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It's the Risk, Stupid!

“Thus, what enables the wise sovereign and the good general to strike and conquer, and achieving things beyond the reach of ordinary men, is foreknowledge”

Sun Tzu, The Art of War

At the end of the day buying decisions boil down to just one parameter: their Risk/Reward Ratio. To make things more complicated, all three components of this parameter are subject to perception by decision makers: Risk, Reward, and the Ratio they accept.

All salespeople are trained to constantly work on the Reward perception of the buyer, trying to drive it up for their own offering versus their competitions’. For this they have to undergo hours of feature, function, benefit training and, as a result, this is what they talk about with customers every time they get a chance to.

The truth is: They will always lose against the salesperson that successfully manages to drive down the Risk of their offering as perceived by the Economic Buyer. And here is why.

The Reward side of an offering resembles an ascending curve approaching a horizontal asymptote: it becomes harder and harder to add substantial perceived Reward, e.g., revenue increases, cost savings, customer satisfaction improvements.

Opposite to Reward, the Risk side of an offering resembles an exponential ascending curve and when it crosses the Reward curve the Risk/Reward Ratio turns negative (actually it becomes <1).

So one way to improve the perceived Risk/Reward Ratio is by scaling back Reward (promising less), making the offering a safer bet in the eyes of the Economic Buyer. The other, more difficult, yet more impactful way is to actively push the Risk curve down.

The first step in doing this is counter-intuitive for every sales person: Openly and proactively address Risk with the Economic Buyer.

So instead of pretending that there is no Risk associated with your offering (“Trust me, …”) you put the Risks you identified straight on the table. And not just Risks for your customer, but also your own! Because what you are going after is the minimization of the total Risk of the buying decision.

How do we learn about the customer’s perceived Risk? It is described in their Business Case and that’s what we have to investigate first.

Next we correct the buyer’s perceived Risk with our own assessment and this can go both ways: We can correct it down by providing references, analyst statements, and own experiences, and we can correct it up where we have evidence that it is underrated.

Now we disclose our own vendor Risk as we see it and make sure the buyer accepts that it is part of the total equation and not eliminated by just allocating it to the vendor. As a result, we have a clear and common understanding of the total Risk at a given Reward.

Now we can discuss the sensitivity of the Risk/Reward Ratio of our offering with the customer: What is the result of increasing or decreasing the Reward? Will it improve or reduce the ratio? Should we reduce the scope to just a pilot implementation in one country or increase it to a full-scope roll-out across 20 countries?

The aim is to agree the Reward the customer expects from the buying decision so we can start working with him on a Risk mitigation strategy.

Ideally we find a way to transfer risks to a 3rd party, e.g., make an ISV cover the costs resulting from not launching a vital feature in time for implementing it into the solution, agree fixed-price contracts with system integrators, increase service levels with managed service providers.

For the remaining Risk, we analyze together with the customer which Risk allocation results in the minimum total Risk, e.g., if the Risk is more reduced by re-organizing the customer’s roles and responsibilities than by the vendor providing additional risk management resources, the customer commits to the first alternative and vice versa.

But wait: Will talking about Risk all the time not have a negative impact on the vendor’s standing compared to all the other vendors beating the feature, function, benefit drum all the time?

Actually the opposite is the case: Vendors calling out the Reward side of their offering while avoiding to describe the associated Risk side will quickly lose credibility with the Economic Buyer (they might still score big time with the Technical Buyers, but these don’t own the business case).

Pounding on the Reward site of a proposal without addressing the associated Risk is a self-defeating strategy!

Openly voicing Risks builds trust, improves the perceived Risk/Reward Ratio and separates you from the rest of the pack. Participating in the Economic Buyer’s risk considerations ensures you influence them and protects you from negative selling by the competition.

Go to this Narrative to learn more on how to address Risk with buyers.


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