Editor's note: "The First 90 Days" is a series about how to make 2016 a year of breakout growth for your business. Let us know how you're making the first 90 days count by joining the conversation on social media with the hashtag #Inc90Days.?
When you're just starting up, you sell to existing business contacts and other early adopters. Such sales are easy because your customers already know you and understand your product.
Once you get beyond your circle, however, sales become more difficult. With that instant credibility, your sales efforts bogged down with internal politics and organizational inertia.
For example, I recently worked with a software company that had closed deals quickly when selling to other software firms but was struggling to make even a single sale in aerospace, its target market.
The underlying problem (which I've seen dozens of times) is always the same: an attempt to sell the technical merits of the product rather than the business case for buying it.
Unfortunately, most entrepreneurs think a business case consists of either having a feature that the competition lacks or beating the competitor's price. That's not a business case; that's a price war.
When you've got an iron-clad business case for buying your product, the question at the top of the customer's mind isn't the price; it's "how quickly can you deliver?"
Here's how to create a business case that compels customers to buy.
1. Identify the real competition.
Most entrepreneurs naively think that the competition consists of other companies that sell similar products. If only it were that simple!
Once you get beyond the early adopters, the primary competition is almost always organizational inertia. Rather than make a mistake by buying the wrong thing, most companies "decide" to do nothing at all.
I put "decide" in quotation marks because there's usually not a point where a decision-maker says: "I, in my infinite wisdom, have decided to do nothing."
Instead, the initiative gets tied up in discussions, committees, and approval cycles until some crisis directs everyone's attention elsewhere.
Essential takeaway: Your iron-clad business case must emphasize the huge cost of not taking action.
2. Know your true enemies.
Once again, it's easy to assume that the "enemies" in your sales efforts are the salespeople for other companies who sell products similar to yours. Wrong!
Your enemies are the people inside your customer's firm for whom saying "yes" entails great career risk but little or no career benefit.
These delayers and naysayers come in three varieties: lawyers, HR managers, and IT directors, all of whom get hugely blamed when something goes wrong but receive scant credit when something goes right.
Lawyers slow things up with contractual minutiae, HR professionals with consensus-building exercises, and IT directors with compatibility/extensibility/security issues.
Essential takeaway: Your iron-clad business case must run roughshod over delay tactics.
3. Know your true allies.
Just as you have three natural enemies, you have three natural allies: the CEO, the CFO, and the operational manager (OM), which I'm defining here as any manager who has concrete, well-defined goals.
The CEO is your natural ally because he or she tasked with growing revenue. The CFO is your natural ally because he or she is tasked with reducing costs. The OM is your natural ally because he or she has a job to do and needs your help.
Note: If your product directly helps lawyers, HR managers, or IT directors avoid risk, the person you're trying to help becomes an OM. The other two, however, remain your enemies.
For example, if you're selling a product that helps corporate lawyers assess risk, the head counsel is your OM ally. HR and IT, however, will still attempt to block or delay.
Essential takeaway: Your iron-clad business case must arm your allies to overcome resistance and inertia.
4. Help your allies answer these questions.
Work with your natural allies inside the customer firm to create "best guess" estimates every way that your product will either increase revenue or decrease costs. Here are the questions to ask:
- How will my product help my customer sell more or expand their business?
- How much more quickly will my customer be able to grow?
- What is the estimated yearly financial value of that growth to my customer?
- How will my product help my customer reduce labor costs?
- What is the yearly financial value of those cost?
- How will my product help my customer reduce overhead (e.g. inventory, facilities costs)?
- What is the approximate yearly financial value of that overhead?
- How will my product help my customer provide a higher quality product?
- How will that save in overtime, error correction, reworking, etc.?
- What is the approximate yearly financial value of those quality improvements?
- How will my product reduce my customer's exposure to risk and liability?
- How likely is it that my customer might be sued or run afoul of regulators?
- What would be the direct cost of noncompliance or litigation?
- What would be the indirect cost, such as losing existing or future customers?
Note that 1) the "how" questions set up the conditions under which the customer will make more money or incur fewer costs while 2) the "what" provide actual financial estimates rolling out over a period of time.
I originally learned this technique from sales guru Robert Nadeau, who teaches it as a way to defend premium pricing.
5. Plug the estimates into a spreadsheet
You already know how to build a spreadsheet. Your spreadsheet should show revenue minus costs (i.e., profit) over time both with and without your product. The result should be a spreadsheet that can create a graph like this:
For risk and liability, divide the costs by the likelihood of occurrence. For example, if there's a 50 percent chance of being sued each year and the likely judgment would be $1 million, the estimated cost is $500,000 per year.
Once you've plugged in the numbers, the total of the differences between the "with" and the "without" lines over the period being measured is the financial value of your product to the customer.
To get the ROI, you divide the cost of your product by the total value. For example, if your product costs $10,000 and the difference over three years between "with" and "without" is $1 million, your product has a 100 to 1 ROI in three years.
If you've dug deep enough and really found all the hidden costs and opportunities, the price of your product will likely be so minuscule that nobody will bother to question it.
If you want get fancy, add best and worst case estimates of both lines. As spreadsheets go, this is pretty basic, but the trick to find as many hidden costs and benefits as possible--and get your allies to agree they make sense.
If you do this right, the divergence between "with" and "without" will be large enough to overcome inertia and thwart the delaying tactics.
6. Get your allies to "own" the numbers.
The reason I had you work with your allies is that you don't want to come into the customer with your estimates. You want your allies to push the decision down and across their company through quickly based on their numbers.
All you did was help them quantify what it will cost them if they don't make a decision. The naysayers won't know what hit them.
Does this method work? Oh, you betcha. Even just thinking this way gets you and your customer out of the churn of features and functions into what's really important to the real decision-makers.