The E-Myth by Michael Gerber is one of the most important business books you can read. He masterfully explains the myth of entrepreneurship where competent practitioners fool themselves in believing that their technical knowledge and skills automatically translate into being good business people. Chefs rarely make good restaurant owners, Good pilots rarely run airlines well, being a carpenter does not quality you to run a building business.
In my 35 years in business and professional selling, I've seen many fall into a similar trap with the product, service or solution they seek to sell in their markets...
The V-Myth
The features of what is being sold equate to benefits and value for buyers
Software sales people are often the worst offenders, showing potential buyers endless screens, menus, reports, tabs, or even lines of code; wrongly thinking that the amount of functionality builds perceptions of value. But the reality is that over-emphasis of features and functions can actually create price concerns in the mind of the buyer... "Wow, that looks complicated; how will our people use that without lots of training." Or "Upgrades and administration looks complex; our IT team is already stretched."
Sellers can easily fall into the trap of 'projecting value' on the basis that every aspect of what they offer can create a benefit for the client. "Feature - Function - Advantage - Benefit"... Really? Here is what the legendary Neil Rackham taught me about 'client benefits... "It's only a benefit if it solves a specific problem, acknowledged by the customer as being important."
"Value is in the eye of the buyer, not on the lips of the seller.
Sellers need to develop relationships of trust to be effective in their roles, but buyers are not lonely and looking for new friends. Buyers are instead busy and they need value from every interaction. Providing mere information is not enough; sellers need to provide genuine insights that educate and shape the way in which the buyer views their problems and opportunities. The very best sales people therefore focus on ‘value creation’ rather than ‘value projection’. They lead with insight and then ask well conceived questions designed to help them understand how the buyer defines value and how they assess risk.
The key to creating value is to understand the language of business and the language of leaders.
- The language of business is numbers, evidenced within a thorough and compelling business case! The basic equation for value is: Business Value = Benefit minus Cost and this is why it’s so important to ensure all ‘benefits’ are expressed in monetized form wherever possible. Yes it’s true that not all benefits save or make money for our customer. As examples; less stress or risk, improved productivity, less risk in non-critical areas… all of these can be difficult to justify in financial terms. But the language of business is nevertheless numbers, not words, so always ask yourself: How does this benefit drop to their bottom line or improve their balance sheet.
- The language of leaders is 'delivering outcomes and managing risk'. This is the currency of their brand... their ability to make the important things happen within their organization, for their customers and stake-holders.
These two factors above ensure that the customer is committed to purchase and here are some questions worth asking your potential client once you've established trust:
- Where do you see the potential value in working with us?
- What needs to be achieved at a business level with this initiative and where do you see the risks?
Once buyers are committed to change they then usually seek Value For Money (VFM) as they evaluate their options. Beyond Return On Investment (ROI) or Total Cost of Ownership (TCO), they usually have a weighted selection criteria to determine the best supplier. Here is my formula for defining Value For Money (VFM). Is it Fit For Purpose (FFP) and from the supplier with the Lowest Risk Profile (LRP). Risk is an important factor often missed by sellers when they seek to show value for money. How does all of this compare with Total Cost of Ownership (or perhaps Payback Period)?
Think about this formula as you engage with customers who make comparative decisions, contrasting you with your competition. It is essential that we meet the exact requirements and also be perceived as representing the lowest risk. These two factors are then weighed against the total cost of ownership but take the effort to really understand how they assess this internally; don't make assumptions.
All of your assertions concerning value and risk need to be considered from the customer’s point of view… after all, the market determines the price and only the customer is qualified to call something a solution and determine the value to their business.
Once value is identified, you can then focus on crafting a value proposition which is unique and compelling in the way it delivers and manages risk. The way we sell is more important than what we sell and this is the essence of competitive differentiation.
It is usually best to position as the supplier in the 'Goldilocks Zone'. Big enough to deliver but small enough for them to be an important customer and have influence
Differentiation is essential because customers always have a choice of suppliers who can do the job for them. Whether you are selling soap or semiconductors, widgets or ideas, products or services, bundled value or real solutions – your value proposition must be compelling.
The solution must go beyond mere features of your product or service because the real problem is almost never uniquely solved by one particular product over another. Rather than the product you sell, maybe the customer actually needs a reliable supply-chain, prompt service, effective change management or something else. The product or service you sell is not a solution until it is fully aligned with addressing the real problems and delivering genuine business value.
Every product, service or solution is only worth what the market will pay for it. Your value proposition must therefore be focused on specific and tangible benefits for the customer, and directly linked to the resolution of their specific problems or opportunities – the bigger the better. Features do not necessarily equate to benefits or represent genuine value for the customer. The most powerful differentiated value propositions usually include your people, expertise and methodologies; not just your product and service. Government buyers assess value from a blend of functionality (fit for purpose) and perceived risk; price is then included in the equation to ultimately determine value for money.
Individuals and organizations universally seek best value and lowest risk. The cheapest product or solution can be perceived as higher risk and inferior value. Value is defined by the buyer, not the seller. Comparative perceptions are determinative so when seeking to identify and leverage your unique value, ask yourself the following:
- What do we offer that is of business value to the prospective customer, aligned to their specific needs and delivering tangible benefits?
- Is our product, service or solution part of a strong business case?
- How does the buyer prioritize projects and are we aligned with the required return on investment, payback period or net present value calculation?
- Who and what is the competition, and what are our comparative strengths and weaknesses?
Beyond these things, what combination of the following represents a compelling overall value proposition compared with the competition?
- Product or service features enabling business benefits
- Service offerings that reduce risk and deliver business value
- Individual and team skills and proven domain expertise, industry knowledge and methodologies that assure successful delivery and cultural fit with the customer
- Business model or geographic presence enabling lower risk or providing better efficiency
The market determines price and only the customer is qualified to assess value for money. Everything we sell must help customers improve revenue and/or margin; or reduce cost, time or effort; or reduce their serious risk.
How can you create value for your customers? What insights do your offer? What business outcomes can you help them deliver? What risks can you help them manage?
If you valued this article, please hit the ‘like' and ‘share’ buttons below. This article was originally published in LinkedIn here where you can comment. Also follow the award winning LinkedIn blog here or visit Tony’s leadership blog at his keynote speaker website: www.TonyHughes.com.au.
Main Image Photo by Flickr: GotCredit - Value