Flattered to be asked to respond to an RFP? You shouldn't be. Here's why they're bad for your business.
When a potential client issues a Request for Proposal (RFP), it can be tempting to throw your hat in the ring. But responding can dilute your brand, undermine your credibility, shave your margin and ultimately devalue your company when it is time to sell. Here are seven reasons to take a pass the next time you’re invited to respond to an RFP:
1. Tendered business doesn’t stick
Even if you win the work, the same rules that forced the company to tender the RFP in the first place will kick in again and force them to host another beauty contest next time, no matter how good a job your company does.
The value of your business is linked to how repeatable your model is. Acquirers consider RFP-won business as risky and they’ll likely discount the revenue as “one off.” By doing RFP work, you’re running on a hamster wheel instead of building value.
2. RFPs dilute your differentiation
Responding means you are agreeing to be shoved into a box with a bunch of half-rate competitors who compete on price. You’re better than that.
3. RFPs cut your margins
The RFP is structured so that the customer designs the specifications of the job and then you explain how cheaply you can deliver their specs. The buyer is trying to get the very best price using an apples-to-apples comparison. Do you want to compete on price? If so, don’t expect to sell your business.
4. They decide the rules, not you
The role of an entrepreneur is to conceive of what the market does not know it needs. Nobody thought we would need a thousand songs in our pocket, but Steve Jobs wasn’t reacting to customers’ requests. He was leading them to something better. By responding to an RFP, you let the customer decide how you do your job. Great companies lead their customers--they don’t follow them.
5. They’re rigged
Most RFPs are sent out so the decision maker can say they tendered it. Buyers feed secret information, hints and suggestions to the company they want to win, and more often than not, the decision is made in someone else’s favor before you even submit your proposal.
6. RFPs send the wrong message to your people
When you decide to respond to an RFP, your staff will scramble around pricing the job, writing prose and giving away your intellectual property. They’ll wonder why you don’t have the stones to stick to your business model and why you are willing to let a customer manipulate you like a marionette.
7. RFPs undermine your company's sellability
We recently did some analysis of the users of www.SellabilityScore.com and discovered that companies with a unique product or service were much more likely to get an offer from an acquirer than those businesses selling a commodity. Acquirers like buying companies with a defendable, long-term advantage that gives them pricing authority.
But what if your industry relies on RFPs for work? Then change the definition of what you do from being in the XYZ industry to being the world’s best maker of whatever product or service you sell. Next time you get an RFP, reply with something like this:
Thanks for considering us for your important new project.
Here at ABC Widgets, we offer the world’s finest widgets using our advanced seven-step widget making process. It’s a unique system that that allows us to create widgets that keep our customers coming back for more.
If you’d like to discuss how our unique widget making process could benefit your project, we would be pleased to meet with you.
Four things will happen when you send this note:
1. You’ll spend all of 30 seconds writing it and you won’t waste another moment on the “opportunity.” You’ll go back to serving real customers who actually spend money with you and care about what makes you special.
2. Your staff will be emboldened – proud to work for a company with a vision and the courage to stick to it
3. You’ll elevate your status in the mind of the buyer. They’ll realize you know better than to respond to their commoditization call. They may not respond to your offer to meet, but they’ll be curious to see what you have under the hood.
4. The buyer will probably pick another vendor who will be an unimaginative bottom-feeding company desperate for work. And the customer will get what they paid for: cheap output from a cheap company. Chances are next time they’ll skip the RFP process and call the one company who told them where to stick their RFP.