Thoughts for the New Year

Email in-boxes are getting flooded with “Thanks for your business” and “Best wishes for the New Year” emails. While there is a certain mechanical nature to these, if you have a relationship, the sentiment is a reasonable one.

So…if you are one of our clients, you have probably already heard from us, but…

Thank you for your business. Our most sincere hope and one of the driving values of K&R is that we have provided a service which has had a positive impact on your business.

Whether you are our client or not…

Please accept our best wishes for success in the future, both personally and professionally. In addition to the daily concerns of our personal lives, we wish for improved conditions in the world on all fronts.

At year-end many people look back, and then forward.

We are in the midst of reviewing K&R’s mission, values, and our 2010 performance. Here is one set of data which could be useful to you if your business is in the planning cycle for 2011.
We looked at a random sample of evaluation forms received at K&R’s various Negotiation Training sessions, and here is what we found:

• Attendees’ overall satisfaction with K&R skills training is exceptionally high. On a 100 point scale, we rated a 93.8.
• 100% of our attendees believe that the skills we teach are useful, and 81% of them say they will use them within the month following the session. 26% say they actually use the skills within 2 days.
• 100% of attendees believe they will get a repeatable benefit from the skills.
• Attendees report that they expect to shorten their sales cycles by an average of 2.8 weeks.
• While not all people estimate a quantified outcome, those who do believe that their results will improve by 20%.

If you need a return on investment for your sales team that is essentially immediate, shortens your sales cycle, and can improve your financial performance by 20%, please consider K&R Negotiation Skills Training in 2011. If you don’t need that, then carry on as you are.

Happy New Year. (td)

Got a question? email a K&R negotiator directly at: ask@negotiators.com

K&R Success Stories Published

K&R Negotiation Associates has published a few representative success stories on the K&R Web Site.  Here are excerpts and links to more information:

  • K&R’s client turned a $150K annual loss into a $50K annual profit, while at the same time raising their own client’s satisfaction with the service. (more)
  • K&R’s client realized 6.7M€ of revenue in their current fiscal year, and 60.2M€ additional revenue within two years. (more)
  • K&R’s client benefited between $13.5K and $250K. The ultimate buyer saw a clear ROI from the total $837K investment in our Client’s products. Both our client and our client’s client were rewarded through the application of K&R negotiation principles. (more)
  • K&R’s client did not offer expensive guarantees and rebates as part of their services package. This will positively affect profitability as the agreement executes. The result was generated by carefully understanding client needs before offers were made. (more)
  • K&R’s client closed $2M higher than expected, using a few simple K&R principles. (more)
  • K&R’s client benefited by up to $65K, and began the process of breaking a pattern of discounting with their client, which will repeat in every transaction. Our client’s client was satisfied, because they understood the value of what they were buying. (more)
  • K&R’s client closed for $1.6 to 2.1M more than they expected to, using K&R’s value principles. (more)

Will it close this year?

As we approach the final days of 2008, you are probably working on a number of transactions with the hope of exceeding your sales quota or target.  If you are counting on a year-end close, we are offering two questions and a tip for your consideration.  These can shape your actions over the next couple of weeks, and affect your revenue and profit.

The questions:

1.    What happens to the buyer if they don’t sign before year-end? If your answer is that they won’t get this good a deal in January, you are dealing in pretty weak leverage.  The persuasion that is missing from this argument is business value. Buyers know that an offer made once can often be made (or closely approached) again. If they don’t have a business reason to act now – a reward that accrues or a risk that they take – they will often wait, and can afford to.  If you can’t link the sale you want to make to a real business risk or reward, you may close, but at a higher discount level than you would like.  Why?  Because the buyer knows that they can afford to wait while the seller gets nervous and discounts… again.

2. Why haven’t they signed yet? If you are near the end of the year, then the reason is unlikely to be price.  And, if the reason is not price, then changing the price probably won’t change your odds of closing.  Some studies have shown that in cases where Procurement is involved, the final buying decisions are made in late November.  They are just waiting to sign until seller nerves drive the prices to lower, late-December levels.

The tip: Stay calm. The more nervous you look, the more incentive you give the buyer to wait for a better offer.  It isn’t just a game for them.  They need to have confidence that they are making a good decision.  When sellers are nervous and discounting, the only way to get that confidence is if the seller is calm and reassuring, or if the buyer waits to the last instant to sign.

If you are a seller, think like a buyer at year-end.  Why should I do this?  Is pricing affecting my decision to sign? When you have the answers, stay calm, and give the buyer confidence that they are making a good decision for a good reason.  (td)

What The Nova Scotia Business Journal knows that you don’t

There was a recent article in the Nova Scotia Business Journal that contained a fundamental principle for successful negotiators.  In the article titled “Five Fatal Business Mistakes”, the author included the following: “The psychology of the customer is vital to marketing and sales success.  …The prescription has three parts: do the research, listen very carefully and, most importantly, act decisively for the long term.”

How simple is that?  Yet in consulting session after consulting session, we see failures to perform on these basic tasks. Let’s take a look at how these simple precepts work, and where the failure to perform occurs.

Do the research. Many sellers provide references and high-level benefit statements, such as these:

  • “99 satisfied clients can’t be wrong.”
  • “Our solution is highly reliable.”

These statements focus on the seller’s interests and generic values, but are not compelling.  Contrast those to these:

  • “A client similar to you used our solution, and it improved their inventory turnover by 12%.”
  • “As you told us, when your systems are down, and reservations cannot be taken, your lose $4000 / hour in revenue. Our solution is 20% more reliable than your present system.”

