Madhavan Ramanujam: commitment

Transcript context

…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. This is such great advice. I love that this is just one small chapter of your book. This could make or break your company. It's interesting that you have a whole thing on negotiation in a book about scaling innovation and growing your company. Is the assumption here that your pricing and monetization is so impacted by how well you negotiate because that changes your entire pricing structure and how much you're making? Is that why you put so much effort into this part?…

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