Tomicide Solutions, February 2011

How Do We Know If We're A Replaceable Vendor Or A Trusted Technology Advisor And A Respected Technology Authority? Part 2

By Tom "Bald Dog" Varjan

Podcast: MP3 Version

In this issue we continue our journey into Vendorville and Authority City trying to discover the main differences in their mindsets and their operations.

Last month we discussed 11 differences, and this month I'll torture you with 11 more.

Some of the differences apply to your company in a positive way, that is, in that area your company is a respected authority, but we all have replaceable vendor characteristics.

And these are the little chinks we want to correct in our armours, so we can come across as the perfect authorities that buyers are looking for. Of course, we can never achieve perfection, but it's worth travelling on the road that takes us closer to it.

So, let's see what we have here...

12. Buyers Dictate The Rules Of The Game...

...and sellers, desperate for the new business, accept anything that might lead to signed purchase orders. Basically buyers beat their drums and sellers dance to buyers' drumbeats.

There is no collaboration, only "do as I tell you" type dictation. And due to poor market positioning, sellers can't cherry pick because qualified prospects are scarce but people have to eat.

So, how do you recognise "game-dictating" buyers?

Their project descriptions are far too tactical and the strategic foundation is missing.

For instance...

"We need an Apache server with 12 workstations running on Windows 7."

It's like walking in to a medical clinic and demanding 2 lbs of Tylenol. Why?

We can recognise bottom-feeder buyers by doing their own diagnosis.

So, what do good buyers do?

"Fred, we want to grow our online sales by 35% next year, to an annual $42 million, and we need a robust IT backbone to be able to handle this growth. When could we sit down with you and scope out the technical specifications of this system and the financial aspects of setting it up?"

This buyer has a specific boardroom-calibre goal that needs reliable server room support.

But do you notice that the buyer is NOT looking for a technical solution. He's looking for a business solution to pull off the projected 35% annual increase in online sales?

Huge difference.

13. Buyers Set Fees And Prices...

...and all sellers can do is either to accept them and move to the next stage of lukewarm consideration or reject them and drop out of the bidding contest. Buyers also know that these sellers can be further pressurised to lower their fees and prices, so they usually pressurise them often to the point where it becomes financially prohibitive to do business with these buyers, but these sellers are desperate for money right now, so they accept the lower fees and prices.

That's what economists call the winner's curse. It means that the seller that wins the bidding battle and gets the contract is really the biggest loser of all contestants.

The poor bastard just doesn't know it yet.

It will cost more to deliver the solution as per the contract than the seller can keep as profit, so the seller subsidises the project out of its own piggy bank.

Not to mention that these buyers have astronomical demands. They may run their computers on pirated Windows 95, but demand top-tier technical support from the already overstretched and underpaid IT company.

Also, these buyers are notorious for demanding their money back after the full installation of the new system.

In 2007 I had the opportunity to attend Verasage Fellow and project management magician, Ed Kless' project management workshop for IT companies.

He mentioned an example that, after some serious construction modification and full installation of the new system, the buyer demanded his money back.

The dimwit thought he would get his money back and the IT company would leave all the hardware behind fully installed. But the IT company removed the new hardware and left. And where was the old hardware? Well, behind the building in the dumpsters.

The buyer was left there with gaping holes on the walls and ceilings and no system at all.

Yes, I advocate full money-back service guarantee but it doesn't mean that you leave the hardware behind. Oh, no!

You're the expert, and you have the right to decide what you charge for your expertise.

14. The Sales Process' Dynamic Goes Apeshit

Sellers are pushing hard to make the sale as quickly as possible, while buyers take their sweet times and cherry-pick among sellers. Buyers can take it easy because there is always a healthy supply of vendors grovelling at their feet hungry for some business.

And sellers push hard because that's what sales trainers have been teaching for decades.

But I believe the sales territory favours "reluctant" sellers who offer kick-arse solutions coupled with effective education-based direct response marketing. Those sellers do such good marketing that self-qualified buyers come to ask them for help.

At least it's a lot more effective than flooding the market with an army of aggressive peddlers that buyers try to avoid like the plague.

Just look at the so-called Internet marketing gurus. They run multi-million dollar businesses without one single traditional salesperson who pounds pavements and dials for dollars.

Their marketing is so good that they don't need traditional salespeople.

And any IT company could do something very similar.

What if you figured out the buying process of your target market? You could sell the same amount of stuff, or even more, without one single salesperson.