Moving from value statements about generic interests to value statements about the buyer’s interests takes research.  What issues concern them?  What are their goals and objectives?  Research takes time.  Many sellers fear the passage of time.  So they go with what they have, as unfocused and generic as it is, and hope that the buyer makes the connection on their own.

Sometimes the buyer does exactly that… when they get around to it.  This, of course, works against the fear of lost time that sellers have.  If you want the buyer to act promptly, there is no substitute for understanding their business. That takes research.

Listen very carefully. In a recent negotiations consulting session, I heard a list of client demands. “The client wants simpler contract terms and language.”  Later I heard, “The client wants different terms for the production and non-production systems.”  I stopped for a moment, and asked this: “What am I missing?  These two requests are conflicting.”  No one else had considered it.  I don’t deny that the client had a problem.  I just don’t think we knew what the problem was.

If we run around trying to satisfy every demand without listening, we are going to hit a dead end.  One of the things we see in the negotiation role-plays that we run as part of our training is a negotiation flaw related to listening.  Someone will ask a question of the other side.  For whatever reason – discomfort, time needed to make a thoughtful response, etc. – the other side will be slow in answering.  In many cases, someone else from the original team will jump in with another question or will change the subject.  The chance to learn something new and potentially valuable is lost.  The author of the article gets it right again.  Listen very carefully.

Act decisively for the long term. One of our clients was asked to quote a sale price for products including 4 years of maintenance.  She dutifully went off to get approval to do it, and found out that it was so hard internally to figure out how to do it that they were willing to give the fourth year of maintenance away for free.  This salesperson worked where the business model was to do complete replacements every 3 years, including new product and service.

It is not unlike a car lease for cars where maintenance is included (BMW or Audi, for example, in the US).  If she gave away the fourth year of maintenance, then she would lose the replacement sale 3 years out – the customer’s incentive to act would be significantly reduced if the system is still performing well.  We advised her to wait before giving it away – or to at least ask for a corresponding concession from the client.  She waited, and the client never brought it up again.  Business decisions with significant investments are long term decisions for the buyer.  The seller should remember that their own actions also affect the long term.

Now…does the Nova Scotia Business Journal really know something you don’t?  Or are you just forgetting the basics in a rush to close?  Remember: do the research, listen very carefully and act decisively for the long term.  (td)

Amazon & the Service Level Agreement

There is a fundamental principle you should remember when negotiating. Ask yourself, “What problem am I trying to solve?” before you settle on terms and/or prices.

Recently, Amazon experienced outages in their Amazon Simple Storage Service (S3), which provides scalable storage and retrieval to Amazon marketplace vendors.  The Service Level Agreement (SLA) says that Amazon “will use commercially reasonable efforts to make Amazon S3 available with a Monthly Uptime Percentage (defined below) of at least 99.9% during any monthly billing cycle (the “Service Commitment”).  In the event Amazon S3 does not meet the Service Commitment, you will be eligible to receive a Service Credit as described below”…  Great.  The SLA was not met this month. Now what? Or in this case, What problem are we trying to solve?

First things first.  If you are negotiating a contract that is important to your business, make sure you have adequate legal advice.  Terms like “commercially reasonable efforts” have specific meaning.  Remedies, cure periods, limits of liability, definition of terms, side letters, the “four corners” and more will impact your legal position if trouble arises.  Make sure your negotiating team includes the right skills, including legal skills.

Now – why have an SLA?  From the seller’s perspective, it can enhance credibility (“Here is proof of how I stand behind my product/service/solution.”), which can raise the odds of signing a deal.  It can also provide a specific statement of liability for failure to meet the SLA.  Affordability is a key part of the statement of liability.  So above, failure to meet the SLA results in an obligation on the part of the provider to supply a credit (essentially, some free service). A buyer may see this obligation as a penalty.  The seller, while acknowledging the “penalty” component of the SLA, also sees it as a limitation of liability.  When things go wrong, this can be important.

From a buyer’s perspective, an SLA provides some assurance that a necessary business condition will be met (as above, “availability of 99.9 %”).  The SLA provides a remedy/penalty if it isn’t.  After all, the buyer has a business to run.

Sounds simple, right?  An agreement on performance and an agreement to a remedy.  A side comment: for those of you who have read some of our other articles, K&R teaches the concept of the Negotiation Success Range™ (NSR™).  However, even a simple SLA like the one at the top of the page involves more than one NSR.  The ranges 99.9% to 99% and size of the credit are two examples.  Each of these terms has a magnitude, interacts with the other terms, and is in fact a negotiated result.  The NSR can help you understand the tradeoffs.  See our NSR articles for some thoughts on the use of that tool.

Back to the “problem”.  The full question is this: What problem are we trying to solve?  It’s a critical question in negotiations.  In the SLA above, if 99.9% availability of the service is important to your business, and you don’t get it, what remedy does a credit provide for you?  The answer comes from answering the question “What problem are we trying to solve?”  If the lack of availability causes you to lose revenue, and your company is publically traded, and the revenue loss will affect the stock price (and your personal options grants), then this remedy is probably the wrong one.  If the lack of availability causes your work to shift from completion on Monday to completion on Tuesday, and you only use the data once a month, the remedy may be perfectly suitable.  The negotiation principle is to understand the problem resolution as an end first, and address the means of resolution second.

Ask yourself, “What problem am I trying to solve?” before you settle on terms and/or prices.  Then make sure the terms and prices reflect a true solution to the problem.  The SLA example above provides a simple lesson in matching your solutions to the problem.  If you do it consistently, you’ll be a better negotiator. (TD)