Sales Negotiations

December 14, 2010

Alright, proposal is done. Now, the real fun begins with the negotiation phase. There are entire books and seminars devoted to negotiation. For instance, NI has used Karrass in our sales training. In talking with Alliance Partners, here are some common techniques.

Tips and Techniques

You should typically start with a win-win approach. Stay positive and first look for the areas of agreement. But, be prepared and willing to negotiate where there are differences. Hopefully, you left some room to negotiate.

  1. Put yourself in your customer’s shoes – The most common mistake is to fixate on your own situation rather than your customer’s concerns. For instance, if you are too worried about winning the business, you may not see how desperate the customer is for a solution. You may need to challenge your own assumptions.
  2. Capture and Create Value – If you have productized your own software for re-use, you may be able to charge a license to use it. If you have created higher labor rates for more experience staff, you can offer to discount it (e.g. using one of your CLAs at your CLD rate).
  3. Silence is Bliss – Don’t talk to too much. Most people are uncomfortable with silence. Let them fill the void – and avoid making mistakes of your own. Use it as an opportunity to test limits and get agreement before making a concession. Also, don’t over-close. If you have a deal, don’t introduce more facts or information.
  4. Slow and steady – As you are negotiating, be careful not to give away too much, too soon. Make concessions slowly as needed. Try offering minor concessions first. And, don’t simply trade ‘tit for tat’.

Always Be Closing

And, until you have a deal, the old adage applies: always be closing. That’s not just about asking for the sale. But, it is a mindset that you should always be driving for closure. What is required to reach a deal? What is preventing the deal from getting done? If you can’t close the deal, figure out what are the next reasonable steps. And, always solidify the next engagement

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Project Estimation (1of 3)

October 26, 2010

One of the areas that has always amazed me with respect to Alliance Partners and their system integration efforts is their ability to estimate and ultimately bid the project cost. It seems almost an art (perhaps a black art) as it is a science, but it is critical to the success of the business.

Project Requirements

It starts with gathering good requirements which is an art in and of itself. In a previous post, we discussed a ‘needs-based’ approach and the type of requirements that you want to gather. We also talked about probing techniques and how to deal with conerns.

Task Breakdown

Once you have a good set of project requirements, you still face the challenge of estimating the cost of the project. Hopefully, you have a good idea of the hardware requirements, but labor usually makes up the bulk of the total cost. Ideally, you can break down the project into a set of tasks to develop a system that meets the requirements. Then for each task you can estimate the effort, duration, and cost.

There are several methods for estimating the labor cost of each task:

  1. SWAG (Not recommended) – Scientific Wild Ass Guess
  2. Expert – ask an expert based on their experience
  3. Delphi – Ask a group to brainstorm and build consensus
  4. Comparative – Based on history or similar task
  5. Weighted average – a combination of estimates (e.g. Optimistic + 4*Likely + Pessimistic) / 6)

Obviously, depending on the size of the project, you’ll need to decide how much time you want to invest in this process. But, estimating project costs is critical to your profitability.

Labor Cost Variables

Other factors to consider in estimating projects.

  • Work interruption factor – no one can work uninterrupted. For instance, meetings. Such breaks in the thought process and work effort will inevitably impact effectiveness. Idea: consider limiting meetings and e-mails to certain parts of the day.
  • Part-time effect – Working on multiple projects can impact effectiveness. The developer must ramp up or down from one project to the next.
  • Skill factor – Obviously, a novice may take longer to complete a task than an expert.
By completing the task breakdown and considering the variables, you can reasonable estimate of the labor cost which often constitute the majority of the cost of the project. Next week, we’ll formulate that into a price and ultimately the proposal.

Alliance Day – Surviving and Growing in Trying Times

August 11, 2009

On Alliance Day of NIWeek, Don Roberts, Principal of Exotek, a consulting company who focuses exclusively on system integration companies in our industry, gave a presentation entitled, Surviving and Growing in Trying Times. He discussed what actions integrators are taking or should be taking to protect their investments and position themselves for a solid future through strategies around customers, markets, employees, vendors, management, and cash. Here are some of his thoughts (mingled with my own):

Hope is not a strategy

92% of small business owners believe they can withstand financial difficulties, almost two-thirds were so confident that they had no contingency plan in place in the event of an economic downturn — Harris/Decima 2009

The reality of our current economic situation is that we have hit ‘reset’ button. The economy isn’t likely to come roaring back to 2008 levels, but rather build slowly from this new level. So, integrators would be better to view this as a permanent condition. Shutting your eyes will not make it go away and holding your breath could be fatal. You must be proactive in facing your challenges.