And even if your salespeople are on straight commission, they still cost you a pretty penny.

Why?

Their straight-commissions mindsets will keep your company a vendor forever. Just think. How would your opinion change about your family doctor if you found out that he's on straight commission paid by some big pharmaceutical companies?

Would you trust someone whose only incentive to do his work is the money that he can pull out of other people's pockets?

15. Using Lots Of Face Time To "Arm-Twist" Buyers Into Quick Purchases

Vendors do anything in the hope of the next deal. Even wasting inordinate amounts of face time to meet buyers 97% of whom are not even ready to buy. And a large percentage of the 97% are tyre kickers, bargain hunters, penny pinchers, tightwads and cheapskates.

They are not bad people per se. They are just not high-calibre clients.

The problem is that in many IT companies the sales mantra is...

"It's easier to persuade the reluctant and apathetic masses to buy something they neither want nor need than find those who really want or need our stuff."

Many sellers believe that if they put in lots of face time to meet all Tom, Dick and Harry, that will speed up the sales process.

But there is a problem. Sellers want to put in the most face time at the beginning of the relationship when buyers don't want to meet them... yet. Buyers want to meet them later but by then sellers are off to newer prospects.

According to B2B marketing expert, Mac McIntosh, 25% of buyers buy within 6 months, 25% of buyers buy within 12 months, 25% of buyers buy within 18 months and 25% of buyers buy after 18 months.

And I can say pretty confidently say that the 25% that buys within 6 months are the low-end, price-sensitive buyers and the ones that buy after 12-18 months are the premium buyers.

But there is another side of this coin...

In his book, The Ultimate Sales Machine, Chet Holmes reports that...

Purchase Distribution

And the reason why low-end buyers buy so "quickly" is because sellers drop their trousers and offer all sorts of retarded, often self-punishing discounts to grab the quick buck.

But that's exactly what low-end buyers are looking for. Bargains, bargains and more bargains. Wal-Mart and others merchants of cheap shoddy crap have conditioned them well.

But smart sellers also know that quick bucks are hardly ever big bucks, and big bucks are hardly ever quick to make.

So, instead of flexing their sales muscles and scaring lots of quality buyers away, they use education-based direct response marketing to stay in touch with buyers until they are ready to buy. And unlike selling, which is a human-intense function, a large chunk of the stay-in-touch process can be automated.

16. Lot Of Money Is Wasted On Institutional Image Marketing

These are IT companies with the flashy, glitzy glamorous marketing materials that are full of style but void of substance. Of course, replaceable vendors are not respected experts, so they don't have much valuable content to offer in their marketing and sales processes.

Direct response marketing is based on good content, but good content takes time, thinking and money to create. And smart buyers don't get their decision-influencing information from article farms. They know most of those articles are have been written by $2.50 per hour writers in India, Pakistan or even Zululand.

Also, image marketing, due to its self-centred, egomaniac nature, is exciting to the executives, and due to its non-accountable nature, it's popular among creative advertising agency people and super-aggressive, money- and promotion-hungry freshly-minted MBAs[1]

Look at your company's collateral materials and see what their overarching themes are. Are they seller-centred chest-beating about the number of offices, the size of of the company, the age of the president and the Ivey League education of the CIO?

Or are they about the target market's afflictions and aspirations? Their buyers goals, dreams and frustrations?

Replaceable vendors, due to their innate insecurity, love bragging about themselves. Respectable authorities talk about their markets.

17. You Have People Who Get Paid On An Individual Performance Basis

Clients are smart enough to know that people who are paid for performance strive to maximise their individual performance, thus their individual payment. It's like going to a dentist who is the owner of a mercury mine. For him, the solution to any kind of tooth problem is yet another amalgam filling.

Hey, dentistry may pay well, but selling tonnes of mercury may pay even better.

And here comes the McKinsey & Co. bromide...

"If you can't measure it, you can't manage it."

The problem is that business development is knowledge work not manual labour. It requires lots of thinking, judgement and discernment. And you can't measure discernment. Not even McKinsey & Co. can.

Performance based pay may be great for people working on assembly lines, but not for people who have to do extensive thinking in their work.

Now there is overwhelming evidence[2] that talents, the calibre of people you should recruit anyway, don't work for money per se.

For instance, many managers believe money is the number 1 satisfaction factor for employees. And for most manual labourers and union toadies money is the most important factor.

