Incentives, incentives, Incentives

"Show me the incentive and I will show you the outcome" - Charlie Munger

I’ve found that when you think understanding incentives is really, really important, you still don’t understand how important it is. When you find yourself in a difficult conversation or challenging situation with an employee, a customer, a partner, or a vendor, pause and make sure you understand the incentives of all the stakeholders. It almost always gives you instant clarity and gets you unstuck.

The Importance Of Customer Discovery In A Crisis

 
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A few weeks ago, I wrote about some best practices on how sales organizations can keep their revenue machines running through the COVID pandemic.

One thing I didn't spend enough time on in that post was the importance of understanding how things have changed for your existing customers. Your customers were living in a different world when they purchased your product. At the time, your product was likely solving a top 3 problem for your buyer. With COVID, things may have changed. Your product might be significantly more valuable now than it was prior to COVID — or significantly less valuable. Either way, you need to find out quickly.

Most companies are going to be cutting expenses, and you must understand whether or not your product is on the shortlist of things to cut. Reversing that reality may require hard pivots, so you need to know now.

Here are some key questions to ask your customers as you have conversations or complete account reviews:

1/ How has COVID impacted you? How has it impacted your customers?

2/ How have your top 3 or 4 priorities changed due to COVID?

3/ What kinds of products are you buying now (if any)? What kinds of products are you cutting?

4/ Are you cutting staff? Will the users that historically have used our product change?

5/ Before COVID hit, our product was addressing a top 3 priority for you. Is that still true?

6/ Is our product more or less important to you than it was prior to COVID? Do you expect to use it more? Less? Why?

7/ Are you using our product differently now than you did prior to COVID? How?

8/ What parts of our product are more useful to you now? Less useful?

Push your customers to give you hard answers to these questions — even if you don’t want to hear them. And make it easy. Send simple surveys. Quickly run through these questions at the beginning or end of calls or Zooms.

Finally, it’s worth noting that commercial teams tend to be extremely optimistic. This project requires intense pessimism and a search for the real truth. This is not the time to sugarcoat what's happening in your market. Get to the truth as quickly as possible. If needed, reset expectations, find ways to repackage your solution around new problems, or (in rare cases) rebuild your solution to solve the emerging problems your customers are facing in this new world.

Silo And Un-Silo

Back when I was working at Next Jump, an e-commerce company that enabled big brands to offer their products and services at a discount to large employers and customers of large consumer marketers, our primary objective was to drive spend through our website.

My specific job was to drive user acquisition. I was focused on acquiring more companies to buy the product for their employees and then to get employees (users) to register an account and keep coming back. My colleague, I'll call her Jane, was in charge of site merchandising and had the job of converting those users into buyers once they came to our site. So my job was to get people to our site, and her job was to get people to buy once they arrived.

Every week our teams would meet to review results. We’d start by focusing on the total spend on our site during the previous week. Some weeks the numbers would be up and some weeks they'd be down. In the weekly meeting, our leadership would look at Jane and ask what happened during the previous week. Frequently, Jane would look at me and say, “we didn’t have a lot of spend on the site because we didn’t have a lot of traffic.” Other weeks I would look at Jane and say, "we had plenty of traffic but that traffic didn’t convert into spend."

This was obviously unproductive. We were pointing fingers at one another and defending our impact on the overall number which meant that nobody was responsible for the overall number.  

Our solution to this problem might seem counterintuitive: we created silos.

We came up with something we called “the box.” My team had the job of getting people into the box (get people to the site) and Jane's team had the job of making good things happen once they were in the box (get people to buy things once they were on the site). My primary metric was weekly unique users and Jane’s primary metric was conversion of those users (spend per unique user).

This changed everything. We set up specific metrics for each team where neither one of us could ever blame the other. My team wasn’t measured on overall spend (something we couldn’t control alone) and Jane’s team wasn’t measured on overall spend (something her team couldn’t control alone). We were measured on our slice of the spend metric (users and conversions) and if we both did our job we had a great week. This change created crystal clear ownership and accountability which led to lots of creativity and powerful initiatives to drive each teams' numbers. Our overall spend numbers started heading up and to the right.

