Here is another excerpt from my September interview with Gabriel Weinberg. This one is focused on what to do when you encounter a B2B prospect who is excited about your product and this is only the first or second time this has happened with someone who wasn’t a friend or prior associate.
The short answer to what to do when an early prospect is excited: prove that your product works on their data, in their environment, in a way that gives you a deep understanding of the impact on their business and the value that you are creating for them. This normally a multi-step process that involves not only custom demonstrations and benchmarks but ongoing dialog.
Here is the relevant excerpt from the interview:
yegg: Let’s suppose the prospect is excited. How do you close the sale?
skmurphy: This is a multi-step process. If you are learning more about the prospect’s needs you are making progress. A few times in the middle of one of these conversations I have had founders, look at me and say “Well, they are not going to buy, we should leave.” It requires patience; software is the promise of relationship.
Typically, the next thing you ask for is prospect data or some way that you can demonstrate a result which is beyond a canned demo, a demo that uses data from the customer’s environment.
The normal test we tell the founders we are going to have to pass is–after a coffee break or a couple of lunch conversations—that we are going to go to somebody’s office, and in less than two hours we have to show them something that’s relevant to their business that makes a difference. And, if you can’t do it in two hours then you have to leave with data they have given you and come back within five days with something relevant.
We’ve seen people take different approaches, but in general if you are on site more than a relatively short amount of time, you are forcing the guy to spend political capital either to get your badged in or to get your access. You want to hold off on that until you’ve unambiguously demonstrated value.
So there is normally a progression:
- One or More serious conversations that ensures prospect realizes he has a problem or need you can address.
- Standard demonstration of your solution tailored by your understanding of their needs
- Demonstration using the prospect’s data or parameters, sometimes a small benchmark. Typically this has to be completed in less than two hours on-site or you need to get permission to leave with the data and return within five working days.
yegg: At this point, have you introduced price or any other terms?
skmurphy: Price is pretty slippery in the early market; we are really trying to understand what the impact is on the prospect’s business or on a particular business process.
If business people are spending time for you they’ve got a real problem that they are looking for you to solve. There is typically some real pain point that’s underneath.
Now, trying to figure how to value that, and what’s needed to solve it, is obviously many conversations and a fair amount of analysis.
It’s a complex thing. Normally we let the customer bring up price. We will ask them how they evaluate the value we are creating for them. I know there is the famous Steve Blank question “Would you pay a million dollars?” which I think is more rhetorical than literal. It can be risky in the beginning if you name a number that’s too high: instead of countering with their value number, they may stand up and leave the coffee table or otherwise end the conversation.
It’s typically more useful to come to a full understanding of the current impact of the problem on the business and then what your solution does to reduce it. You need to balance this against how quickly you can demonstrate convincing results and how much process change is involved in incorporating your solution into their workflow.
yegg: You ask them to give you a number?
skmurphy: Yeah, and we’ll tear that apart a bunch of ways. We’ve been asking a lot of questions all along in terms of what’s the impact on the business. We are trying to draw a kind of a before and after map either of a process or an outcome, and then using judgment and talking to many people to try and understand the value that’s being created here.
As a rule of thumb you can only capture a fraction of the value that you are creating. You can’t in the abstract just say “This is worth a $100,000” or “This is worth $5,000” or whatever.
yegg: Doesn’t this process typically get low-ball numbers thrown at you?
skmurphy: Sure, and in the beginning, the other thing to understand is that the people that you working with, when they are spending time with you, you have to count that time as part of what they are paying for the product.
In our experience it’s difficult to get the full dollar value out of the first couple of customers. That’s of less concern than being able to build a real case that you are creating value as a result of actually getting them to implement. They are going to invest typically a fair amount of time on the part of people with real opportunity cost to get something working.
Depending upon the competitive landscape and what other alternatives are already available to them you may be able to capture between 10 and 40% of the value you are creating. If your benefits are not directly tied to cost savings, measurable quality improvements, or the creation of incremental revenue, then you end up capturing much less than 10% of your hypothetical value.
It’s less important that you negotiate for the best price than you act as an effective partner and you come away with a deep understanding of the impact on their business. It’s OK to leave a little money on the table if you are learning, you have a customer that’s willing to act as a reference, and you are unencumbered in your ability to sell to other firms.
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