But for knowledge workers money turns out to be only the 5th most important criterion. The 1st one is "Full Appreciation for Work Done". Huge difference.

That's why you can't motivate talented people with money. Yes, they earn enormous amounts of money, but they don't work FOR the money. They have higher callings.

So, where is the proof that performance payment fails in the knowledge worker environment?

Just read Dan Pink's book, Drive, and see. He piles up mountains of evidence against performance payments in the knowledge environment.

MIT study by D. Ariely, U. Gneezy, G. Lowenstein, & N. Mazar, Federal Reserve Bank of Boston Working Paper No. 05-11, July 2005....

"As long as the task involved only mechanical skills (a.k.a. manual labour), bonuses worked as they would be expected: The higher the pay, the, the better the performance. In eight of the nine tasks we examined (complex tasks that required serious brainwork) across the three experiments, higher incentives led to worse performance."

London School of Economics Study by Dr. Brend Irlenbusch...

"We find that financial incentives (in knowledge work)... can result in a negative impact on overall performance."

Individual performance payment sends teamwork to hell in a hand basket, and now you are in trouble. Your people will "perform" all over the map in order to increase their individual performance.

Using an example from the world of athletics, you can have the world's fastest runners in your 4x400m relay team, but if they run in any direction they feel like, then there is a problem.

But this is how sales forces operate in most IT companies. Upon hiring, every single salesperson receives the instruction from the sales manager. Get out and sell! And sell more! And some more!

It's like telling a newly recruited soldier to get out and kill. Kill more and kill anyone to increase your personal quota or corpses.

In my experience, most companies use the pay for performance scam because they don't want to waste energy and money on proper recruitment.

But look at elite military units like the Navy SEAL or Delta Force. Recruitment and training are expensive, but then "talent" attrition is virtually zero, except being killed in action or dropping out for medical reasons. Those folks don't quit because someone has offered them better jobs for more money.

And as we know, soldiers are notoriously poorly paid.

So, since companies want to increase their sales, they measure sales. So, they pay their salespeople commissions.

But how far can you trust people whose sole objective is to manipulate as much money out of your pocket as possible? I wouldn't trust them as far as I could kick them.

And this is one of the very reasons why buyers avoid commissioned peddlers like the plague. These sellers are pushy because they are pushing for their money. And their sales managers and their companies' executives are too stupid and narrow-minded to recognise how much damage these bazaar hucksters cause with their money-chasing behaviour.

So, commission or no commission. In my experience, no commission. A commission-based sales force costs far too much time, energy and money to manage.

18. The Market First Meets The Company Through Its Sales Pitches

Replaceable vendor companies chase the market with sales pitches, so this is the only way the market can meet them.

What sort of materials do vendors hand out to their prospects? Self-centred materials with lots of superlatives, platitudes and general chest-beating.

"I'm Doctor Doctor Doctor Diamond Dick with a triple Ph.D. in computer science and quadruple MBA in finance. And now let me tell you more about myself."

Brochures, quotations and similar wastage of rainforests.

And how do buyers respond to this lunacy? Buyers use these sellers as bases of comparison to other companies.

By contrast, respected authority calibre companies make sure prospects meet them through education-based marketing materials.

For instance, CRM vendors have flashy, glitzy brochures full of "look how cute and smart we are" type information. But respected CRM authority companies have educational pieces like, "10 Considerations Medium-Sized Manufacturing Companies Must Address When Selecting CRM Systems" or "10 Costly Mistakes Medium-Sized Manufacturing Companies Make When Selecting CRM Systems".

While brochures are received with a "You too, man! Yawn. Yawn", educational pieces are valuable and highly sought after by top decision-makers.

There must be a reason why white papers, not brochures, are decision-makers' favourite educational materials when searching for solutions.

Where is the problem then?

Brochures are cheaper to produce than white papers. And technically illiterate salespeople are cheaper to employ than salespeople with significant technical- and business acumen. The best of those folks demand hefty base payments.

So, keep an eye on which of your company's materials your market meets when first meeting your company's name. This will have a huge impact on your brand and the overall perception of your company.

After all, you'll sooner meet a virgin prostitute than a haggler in a BMW dealership.

19. Top-Notch Technology Comes Before Top-Notch People

For vendor type IT companies' budgetary preference is given to technology and whatever is left is used for hiring more people. For some reason, many IT companies are obsessed with headcount. They think the more people they have the better.

