sell out globally in a matter of hours – a ton of people around the world paid $99 for a device that’s got no future, no future support, no future accessories – nothing…

At $99 there were simply less reasons to NOT buy one – no body is going to call you a fool for buying something that was originally $500 or $600 for under $100 and that gets you ‘in’ to the tablet world… but for $300+, people imagined feeling silly buying the HP device, or the others when a little bit more gets you the ‘real deal’…

Next time you feel like you may be losing the sale and the customer is telling you it’s too expensive, remember this post – and call him or her out on it – explore the real reasons they have for not buying from you (and yes, it COULD be price alone, but ONLY if you’ve let them perceive the required solution as being a commodity – people do pay $50 for a bottle of water you know!!!)

It’s not really about the price…

Ask a sales person why they won an opportunity, and they’ll typically list all manner of potential reasons, such as

  • Great support – pre and post sales
  • High quality
  • Features
  • Options/flexibility
  • The relationship they have built up with the client

And so on..

But when you ask a sales person why they lost an opportunity, and you almost always hear just one answer…

PRICE!

I offer as ‘evidence for the Prosecution’ Exhibit A — The HP TouchPad.

This is (was!) HP’s response to Apple’s iPad. It had a whole bunch of tech features that were missing from the iPad2. And it was available for the same price as the iPad2.

And yet HP couldn’t sell them.

They were in shops and on the Internet – availability wasn’t a problem.

And yet HP couldn’t sell them, well, not many anyway… (see here…)

But when HP suddenly announced it was pulling out of consumer PC and tablet business and dropped the price of the HP TouchPad to $99, they were sold out.

I can hear it now – the argument for the Defence – they sold out because the price was dropped… and so why not drop the price of other tablets, and sell a load more…?

LIES!!!

They sold out quickly because the RISK involved in buying it, vs the potential value/benefit of having it, had dropped to acceptable levels for a lot of people.

Buyers in every situation fear just one thing – FAILURE!

Making up this failure is some combination of the following:

  1. the fear of paying too much
  2. the fear of being left disappointed
  3. the fear of being laughed at or criticised
  4. the fear of change

There isn’t the same risk in buying a full price iPad as there is in buying a full price tablet from anybody else.

Why?

Well, iPads work, they’re a known quantity, they provide the means to do everything most people want to do, and don’t required a degree in computer science to use, plus they’re cool – few people would give you a hard time for long over buying an iPad. Clearly, given how many millions of iPads have been sold, $499 for a tablet is not too much… and few are left truly disappointed, or get laughed at or criticised for having one – if this was an issue people would not have bought an iPad, sales would have been woeful… just like sales of every other tablet currently available… And there’s little fear of change for many – already familiar with the iOS software in iPhones & iPads, and its ease of use – there’s little perceived change involved.

But some other tablet? A tablet which has more tech stuff, doesn’t look so cool (arguably), costs at least the same, if not more, not noted for ease of use for the typical human being, and no hi-quality app store etc to go with it…? Try selling that to your spouse/family… or yourself… unless you want to ‘hack’ your tablet and/or simply hate Apple and its products…

But at $99 you can make the argument “well, at that price you can’t go wrong, I got a tablet for under $100” – plenty of people would understand.

You get the same ‘experience’ for $99 as you would at the original $499, but if it turn out to be a klutz, well, what do you expect for $99…

People buy a certain level of risk – a balance between the cost of the solution and the implications of not having the solution…

At $99 the HP TouchPad  tipped the balance clearly in to the ‘acceptable risk’ category which was beyond its reach at $499 or even the heavily discounted prices that were floating around just before the fire sale at $99.

So my call to action here is simple: just how are your customers perceiving the balance between cost of solution and implications of not having a solution… and what do you need to do to tip them in favour of buying a solution, ideally from you?

Just What Is This Business Acumen Thing Anyway?

Business acumen.

It’s a term that is often used in many contexts – and almost always seems to take on a mystical sense of great importance. Yet when you ask people to define it, you often get different definitions.

So what is the big deal?

Well, you can have 2 sales people that seem to do the same things, seem to do the right things, yet one is a lot more successful than the other. Why?

The more successful sales person – let’s call her ‘Sara’, is more likely to have made an explicit connection for the customer, between the customer’s current situation and the actual ‘pain’ it’s causing now, and/or could cause in the future. The less successful sales person – let’s call her ‘Una’ – is less likely to make that connection explicit for the customer. Where Sara wins out further over Una is in describing those connections in terms of 1 or more key business issues.

And because Sara has a better understanding of these key business issues, which, by the way, are the same in any and every business, she is able to get a higher overall sales price. She can use her business acumen – a combination of this knowledge of these key business issues, and the experience to know where, when and how to apply this knowledge.

So what are these core business issues? Ram Charan, in his book “What The CEO Wants You To Know”, listed them simply as

  • Cash – more so than revenue in the form of sales not yet paid for – a business fails usually when it runs out of cash – which it can do even with a strong order book
  • Margin/profit
  • Return on Assets – how much cash can be generated per unit of asset… related to velocity or turns…
  • Growth
  • Customers

But in practice it’s often thought of more as

  • Reducing costs
    • Development
    • Manufacturing
    • Sales
    • Servicing
  • Managing risk
    • Including reliability, quality and product lifetime
    • Agreement amongst key staff/managers
    • Other risks
  • Producing differentiated/innovative products
  • Efficiencies (time to market/lead time)
    • Development time
    • Manufacturing time
    • Logistics

By helping the customer understand the true nature of their situation, Sara shows clearly how she adds value for her customers. For Una’s customers they don’t see things so clearly, and so selecting Una can often feel too risky… and reducing the price can sometimes feel to the customer that they’re now taking on a less risky proposition… after all, risk is usually perceived as a product of how bad the situation can be (e.g. cost), and the likelihood this bad situation will actually arise.

So my call to action for you today is to help your clients at every opportunity to clarify their understanding of their situation, and have them tell you (i.e. make explicit) in terms of some combination of the list above, and in their own words, just what their situation is and how they’d like things to be in future. Help them by asking about the items in the list above – just translate the terms in the list in to the equivalent phrases/terms used in your client’s industry.