General Management

You should develop and stick to Key Performance Indicators (KPIs). If possible, reflect against prior periods to establish baseline for your business. Then, monitor your KPIs closely and establish triggers for required actions. You should develop and execute on contingency plans.  Assess your risks, not just on individual projects, but for your business as a whole. Be honest and deal with key parts of business plan that haven’t materialized. And, be careful about internal projects and R&D that could deplete cash reserves. Act in a timely and decisive manner. Putting off decisions just undermines the credibility of management. Not to mention, it is likely bad for the bottom line.

Marketing

Some markets are still showing life such as Energy, Green Energy, and Medical that continue to see investments. Stimulus money will fuel Government, Military, and Infrastructure projects. Food and beverage are still doing well (people still got to eat).  You can also be creative and look for adjacent markets. For instance, the ‘tin’ industry is strong as more people by canned foods to prepare from home. But, you should use exercise caution when moving to new market. This turf will be defended by existing players. So, know your limitations and be realistic about what you can go after. Also remember, this is a global issue. So, you may have the opportunity to broaden your business to new geographies, but expect the same from global competitors.

Sales

Capital spending of your customers is tight and manufacturing utilization is under capacity, so look for new angles to improve their bottom line. Emphasize energy/cost savings and efficiency/optimization. And, look for ways to prepare your customers for the recovery. Also, continue to look for R&D projects that may be more likely than manufacturing. It is also critical to sell your unique value. Make sure your customers know you have staying power and never underestimate the power of great customer service. Finally, it is important for your sales people to Always Be Closing.  Distinguish your ‘hunters’ from your ‘gatherers’. You need folks that will drive to decision and follow decision-making process up the chain.

Financial Management

Cash reserves are critical during this time period. History is littered with ‘good’ companies that ran out of cash. So take care that you don’t use up all your cash and negotiate for more every chance you get. You can look for ways to improve cash flow. For instance, don’t let your customers use your money. Define and stick to milestone payment terms and be persistent about getting them to pay you on time.  Make sure that you don’t over engineer your projects – just meet the defined system requirements. Project your cash flow for at least 12 weeks, so you can predict your situation. Your banking relationship more important than ever. Remember that bankers don’t like surprises, so avoid the temptation to avoid communication. Keep in mind that you don’t have to be perfect, just better than the rest of their portfolio.

Human Resources

In a service-oriented business, your people are your most critical asset, but they are also your biggest cost.  So, ultimately, you may be forced to make some difficult decisions including pay-cuts, furlows, and lay-offs. This is obviously a complex and personal issue. Be prepared – educate yourself and be ready to act if necessary. For instance, create a forced ranking of all your employees and implement ‘performance’ management where necessary. While being firm in these matters, you can still be compassionate. Communicate often and honestly. Now is not the time for spin. When people don’t know, they will think the worst. Encourage bi-directional communication. Listen to their concerns.

Leadership

Tough times require true leadership. The biggest mistake is failure to plan and act. So, work on your business, not in your business. The old adage applies – that which does not destroy us makes us stronger. NI is confident that we are still gaining market share and believe there may be a fundamental shift in the marketplace. When the economy does recovery, our system-level business will again be the fastest growing part of our business which correlates to our growing portion of business through our partners. So, for those that weather the storm will be in a stronger position on the other side.

Get in Touch with Exotek

If you are interested in getting a copy of the presentation slides or better yet seeking further assistance from the experts at Exotek, please contact them at exotek.com.


Sales Tactics – Requirements Gathering (cont.)

May 20, 2009

Probing for requirements

Requirements gathering is largely dependent on your probing techniques. So, it is worth your while to educate yourself (and your sales team). For instance:

  • Open probes – used to understand concepts. What do you need? What about this is important to you? How will this make a difference?  Tell me more.
  • Closed probes – closed to elicit and clarify specific information. So, the requirement is …. If I understand you correctly, you’re saying … Right?