Over time, though, things started to break down. Because we were so silo’ed my team wasn’t focused on the overall company goal, we were focused on our team goal. So my team would do whatever we could to drive users to the site regardless of the impact on spend. We would repeatedly promote offers from Target and Best Buy (brands that had 'mass appeal’ and would drive traffic but had relatively low value discounts with low conversion rates). This would drive a ton of traffic to the site, but the traffic didn't convert. Similarly, Jane was focused on conversion so she would promote the best offers on the site (30% off Juicy Couture, as an example). Users would come to the site expecting to see an offer from Best Buy and would see a great offer from a brand they had no interest in and a not so great offer from Best Buy. This led to a low-quality experience, lower spend, and user churn. Overall growth in spend began to slow down.

In response, we quickly setup processes to begin working more closely together. We had to fix the disconnect. We had to collaborate.

We built a monthly merchandising calendar that every team member could access in real-time. We set up several 10-minute check-ins so that the acquisition team knew exactly what the site merchandising team was promoting each day and which offers were converting at the highest rates. The acquisition team would send all marketing emails to the merchandising team prior to sending to users to get their sign off. We used data from the acquisition team to convince the mass appeal brands to offer deeper discounts. 

At first, these efforts forced collaboration. But over time the collaboration became much more organic. The teams became inclined to be collaborative. After a few weeks, the numbers started to head back up. That said, we definitely didn’t abandon the silo’ed metrics for each team. Hitting those metrics was still the primary job of each team. What changed was the approach we took to hitting each of our metrics. It was about transparency and collaboration and a broader focus on what was best for the company as a whole.

The point here is simple: not having silo’ed metrics is a bad thing and being too silo'ed is a bad thing.

As an example, sales teams need to have silo’ed sales metrics that they’re accountable for to force ownership and creativity and high performance. But if the sales team is only focused on one top line metric and nothing else, over time they’ll be motivated to close deals that may be bad for the company and will lead to high churn rates. They have to have a silo’ed metric but also be forced to consider what’s best for the company as a whole.

Companies get in trouble when they lean too far towards one side. Telling groups to just work together to drive an overall number leads to a lack of accountability and creativity. And too much separation leads to a lack of collaboration and focus on the broader goal.

Well run companies find a balance and learn to silo and un-silo.

B2B Pricing & Malcolm Gladwell's New Book

Last Sunday night on a late plane ride back to New York I finished reading Malcolm Gladwell’s new book, David and Goliath. It’s not his best work, but it's still thought provoking and worth the time. David And Goliath

The cliff notes version of the book is that it turns out that David wasn't such an underdog after all. He was actually at a huge advantage in his battle with Goliath because he was able to change the rules of the game. Lots of underdogs win by changing the rules of the game so that they become the favorite. To prove his point, Gladwell discusses the civil rights movement, World War II, middle school basketball and many other examples. It's an interesting concept and a pretty good read.

Anyway, as part of his argument, he spends a lot of time talking about the difference between linear curves and U-curves. He argues that there are some things that correlate and may seem like they should sit on a linear curve, but in reality they sit on a U-curve.

Perhaps the most interesting and classic example that Gladwell uses is the correlation between class size and test scores. You might think that the class size/test score graph would be linear -- as class size increases (the X-axis), test scores go down (the Y-axis). That's the conventional thinking.

But it turns out that's not true. The reality is that when class size gets really small, studies have shown that test scores actually begin to decrease again. When there isn’t a range of opinions and when the teacher is too focused on one student, the quality of education goes down. Students benefit from the energy and discussion that comes with having lots of other students in the class. So the correlation between test scores and class size really looks more like a U-curve. Test scores are optimal when the class is around 25 students. Too big is bad and too small is bad.

