by Tony Palladino
In my travels to Europe, it was not hard to notice that people speak English almost everywhere. Almost. When my wife and I found ourselves in remote areas of Italy, France, or Germany, we leaned on our translator app on our mobile phones to help communicate with the locals. That worked reasonably well – most of the time, until there was no coverage in certain locations. We were in a restaurant on our way to Cinque Terra when we struggled to convey our order to the server, whom did not speak English. Nor did anyone else in the restaurant. The lesson learned is that you really need to speak the language when you want to ask for the order, whether it be in a restaurant or in a business meeting. . . .
So, you have a great idea. You have the knowledge and means to manifest it. You roll your sleeves up and start building your product.
FAST FORWARD . . . .
Once you have a MVP, then you are ready for your first customer to test it out. You entice them to play with it, kick the tires, iterate around the potential features and capabilities required to meet their needs. They’re impressed with its potential. They ask about the price.
Press PAUSE . . . .
Pricing-101. Before you price your offering, consider whom you are pitching it to. Who is your customer? Are they a large enterprise with a cumbersome decision-making process? Or, perhaps a small or medium size enterprise? Regardless of size, it is prudent to understand whether or not they have a tendency to buy from start-ups. Have they done this in the past? Are they early adopters? If not, then the risk is much greater when it comes to having them pay for your product.
Let’s consider the various buyer personas. Have you identified a key decision maker that is willing to take the risk on an unknown start-up? Key influencers do not have the budget. Speaking of budget, knowing their budget cycle is also helpful for your forecasting. Then there is the decision making process. Gaining shared expectations with your potential customer around their buying process and timing is critical.
Let me guess…. You are a software engineer, selling to another software engineer whom happens to like your product. So, you proceed with a performance benchmark and a POC. They tell you that they want certain features that aren’t there yet. No problem. Your team of developers can swizzle the new features into the product offering. Weeks go by… months go by. Unfortunately they have no budget. Meanwhile, your cash runway is dwindling.
Press PLAY. . . .
So which play will you run?
Plan-A: Dive deeper and give the potential customer all the features they need to get to a YES decision.
Plan-B: Try to have your key contact bring in more influencers to garner more support.
Plan-C: Try to get to the decision maker and pitch your product.
Or, perhaps all of the above. Then, when you get to the decision maker, you come to find that this person really isn’t the decision maker. They happen to have a boss, whom has a boss, and so on up the chain. Eventually, you will come to realize that the people who control the funds are usually not on the Technology side, but rather on the Business side or Finance side. In fact, in most enterprises you need approvals from all three sides. You just tripled your friction and now have to triple your effort to overcome these barriers. It feels like Sisyphus, pushing the big boulder up the big hill only to have it roll back down.
But here’s an idea. . . . Let’s call it Plan-CJ, which stands for Compelling Justification. In the end, if a potential customer does not buy, it is 99.999% of the time due to the fact that the justification was not compelling. Period.
So, to build a compelling justification, think about these questions and document your answers: What is the use case? What is the value proposition? What are the KPI metrics to measure the value? What is the current base-line for those metrics without your solution? How will your solution impact those metrics once implemented? Is this impactful enough to make a significant difference, to “move the needle”? Does your product impact top-line revenue, improve efficiencies, reduce costs? How does it impact the bottom-line net earnings? Are these numbers tangible? Are there any intangible benefits? Is their data to support these claims? And, of course. . . . What is the payback period?
This last question circles back to pricing your product appropriately. Customers generally want a payback period of less than 12 months and at least a 25% return “hurdle rate”. If your product can unlock enough tangible value, say $1M return annually, then you can likely charge an annual subscription fee of up to $800K, in this example. Of course, pricing your product lower than that makes your justification even more compelling. For example, pricing your product at $500K annually would yield a 100% ROI. Now that’s compelling. Perhaps you would agree to the lower price in exchange for a multi-year contract? Win/win.
Ultimately, you greatly increase your probability of closing the deal by documenting your compelling justification in business and financial terms using the language that will resonate with the true decision makers – the business and finance leadership teams. The tech team will qualify your product quality and capabilities in or out, but the business will determine its viability and finance will determine the budget. Perhaps all along you have been speaking in acronyms and technology terms. It really helps to know how to speak the language of business and finance, especially given that they hold the keys to you earning their business.
In the end, if you are going to run a successful business, then you should probably learn how to speak the language of the locals. This is most helpful whether you are ordering a meal in a foreign country, or asking for the order from your potential customer. In either case, “buon appetito!”