Keep in mind that during the requirements phase, the customer should do most of the talking (70%). Using  these type of questions, you should be able to follow the basic 3 step requirements technique:

  1. Elicit and define the need
  2. Analyze and support a suitable solution
  3. Verify and close that the need will be met

Note that it is not essential to come up with the exact solution to the need. You merely need to establish what the requirement is and how you will judge if the requirement is met.

Dealing with Concerns

concernsAnother aspect of successful requirements gathering is recognizing concerns and knowing how to deal with them effectively. In each case, you should first acknowledge the concern and probe further for clarification before responding. Then, check again for acceptance before closing.

Skepticism – occurs when a customer expresses doubt about a proposed solution to a requirement. Respond by offering further proof.

Misunderstanding – occurs when a customer is misinformed about your proposed solution. Respond by clarify the proposed solution and seek acceptance.

Indifference – occurs when the customer understands the solution but does not see that it is necessary. Respond by validating the need before repositioning the solution.

Drawback – occurs when the customer not only understands the solution but is not satisfied. Respond by acknowledge their dissatisfaction and their unsolved need. Then depending on the situation, you may need to refocus the customer on a great need that is being resolved, thereby minimizing the issue.


Sales Tactics – Requirements Gathering

May 18, 2009

At National Instruments, we teach a ‘needs satisfaction’ approach to selling where:

  • Selling – A process of uncovering, understanding, and satisfying customer needs.
  • Need – A customer want or desire that can be satisfied by your product or service

 So, selling is the process of revealing AND understanding customer wants, desires, and needs; then satisfying those needs with the features and benefits of your organization, products, or services.  Often, system integrators refer to this as requirements gathering. And, it’s arguably the single most important aspect to successful, profitable projects.

Establishing scope

Gathering requirements begins with understanding the scope or the ‘big picture’ for the project. Not only what really needs to be accomplished, but how will the project be viewed as successful? Just as important, you must ascertain the stakeholders who will ultimately be judging the success of the project. And, distinguish between the elements that are critical versus nice-to-have, or non-essential.

100_3106Until you understand the big picture, there is not much sense diving into the details. For instance, my wife and I like to take vacations, but would often end up frustrated until we understood our different ‘scope’ for our project. For me, a vacation is about doing stuff. For my wife, it is about not doing stuff. Once that became clear, we were able to establish requirements that fill both our needs.

Types of Requirements

During your sales engagement, you should have a checklist to ensure that you have gathered requirements for all aspects of the project. In addition to the basic capabilities and performance of the system, how will the customer interact with the system? What interfaces and data/results be required? Other requirements might include safety, reliability, security, and so on.

Ideally, for each requirement, you should assign specific attributes. Most importantly, how will you measure/assess the requirement and the acceptance criterion? Some folks also assess uniqueness, criticality, and relative priority of each requirement. And, some even establish the feasibility and risk of each requirement as well as record the source of the requirement in case there is trouble meeting it.


Selling is Key to Your Success

May 13, 2009

If you’ve been in the NI Alliance Partner business for long, you realize that technical know-how is great, but selling is key to your success. From beginning a sales engagement and gathering requirements through proposing, negotiating, and closing the sale, there are many things that can prevent you from ever applying that great technical knowledge.

First Contact

Selling begins with that first customer contact after the lead is generated. Actually, some argue that selling is part of the marketing process itself. But, marketing, well that’s topic in and of itself. So, let’s assume that the lead has already been generated.

  • Preparation – what is required for the proper opening? Gather all known and available information about the prospects. Based on the source of the lead, what do we know about the potential customer (e.g. needs, care-abouts)? What was the value proposition that he has already encountered? Also, has there been any prior contact, maybe they are already a customer. Of course, the amount of preparation should be proportional to the anticipated size of the opportunity.
  • Opening – Always have down pat how you are going to introduce yourself and your company. Often, this is akin to your positioning statement. That should be followed quickly by the purpose of the meeting or call.
  • Expectations – Then, set the expectations for what you want to accomplish. Agree to the agenda and how much time that both parties have. In addition to ensuring that you understand the purpose and agenda, this will allow you to take control and set the tone for the meeting.

The old adage applies; there is only one chance to make a first impression. Don’t miss your opportunity to make it a good one.