Monday, March 27, 2006

How Playing Chicken Hurts Your Business

How Playing Chicken Hurts Your Business

As a high-tech marketer, I get a lot of pitches from lead generation companies.

As anyone in the field knows, leads are the lifeblood of a B2B business. Lead generation is always on your mind, and finding programs that work can be one of the most satisfying part of the job.

The problem is that it's hard to know what's going to work in advance. Search engine marketing may work for some, but I've found it unprofitable. I've gotten a lot of mileage out of outbound telemarketing, but other businesses may get better results out of direct mail.

Every business is different.

But what all of us marketers have in common is that we don't have enough money to try everything. Especially as a startup, we need to focus.

Part of that focus is a ruthless willingness to be up front about my skepticism.

Today, I got a cold call/email from a lead generation company that was pitching the usual services. I replied:

"Our general position is that for new programs such as yours, we'd like to figure out a way to structure all fees on a success basis so that we know that we're meeting our cost per lead targets. Is this something you can do for us?"

In response, the CEO of the firm responded:

"We have been down that road before (invested $1M in operations) and in my opinion it is ineffective for both companies. You will never lower your cost of acquiring a new client in this model. There are a host of other issues that we can discuss as well.

Attached is a document that describes our typical engagement: process, pricing and expected ROI."

Let's take a closer look at his two mistakes.

1) He dismisses my desired business model by claiming that it won't work for me. Now this is pretty silly. If I'm paying purely on a per-lead basis, how would I not be able to lower my cost of sales? I'd respect him far more if he simply said, "That's not the way I do business. I find I can't make money that way."

2) He then goes on to compound his error by sending me a form-letter proposal. I can't and won't post the whole thing here, but by providing a pricing and ROI model without ever asking me about my specific needs, he pretty much guarantees that it will seem wrong to me.

What should he have done?

First, he could be honest about his reasons for not wanting to take my proposal. He could say that it was unfair for him to shoulder all the risk, and that it hadn't worked out for him in the past.

Second, he could say something like, "But perhaps if I understand your particular situation, I can come up with a counter-proposal that would address both our needs," and then find out what I actually want.

The fact that he didn't take these simple steps reveals that either he isn't a good salesperson, or he is lazy, and simply takes a spray-and-pray approach to his business development. Neither bodes well for my hiring him to boost my sales!

At the end of the day, the dance between vendor and client is like the old-fashioned game of "Chicken," where two vehicles drive towards each other on a collision course, with the first one to swerve being the loser.

Neither party knows the other well enough to feel comfortable trusting them too much.

Both would prefer that the other incur all the risk--the vendor wants an up front payment, the client wants a purely back-end payment.

Unless one budges, the situation will never end up in a sale.

However, the wise businessman knows that negotiation isn't a simple, zero-sum game. You should try to find ways to bridge that trust gap.

In our case, we recently committed a large amount of money to an outsourced telemarketing firm. They insisted on charging on an hourly basis, and they weren't cheap. But we were willing to give them a shot because someone we trusted a great deal had worked with them and was willing to vouch for them.

By leveraging contacts to bridge the trust gap, they were able to get what they wanted (per hour pricing), while we got what we wanted (the confidence that they would deliver for us). Had we simply stuck to playing chicken, the deal never would have happened, and both parties would have been far worse off.

So when the temptation arises for you to play chicken with your potential clients, remember that negotiation isn't a straight-line affair. Find ways to bridge the trust gap and understand their specific situations, and you just might end up making the sale.


Zoli Erdos said...

It's really funny how sometimes your reader places logicaly related items next to each other. Right after reading your post, this one came up next.

TK said...

I get a 404 error when I try to click your link.

Zoli Erdos said...

Sorry for the bad link above - it wasn't too important, just a coincidence that my reader served up another item that was relevant to Chris's post.. but I can't find what it was, sorry :-(