U Curve

This is also true of crime and punishment. Many believe that as the severity of punishment increases, the amount of crime goes down. But studies have found that there’s a U-curve effect here as well. As punishment becomes more and more severe for smaller crimes, citizens begin to believe that the system isn't fair. That it’s us against them. And they commit more crimes as a result. So you obviously don't want punishment to be too lenient, but you also don't want it to be too strict. Like a lot of things, eliminating crime isn't simple. It isn't linear.

The corollary back to the story of David and Goliath is that you can't improve education simply by adding more teachers and reducing class size and you can't reduce crime by simply making punishment more severe. With complex problems, brute force doesn't always win.

With the U-curve in mind, I've been thinking a bit about price increases and how they impact client relationships. Traditionally, companies like to have modest annual price increases of, say, 2% to 5% per year. Companies like these small increases because they reduce the risk of putting a large strain on their client relationships or losing clients all together. And generally, due to inflation and other factors, clients usually find these increases acceptable.

But as you begin to raise the annual price increase more and more you'll generally see clients resist more and more; 2% is acceptable,15% is not. Like the examples above, on the surface, it seems that the correlation between price increases and client resistance should be graphed on a linear curve. As the price goes up (the Y-axis), so does resistance from clients (the X-axis). Keep your price increases low and your clients will be happy.

But I don't think this is true either. As price increases, client resistance certainly increases, but only to a certain degree. At some point, say 10% and up, in order for the increase to make sense there has to be a substantial and fundamental product change. A 20% increase isn't caused by inflation, increased labor costs, or a greedy salesperson. The increase is happening because there's a substantial change in the product and the product's value. As a result, clients should be much more accepting of this change and client resistance will start to go back down -- creating a U-curve. If the increase is sold and communicated properly, clients will begin to recognize that they're buying a much different product, or at least a much more valuable one. They'll understand that the rules have changed. In fact, I'd argue that at some point most clients would welcome these large but less frequent increases more than they would the small, annoying increases that don't show a corresponding increase in product value.

Increasing price is a requirement of any sustainable long term B2B relationship. And like most things, it's not simple. It's not linear. So when considering a strategic approach to pricing, companies should consider the U-curve and not rely on small, inflation-based annual increases that barely impact revenue. They should cancel those increases. That energy is better spent finding ways to change the rules -- to completely rethink product function, value and positioning. To make a splash. To delight rather than satisfy.

In short, the lesson of the U-curve is actually pretty simple. Don't avoid client resistance by keeping price increases small, modest and frequent; get clients behind them by making them big, bold and rare.

5 Tips For Emailing CEOs

Over the years I’ve developed an approach for emailing C-level executives that has worked well for me. I thought I’d share some of that approach here. Here are 5 somewhat tactical tips:

1. Emails should be as short as Tweets. Write emails like you’re writing a Tweet. I think Outlook and Gmail should add a feature that shows a countdown from 400 for every character that you type – and if you go over 400 characters it won’t let you send the email. Unless absolutely necessary, keep your emails short enough to be read on an iPhone without scrolling.

2. Don’t worry about grammar and formalities. Marketers write perfect emails, people that do big deals don’t. Write short and quick and to the point. Here’s an example of what I mean.

Bad email: "Hi John, I’m writing to setup some time with you on Wednesday or Thursday of this week. I am participating in our company's board presentation this week and we are trying to lock down a couple of pieces of information about our potential partnership. I know that you are extremely busy, but It would be greatly appreciated if you could spare a few minutes so that we can discuss the details of our partnership. Please let me know the best way to setup a call. Kind Regards."

Better email: "Hi John, have 5 mins to chat this week? Have a board meeting coming up and need to get on the same page on two quick things. Thx."

3. Don't be afraid to resend. If you don't hear back, give it a few days. If you still don't hear back, take the initial email and forward it to the CEO and say something like, "Hi John, hope all is well. Following up on the below. Thx."

4. Make it easy to reply. If you have multiple asks in the email, separate them into multiple emails. Let them handle each email/task individually. Don’t let one task get stuck because the CEO doesn’t want to respond to the other.

5. Be their equal. Most important, write like you’re writing to a peer. Don’t be deferential. You are on equal levels. You both have something that can help the other – act like it. As I wrote a while back, don't be a salesperson.

