Madhavan Ramanujam: evaluation

Transcript context

…... gives and gets is... Thank you. Being good at gives and gets is really critical. The second thing in mastering negotiations is being good at value selling. And for being good at value selling, you need to do three things. First, you need to be able to create the needs. Second, you need to be able to create affirmation loops. And the third one is creating a good ROI model. And let's talk about each of those. So creating needs is very important because many founders show up and try to understand what are the needs of the customers. That's one way to look at it. But you need to be able to create needs rather than just discover them. So for instance, if you're a marketing automation AI product and you save, let's say, three weeks of work that actually needs to be done to actually get stuff in a dashboard that can be analyzed by marketing managers, the way you create the need is ask about existing processes and say, "Okay, so just so I understand, all of this stuff actually takes you three weeks to put data together to actually have meaningful dashboards for your marketing managers to take action. What if that was available to you instantaneously?" Oh, you have now just created a need, right? So being in that mindset of creating a need as opposed to just discovering them. The second thing is creating affirmation loops. And this is really important. I've seen a lot of founders get into negotiations. They're so eager to talk about their products. They keep talking about the products without any affirmation from the other side. You need to pause and create affirmation loops, things like, for instance, "Okay, so far, you've seen all of this. How does this actually play out in your company? Do you see it as valuable? What about this dashboard do you actually like?" So when you ask these kind of questions and your customers are playing back the value that they actually see in your product, you're creating affirmation loops, which become tremendously useful when you start selling the product finally. Because if they've agreed that there's value that is being produced, then you also have a better commercial discussion. And the third one is creating a good ROI model. And I see a lot of founders work on a POC. And after the POC's over, they'll show up with an ROI model and try to defend a price. You've already lost the battle. I mean, no one is going to believe an ROI model that you just cooked up. Everyone is going to challenge you on assumptions. The right way to think about an ROI model is to actually co-create it with your customers from day one, which means agree and validate on the assumptions and the inputs. So like, "Hey, how long does this process take today? How many engineers are there?" So you create ask questions that are all inputs to an ROI model. And if you have done that process and the customer agrees on all the inputs, they're very unlikely to push back on the output of an ROI model. create ask questions that are all inputs to an ROI model. And if you have done that process and the customer agrees on all the inputs, they're very unlikely to push back on the output of an ROI model. So a POC needs to be framed as the purpose of a POC is to build a business case, and we are going to co-create an ROI model with the customer as opposed to it being a tech and product functionality feature test and you show up with an ROI model. And when you're building an ROI model, there are many buckets to focus on, but there are three that are very critical. The first one is, what are the incremental gains that you actually bring to the table based on KPIs and metrics that your customer is tracking? So this could be things like incremental revenue, reduction in churn. These are the immediate, tangible, clear impact to the business line based on the products that you actually bring to the table. The second bucket is cost savings. Are you reducing headcount? Are you reducing license costs? What are the tangible cost savings? And the third one, which is often overlooked, is opportunity cost. For instance, if you save 10 hours of time for a team, what do they actually do with that 10 hours? That can also be quantified. So when you put all of these three things together, you start building a proper ROI model that you can actually use in your value selling to defend the right price. So we talked about three steps in mastering negotiations. The first one was gives and gets. The second one was getting better at value selling. The third one is actually getting better at even negotiations and what strategies would you actually use. And there are a couple of strategies that we have found to be really productive. The first one is to show up with options. Many founders rush with one product and one price and say, "Okay, this is a hundred K product, and that's what we are trying to sell." Inevitably, what will happen is the immediate focus of the conversation will be on the price, and you're only talking about price. But if you have options on the table, let's say if you have a good, better, best, if you're a hundred K product, a 200K and a 300K option, then you're not just talking price, you're talking value. Because if your customer is budget conscious, they'll say, "Hey, I like the hundred K price point, but I actually like the functionality in your 200K product. " Then your immediate question is, what in the functionality do you actually like? Why is that beneficial for you? So you switch the conversation back to value as opposed to just talking about price. And we have seen that with these kind of conversations, you're by far more better off to actually land in a much better place than just showcasing one product and one price. And showcasing options doesn't need to be just different products. It could even be a pricing model choice. And I'd probably give a simple hack that people can try on Monday morning. I was talking to this founder who said, "Hey, I think the budget is about 100K. That's what I believe from the key stakeholder, but my product really brings crazy value. ple can try on Monday morning. I was talking to this founder who said, "Hey, I think the budget is about 100K. That's what I believe from the key stakeholder, but my product really brings crazy value. I could even charge, let's say, a 500K for this product, but I don't have the courage to actually go and ask for a 500K price because I kind of know a hundred K is the budget. What should I do?" So for those kind of situations, actually show up with options in your pricing model. So we coached him to go in with a hundred K, plus 10% on any incremental value that you bring, or it's a 500K fixed. So now this is actually a great situation in negotiation. Because if you're price sensitive, you're focused on the hundred K. It's a small fee to actually get started. But the conversation will gravitate towards, "What is that 10%? How do you measure value?" That's a great conversation to have because now you're talking about, "How you add value? Where's the value generation? What portion would you take?" And you see one of two situations. Either the customer say, "That's great. You're putting skin in the game. Let's go with a hundred K and 10%," or, 80% of the situations, you might actually want to avoid the outcome-based pricing as a buyer, but you're not really fixated on the 500K at that point. It is the premium that you're actually paying for the certainty. So no one is focusing on the 5K because of the hundred K option on the table, and you just put a 500K and got the courage to do that. And in this specific situation, that 500K got negotiated to 400K, and they just 4X the deal compared to where they would be. So having options on the table when you negotiate is critical. And there's also some tactics that we showcase in the book, like anchoring is important. If you start high, you'll also end up higher. And also tapering concessions. How do you give concessions? I mean, the worst negotiators will start by giving a small concession and then give a bit more when someone asks like... You might give a 5% discount, and the procurement guy says, "That's not enough." "Okay, I'll give you 10% more." "Okay, that's not enough." "I'll give you 15." What are you indicating to the other person? You're just basically indicating that I can keep beating you up and I can get more discounts. The best negotiators who taper the concessions. So they would say, "I can give you 15%." "Okay, I need more." "I'll give you five." "I need more." "I'll give you two." So you're automatically indicating to the other person that the negotiation's actually ending. So how do you taper concessions also become important. So when you put all of these three things together, if you master your gives and gets, you get better at value selling, and you use the right negotiation strategy, you can extract full value from every deal. That's probably way more important when you're at the scale-up phase.…

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