The mentality is to acquire top technology and some top notch technical folks. Then dirt cheap, rock bottom quality workforce to operate that technology to work the rest of the company.

A few months ago a local IT company was considering hiring me to keep the $90-150 per hour programmers occupied, and the lawyer-turned owner was grilling me about how many hours I was planning to work.

I repeatedly asked him about the objectives he wanted to achieve, but he kept getting back to the number of my working hours.

His justification was that since he would pay me a generous $12.00 per hour, he would need to know how much I would cost him.

When I told him I wouldn't even entertain the idea of having his company as a client for less than an annual $100,000 plus a percentage of sales, his response was...

"Are you out of your mind. That's almost as much as my best software developers make."

Then I suggested to him that he would ask his programmers to market and sell what they create if they wanted to eat and pay the bills and put the phone down.

In his view, the technical people were the real assets, and all the other people operating the company and selling his "cutting edge" (oh, puleeeeez) stuff were just necessary evil.

As a technical layman he was quite obsessed with technology, while looking down on everything else, especially on the mundane and menial grunt work of taking his stuff to the market and exchange it for money.

And his company keeps struggling.

Respected expert companies focus on hiring top-tier talents and, if needed, slightly compromise on technology folks. This may sound silly, but your company makes money by marketing and selling technology not merely making technology.

And no matter how good your technology people are, you still need people to take your technology to the market and sell it to keep the technical geniuses alive.

Top talents, using slightly less than top technology, far outperform competitively paid merely competitive people struggling to make sense of cutting-edge technology.

While living in the UK, once I was dating a finishing carpenter. For most of her work she used hand tools not power tools. Of course, the engineer in me was curious and I asked her why.

Although she told me, the best explanation sank in only when her dad, an accomplished orthopaedic surgeon explained it.

"Tom, we get paid exorbitant amounts of money because we have a high degree of skills and hand-eye coordination in our profession that machines can never achieve. There are so many variables at any one time that skilled experts can foresee and handle but machines cannot. How comfortable would you be lying down on the operating table if a robot were wielding the scalpel?"

One of the most crucial parts of surgery is performed by a $30 tool, the humble scalpel, that was, according to John Kirkup's "Evolution of Surgical Instruments", invented over a one million years ago.

Then Ben continued...

"And no matter how expertly you use all the fancy instruments, if you don't have excellent scalpel skills, you will never become an excellent surgeon. You can be a well-educated and excellent equipment user, but not an excellent surgeon."

And Roc (as in Roxanne) told me the same about carpentry.

"You can have the best power tools but without having the principles of carpentry both in your brain and your fingers, you're just a power tool operator."

It's the people who make the most significant difference in your business not technology.

20. Selling Tasks, Time Chunks And Materials

Fungible vendors sell collections of means to ends, and charge for those means. It's like the builder who regards his buildings as collections of bricks, sand, bags of cement, timber and nails, but totally ignores the beauty and comfort of an exquisite home.

IT vendors sell time chunks, pages of documentations, lines of codes and the poundage of steel and plastic that make up computer systems.

They set their fees and prices based on the amount of labour they have to perform.

Respected experts sell brighter futures to their clients. Results, outcomes and possibilities. And they base their fees and prices on the business improvements what their clients want to achieve. There is a world of difference between selling 100 computer terminals, 50 routers, 50 switches and 200 hours of labour and selling an opportunity to reduce client attrition by 35% within nine months.

21. Most Vendors Imitate Each Other, So They Are Easily Comparable

With imitation, the only basis of comparison for buyers is the lowest price. Who can offer a certain product or service the cheapest?.

Just look at most web hosting companies. Most of them are dirt cheap and total disaster. And the way they treat their clients is plain atrocious. But for the money they charge it's great that they even offer something even at bottom-achingly low quality. So, it's not surprising the market demands rock-bottom prices. The market has equally low expectation of web hosting companies.

Verasage Institute founder, Ron Baker is right in saying that you can make your stuff so cheap that no one wants to buy it.

A McDonald's Big Mac is around $1.99. And that includes the 1/2 lbs of meat, bun, cheese and other bits and bobs, including labour. And the company makes a profit on it.

How low do you think the quality of the ingredients has to be to sell that burger for $1.99?

Semi-erudite people wouldn't feed their dogs with that crap.

Mind you, lots of people even dare to eat it. There must be some brave souls on this planet, tempting fate every day.