Research & Preparing For Meetings

When preparing for an important sales meeting, salespeople will generally do a bunch of research; they'll read news articles, read the company's 10-k, check out the LinkedIn profiles of the people in the meeting, etc. Often, they'll spend money on Hoovers or other databases to gain any edge they can. Of course there's nothing wrong with this, but one thing to consider: how often has the thing that you currently care about most at work (the thing that is going to get you a big bonus) been available in a 10-k or a press release.

Sure, directionally we know that you want to grow revenue or cuts costs or prioritize a new product launch. But I can't learn the important specifics of that in the media or in a 10-k. Further, business has become so much more iterative over the years that, in my experience, by the time the media picked up on an initiative I was working on, we were already onto the next thing.

With that in mind, I would propose that when you do research, you prioritize having conversations with people on the inside. Before a meeting, find someone you can talk to that will help you prepare. It could be a junior person, it could be a personal assistant, it could be anyone that can help you get information.

These people should be happy to talk to you. You're not having these conversations to get inside info you shouldn't have access to, you're having these conversations to make the upcoming meeting more productive.

So when preparing for a meeting, yes, do your research. But more importantly, have conversations with people on the inside that know what people on the inside care about.

CEO Pay

According the AFL-CIO, the average Fortune 500 CEO made $12.9 million in 2011. After taxes, that's about $430,000 per month -- or $198,000 every two weeks. CEOs at big companies get paid a lot of money -- and my sense is that the top priority for most of them is to do whatever they can to keep those checks coming.

That's an important thing to remember the next time you're asking one of them to take a big risk on your product.

Social Selling: 3 Questions & Answers

There’s been quite a bit written recently about social selling – that is, using social media to help companies and salespeople drive revenue. Much of the advice is targeted at companies -- with tips on how to have conversations with prospects/clients through social media. I’m much more interested in how individual reps can use social media to their advantage.

A few thoughts:

1.  Which social networks should I be posting on?

I've written in the past about social graphs. You need to decide on the audience that you'll interact with in each social network. For me, at a high level, I interact with people I know professionally on LinkedIn, pretty much anyone on Twitter, friends and acquaintances on Facebook and only very close friends on Foursquare. You can view a list of my social networks on my About page.

It seems to me that the best social network to talk to your prospects and clients is LinkedIn and possibly Twitter. Your prospects/clients, for the most part, don't need to see your Facebook photos.

2.  What is the point of social selling?

So often I hear salespeople talking about how their clients/prospects just “don’t get it”. They have an awesome solution to their problem but their contact just doesn’t see it. It’s not that the contact is stupid, it’s that they’re looking at the problem through a much different lens. As a result, they don’t see your solution as the clear answer. Using social media intelligently is a great way to slowly and steadily begin to get your clients/prospects to see their problems through your lens. That isn’t to say you should be posting things to try to sell or to teach people something they don’t know.  Instead, the approach is to show your audience how you see things and let them come on board with your way of thinking at their own pace. Social sales is a very passive form of "drip marketing". I've written a few posts on drip marketing -- check them out to get some more context on this -- you can find them here, here and here.

3.  What kinds of things should I be posting?

Knowing that the goal is to attempt to get your clients/prospects to see the problem the way you see the problem, you should post links to intelligent articles, blog posts, white papers, etc. related to the problem that your product addresses. Don't be afraid to widen your problem into other areas -- you don't want to appear to focused on your own small world. The critical thing here though is to never just post a link. Post a short note about the topic with your take on it or a quick introduction as to why people should find it interesting. The point is that it's interesting to you and something you're passionate about so you want to share it with your network. Finally, if your company gets some good press, I'd advocate posting links to those articles and videos on your social networks. Don't overdo it and post it in a humble way, but allowing your clients/prospects to see what others are saying about you and your company is another effective and passive way to help clients/prospect see you in a better light.

In short, social sales is not going to close deals. But if done well it's a great way to get your clients/prospects to change the perception of their problem, your solutions, your company and you in a favorable way.

