Win-Wins Are Hard Without Knowing the Other Side’s Motivation
One of the first stories you learn in training to be a negotiator is the parable of the two chefs and the last orange they both need for their respective signature dishes.
After almost coming to blows, the head chef makes them split it in half. And one grudgingly cooks his dry and bland duck a l’orange with half as much orange juice as he needs; while the other cries over dessert with half as much orange rind marmalade as he wants. A classic lose-lose deal borne out of negotiating positions rather than underlying interests.
Similarly, while experienced buyers and sellers of IT services can negotiate a great bargain, often it amounts to getting 55% of the orange. It is only by working hard to understand the other side’s deep-rooted interests that you can begin to get to a true win-win instead of a zero-sum game.
In this two-part series, we examine what both buyers and sellers miss about the other side’s motivations, and how they can come together for a better long-term fit.
What Buyers Don’t Know About their Suppliers
While salespeople are paid to “get into the buyer’s head,” few buyers think deeply about what motivates their suppliers besides “they want my business.” At best, they think to apply end-of-quarter or end-of-year quota pressure – which backfires as often as not. That approach inadvertently leaves opportunity on the table that IT and sourcing professionals could capture with a bit of inside knowledge, understanding and empathy.
Here are just some of the things you would know if you walked a mile in an IT sales guy’s shoes.
- The end of the quarter or year is not always the best time for quota pressure. All too many supplier comp plans have caps (a bad idea, but that’s a different conversation for another day). By the time you think the pressure is on, a good sales team may have already earned out all they could. In fact, doing more may raise their quota for next year. On day one of the new fiscal year or of the new quarter, the race is on again.
- Not revenue dollars are created equal. You may think that your raw spend volume alone entitles you to VIP treatment. But your account team may be getting paid twice as much on pushing a product that’s higher margin or more strategic to the business – which you’re not buying.
- They might not want your business. Maybe you’re too small. Maybe you’re using legacy services that they’d rather retire. Maybe you’re using 5x the unlimited support resources they provide vs. all other customers. Maybe a nouveau riche start-up is offering to pay 2x as much for space and power in the facility you’re occupying. So when you play hardball, they’re all too happy to remind you to not let the door hit you.
- Discounting is hard; free services are easier (or vice versa). A sales team that’s compensated for growing an account will grind its teeth over discounting the bandwidth you’re using even as the market for IP transit craters. But let them make those savings back in value-added services – even freebies — and they’re happy. Conversely, an account team paid on margin will be happy to give you a discount when the underlying costs drop, but not be allowed to throw in freebies.
- Org structure matters. A regional VP at a top hosting provider once told us that he didn’t get a penny of the parent company’s telecom revenue, so he could care less that our client had a $100M RFP on the street for voice and mobile services and would not make any concessions on co-location to win the telco business. Without an escalation in the corporate hierarchy to someone who did care about both, this leverage would be lost.
- Channel can be cheaper – and not accessible. Direct sales orgs tend to grow barnacles in the form of multiple layers of commissionable managers. This friction in the flow slows the whole boat. Channel sales can be a less costly way to buy that’s at least equally efficient and supportive – often more so – while allowing you to retain your primary account team. However, if you’re a sizable company, you need to get past many refusals to be able to buy via this wholesale channel, which makes its living squeezing margins to enable sales to smaller accounts.
Identifying the Seller’s Interests
Here are a few questions you should ask your providers to see how to best position your company in a negotiation:
- What’s your team’s comp structure? Do you get paid on margin, revenue, or both? Are some services or products compensated better than others?
- Who has decision making power over pricing the entire scope of the services we’re buying? You? Your manager? A regional VP? A dedicated pricing team? A professional negotiator?
- What’s your cost structure? Are you able to squeeze out more operating efficiency or can you not match your competitor’s rates because, for example, your power rates and PUE are both higher?
- How are we seen as a customer? Are we a “good” customer? Are we big enough? Do we demand too much? What can we do for you to want to retain our business?
- Are there unexplored approaches to striking the right deal? Who would we talk to about a barter or strategic relationship? Maybe we can pay you in our services? Maybe you’re open to a revenue share or even an investment in our business?
- How painful is writing down remaining contract years on the existing agreement to get a new, higher revenue deal with different services you sell?
These are just a tip of the iceberg in terms of our process, where we can dig in much deeper on a confidential basis as advisors to both sides. This is the “qualitative” side of RampRate’s deep quantitative intelligence. But for many customers the answers to even these basic questions are truly eye opening and can result in a major shift from wariness to understanding.