And some people tell me skydiving is dangerous. Well, I think relative to eating McDonald's food-like substances, skydiving is pretty safe.

The fact is that it's sellers who commoditise themselves with imitation and the market merely fulfils their wishes.

There is no such thing as a commodity until we give in and start treating our businesses as commodities.

22. The Absence Of Strategic Focus And Direction

Vendor type companies tend to jump from opportunity to opportunity, depending on how much short-term money they can make on certain opportunities. They "invent" solutions by the seat of their pants based on what prospects are looking for. Web design? Yo, we can do it. Staff training? Yo, we can handle that. ERP system design? Yo, we can do that. Internet security? Yo, we're the experts.

And smart buyers smell the rat from a million miles and run.

By dabbling into various aspects of IT, companies trivialise the very areas they're getting into. And then using this trivialised mindset, they start the selling process. And what happens?

Buyers sniff out that sellers treat their own services as trivial, so buyers start haggling.

And by then it's far too late to change the situation. Buyers will keep haggling until they get sufficiently low prices.

Respected authority type companies have their strategies carved in stone, and they follow their directions. They have rigid strategies (ends) and flexible tactics (means).

Most vendors have rigid tactics (means) and flexible strategies. They operate on the mantra of...

"We keep doing this and let's see where we end up."

Like a doctor who thinks to himself...

"I keep doing bloodletting on my patients and let's see how many actually survive."

Mind you, considering the overall health of people, we can confidently say that western-style medicine hasn't come too far from that point of bloodletting and leeches.

Summary

So, here we are at the end of our journey. I reckon there are more than 22 differentiating factors between vendors and authorities, but for a start these 22 are good enough.

But the problem is that in many IT companies the very activities that could help to establish them as respected authorities are banned because they cost more than "dirt cheap".

Many IT companies don't want to invest in marketing because it costs money, whereas hiring an army of peddlers on straight commission seems to be cheap.

It reminds me of the story of haggis, the traditional Scottish delicacy.

During the mad cow disease outbreak in 1989, the US Department of Agriculture (USDA) banned the offal-based dish in the US, claiming it was unsafe for human consumption. The USDA was supposed to lift the ban in 2010, but it's still sitting on the decision, although both the Scottish Rural Affairs Department (SEERAD) and the British Food Standards Agency have declared haggis to be safe to eat.

The way I see it, if haggis is unsafe to eat, then, considering the quality of the crap it sells, McDonald's should be taken to court for crime against humanity.

Yes, people can get "American" haggis, but it's like Chinese Rolex watches. They are shiny like the real ones, but something is missing. That's why it costs only $10 not $10,000.

The American haggis is made of beef and is missing a key ingredient: Sheep's lungs. And instead of sheep's stomach, it's stuffed into plastic bags.

Considering that in Europe most people wouldn't feed rats with the kind of food we eat in North America, it's strange that the USDA still keeps the ban in place, while giving the go-ahead to dangerous and obnoxious food-like "substances", like pasteurised milk.

And the same is happening in many IT companies regarding marketing. Too many people are too invested in keeping the old order in operation even at the detriment of the company's bottom line.

Why? Because it doesn't cost much. But it doesn't produce much either. But costs are easier to measure than judging and discerning projections on opportunities. The former needs only a calculator and any moron can do it. The latter needs pretty high level of business savvy and insights. The kind of savvy and insights that are expensive and not many IT companies are willing to acquire talents who possess them.

By the way, the USDA declared sheep's lungs to be unsuitable for human consumption, thus illegal to distribute in, 1971.

I'm curious when the USDA bans the Big Mac and similar suspicious substances cleverly disguised as food. But that topic is for a different newsletter.

Come and let's discuss this newsletter issue on my blog...


[1] Have you ever stopped and asked yourself why 56% of MBA students cheat and lie in order to get their credentials? And after graduation, where else do they cheat and lie to get ahead? See "Academic Dishonesty in Graduate Business Programs. Continue where you've left off...

[2] Foreman Facts, Labor Relations Institute of NY (1946); Lawrence Lindahl, Personnel Magazine (1949), Repeated with similar results: Ken Kovach (1980); Valerie Wilson, Achievers International (1988)Bob Nelson, Blanchard Training & Development (1991)Sheryl & Don Grimme, GHR Training Solutions (1997-2001). Note the glaring discrepancy between manager opinion and employee fact. Continue where you've left off...

Come and let's discuss this newsletter issue on my blog...


Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.