What Really Matters

Businesspeople are trained to believe that revenue, profit and shareholder value are what matter in business.  

So if those are the only things that matter, in order to make more sales, all you need to do is show your prospects a strong ROI.  If you can show the client that their investment will pay out 2x or more of their investment, they'll buy, right?  

Wrong. 

The reason this is wrong is because revenue, profit and shareholder value don't account for human emotion.  Humans are generally motivated by their own personal fear and their own personal greed -- these things are satisfied by events that are generally far more basic than numbers.  So when you focus your pitch around nothing but ROI, you aren't tapping into what matters to the human that you're dealing with. Here are some of the questions that a potential partner might be asking themselves when you're blabbing away about revenue, profit and ROI. 

  • If this project works, will it make others looks bad?
  • Do I want the added responsibility that will come with success?
  • Will I get in trouble if this doesn't work?
  • Am I going to have to work later at night or on weekends because of this project?
  • Will my boss think this is cool?
  • Will my spouse think this is cool?
  • Will it be fun to work on?
  • Will I get promoted if this works?
  • Will I have to move to a new office if this works?  Will I have a longer commute?

This is why understanding your client and the individuals you’re working with is critical.  Know what will get them a bonus and know what will get them fired.  And be sure that the value your product brings to your partner will lead to one and prevent the other.  

Client Management Lesson #4: Ask For More

This is the fourth post in a seven part series on Key Client Management Lessons. Lesson #4: Ask For More

In earlier client management posts I’ve talked about how it’s critical to align your interests with the client’s interests.  Identify a shared goal that benefits both parties and work towards it.

In some cases, you may find that your ambitions are far higher than your client’s.  As a result, there can be some friction as the client perceives you as pushing too hard and not deferring to their priorities.  This is a bad situation to be in.  You’re forced to either upset the client or lower your ambitions.  Neither is optimal.

This is why, when setting goals for a project, always ask for more.

To get to a “win/win” in any negotiation you have to ensure that both parties are happy.  If you know you’re going to run into a situation where the client is going to try to get you to hold back on your goals, set two goals.  The first goal should be one that can be reached with solid focus and hard work.  The second (generally 20% to 40% higher) should be a stretch goal -- that is, one where you’ll need some big things to happen to be successful.  Present the stretch goal to your client.

If you do this, one of two things will happen: 1.) they’ll accept it as the goal for the project and that’s a win as you’ll both be pushing for huge success or 2.) they’ll push back and try to get you to lower the goal.  When #2 happens you’re still in a good position as you can concede on what you asked for and still be happy.  Either way, you’re happy and they’re happy, and that’s a win/win.

Sometimes asking for more is the only way to get to a win/win.

There’s a fantastic book on win/win negotiating titled, Getting to Yes.  I highly recommend it if you’re interested in reading more on this topic.

Complexity Creates Jobs

Doing a deal with a big company is extremely complex.  That complexity leads to lots of jobs.   There are multiple boxes within the big company that need to be checked to get a deal done.  And each of those boxes has an owner.  There can be hundreds of boxes and dozens of owners. 

Your inclination, of course, is to speed up the deal by simplifying the deal process by minimizing or eliminating the need to check some of these boxes.  While this is the right approach, and it must be done, it’s critical to remember that each of those “box owners” likely believes that their box is extremely important.  And that checking their box is a critical part of the company’s business process.  And they’re also likely to become extremely threatened when their box is minimized or eliminated. 

It’s important to be aware of this reality when attempting to speed up a deal.  Be respectful of every owner in the process, and coginizant of the consequences that come from speeding things up.

Touchpoint Frequency Graphed

A couple weeks ago I wrote about Touchpoint Frequency & the Attention Asset.  In short, if you touch a client or prospect too often with communications that are of poor quality, you will deteriorate the value of the attention you've built with them. I built the graph below to illustrate this concept.  The idea is to walk that fine line of communicating extremely high quality messages with the right frequency.  I believe that you can communicate every day, as long as the message is of high enough quality.  The challenge is staying on the blue line...

Touchpoint graph
Touchpoint graph