Why Price Isn't the Biggest Factor on Big Deals
This is an excerpt from Tom Searcy's latest book, "How to Close a Deal Like Warren Buffett—Lessons from the World's Greatest Dealmaker" written with Henry DeVries and published by McGraw-Hill, available now.
When Walmart sold Warren Buffett their McLane Company Division, which was valued at $22 billion in 2003 at the time of the sale, they made a choice they never made before—to sell a part of the company. Was it the money? A fair question, but Walmart has plenty of money—and although the $1.45 billion cash acquisition price was a nice chunk of change—the real reason was strategic benefit.
McLane was well run, profitable and successful, but it was still the ugly stepsister of the family. It had razor-thin margins and it's ability to grow was limited because competitors to Walmart were wary about contributing in any way to the success of their biggest rival. McLane was the weakest link in the chain for Walmart. Buffett's transaction was quick and easy and it brought an independence that would allow investments and revenues for McLane to grow without negatively impacting Walmart's balance sheet. This was addition by subtraction.
An outright auction may have been more financially beneficial in the short run, but Walmart wanted to keep the capability of McLane as a part of its supply and distribution.
What do you bring to a customer's strategy?
If you want to sell your biggest deals on a value different than lowest price, you need to align with the buyer's strategy. How do you know what the strategy is?
- Strategy has a longer horizon for delivery of a result.
- Strategy is the connection of a few ideas for a bigger outcome than any one of those ideas produces alone.
- Strategy grows or protects the core value of a business.
If you are stuck delivering features, benefits, solutions, and incremental improvements, it is possible you are valuable, just not strategic.
Move past the obvious
It's been my experience that sales people and business development people often think in the short-term. It's not their fault—compensation is usually aimed at short-range sales targets and forecasts. Activity management systems and close supervision combine with the compensation to force frontline staff to think in terms of the "now," not the strategic. For you, the CEO, you need to move the business thinking in new customer acquisition, business alliances and partnerships to the strategic.
Here are three questions to get you moving into a different mindset for bringing strategic value to your customers and prospects:
"If I owned my prospect's business, then...."
- What would my biggest market fear be?
- Who would be my biggest competitive threat?
- How could I lengthen my unique advantage cycle by 6-12 months?
These are not the end-result producing answers for you in your unique business. Rather, they are the leaping-off point for developing a strategic angle on your next biggest deal. Work through the questions and see if you can line up your value with their strategic need and the deal will get bigger and possibly better.
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