Archive for the ‘How to Build a Consulting Practice’ Category

How to Sell Enterprise Software

Posted by Mike Taber on October 29th, 2009

iStock_000005223179XSmallOne of the biggest differences between selling software to small businesses versus selling into the Enterprise space is the price. Most people think that it has to do with how well the software scales and it’s ability to do its job on an “Enterprise” level, whatever that it supposed to mean. Others will say it has to do with the feature sets and whether you bought the Micro-ISV edition or the Enterprise Edition. Simply not true.

The one and only difference is the total price on the bottom of the bill. And it is this total price that dictates whether or not you need sales reps to sell your software.

First, let me quantify roughly what I consider to be the different market segments. This is mostly based on my experience as a Symantec partner, so your definitions may vary but I want to give you an idea of what I’m talking about. In my world, up to 1,000 client computers is considered small to medium business(SMB), up to 5,000 is the Enterprise, and above that is Large Enterprise.

The Problem

At any given company, managers and directors have a certain level of purchasing authority. Below a certain dollar amount, they have free reign and can buy whatever they feel is appropriate and within their yearly budget without getting a signature from their manager for approval. So $50 isn’t a problem. Spending $50,000 isn’t quite as easy.

The problem of selling “Enterprise” software comes about because of the size of the company making the purchase. If I’m selling widgets for $50 each, I can sell just one to an Enterprise level company and they won’t even think twice. But what if they want one for every employee?

Suddenly the price tag for your widgets went from $50 to $50,000 for a 1,000 employee company, and to $250,000 for a 5,000 employee company. These companies make millions, or even billions but they’re not stupid. They put spending controls in place to ensure that people aren’t wasting money on frivolous things. It’s just common sense.

Unfortunately for the vendor, this prolongs the sales process from what might have been a few minutes on the vendors’ website, to one that takes several weeks or even months to complete. This is why sales reps are hired to sell into Enterprise accounts. The sales process needs to be managed from beginning to end.

What does the sales rep do?

Well, they buy dinner, they buy drinks. They make sure you get drunk and have a good time at whatever event they happened to convince you to come to. Eventually, you like them enough, or are drunk enough to blow thousands of dollars of money that isn’t yours and everyone is happy.

I’ve seen that happen, but most companies don’t really work that way. Mainly, it is the job of the sales rep to manage the sale and try to close the deal. That means determining if there’s an opportunity for a sale, and then driving that sale to its Natural End. Note that I don’t say to completion. The Natural End of a sale can be one of four things.

  1. You won the deal
  2. A competitor won the deal
  3. The sale got pushed into the future
  4. The sale died somewhere along the way

Winning the deal or losing it to the competition are self-explanatory. Sales get pushed to the future for a variety of reasons. Some are budget related, some are concerns over the product or vendor, etc. We’re going to focus on the last outcome,  which is that the sale died.

When a sale dies, it typically happens because you weren’t paying attention to something important. This tends to be the most painful outcome. If you are head to head with a competitor, at least you had a shot at it. When deals get pushed, you still have a shot, but you won’t receive a PO anytime soon.

The biggest problem with deals that die is that you wasted your time, money and effort chasing something that you never had a chance at winning. Everything you did was for something that wasn’t ever going to happen. Unfortunately, we’re all too human and think that because the customer is talking to us, we have a chance at winning.

Let me break you of that habit right now. Just because a customer is talking to you and likes you doesn’t mean they’re going to buy anything from you. In fact, it might be your best friend in the whole world on the other end of the phone who completely trusts you and it still might not happen.

Sales reps are typically compensated by the volume of sales they make, not the relationships they have with the customers they talk to. To be successful making sales at the Enterprise level, you need to spend  your time working on deals that have a good chance of landing, and avoid talking to customers who are either unwilling, or unable to make a purchase. So how do you tell the difference? Enter the sales methodology BANT.

BANT

BANT is an acronym which stands for Budget, Authority, Need, and Timeline. Without all four of these things, any deal you’re working on is going to die before you get a PO. This methodology technically is applicable to any sale, regardless of the price. But it becomes a lot more important at the Enterprise level where you are spending human resources chasing a small handful of customers. A sales rep can only talk to so many customers in a day, but a single website can “talk” to millions of customers all at the same time. So what do these terms mean and why are they important?

Budget – Make sure that whomever you’re talking to has a budget for whatever you’re selling or that they can get one. And remember that just because someone says they can get the money, doesn’t mean that they can. You can have all the ROI justifications you want in your back pocket, and if they don’t have the cash to spend, it’s just not going to happen. Spending $1 million now to save $10 million sounds great, but if they don’t have $1 million, it doesn’t matter.

Authority - Is the person you’re talking to the guy or gal who makes the final decision? Does he put his name on the PO? If not, you need to find out who does make the decision and talk to them instead. It’s ok to ask to talk to this other person. If you’re afraid of offending the person, then you’re in the wrong business. Always try to talk to the person in charge. You can convince every single one of his minions that what you’re selling will really help them out, but at the end of the day, they’re not the ones who have the authority to make the decision. Without speaking to him or her, you won’t know if there are other projects that take precedence.

Need - Is there a genuine need for what you’re selling? At the personal level, luxury items like chocolate and nice cars are not absolutely necessary. A Honda gets you to the same place as a Ferrari. It might be slower, but it gets the job done. Find out if what you’re selling is a necessity, or if they can get by with the way things are today.

Timeline - How long can things go on the way they are without addressing the issues that your product or service would address? If you sell RFID tags which help companies do inventory, ask how long they can do their inventory manually. If they can go forever, move on to the next lead. Remember that you can’t push a rope.

Summary

It’s important to make sure that the people you’re talking to have the ability to move forward and make a purchase. If they don’t have the ability to move forward, it doesn’t matter how badly they want what you have to offer. It’s a little unnatural to avoid calling people whom you’ve started to develop a relationship with, but it’s necessary if you want to make the best use of your time.

The fact of the matter is that this methodology applies whether you’re selling Enterprise software or dish detergent. Understanding the methodology behind the sales process is the key to being successful, no matter what it is that you’re actually selling or who you’re selling it to.

Do you have a favorite sales methodology that works for you? Leave a comment and let us know.

Sales reps are typically compensated by the volume of sales they make, not the “quality” of the customers they sell to.
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Tips on negotiating a great consulting rate

Posted by Mike Taber on October 12th, 2009

One of the more difficult parts of being a consultant is determining and negotiating your rate with a customer. Consulting is a lot different than product based sales because you can generally charge whatever you think you can get away with. The first few months of my consulting career, I was charging $67.50/hour. It took several iterations for me to find out what my time and expertise was worth, but eventually I did. My rate increased to $70 for my second client, $90 for the third, $120 for the fourth, and eventually peaked at $275/hour.

The key to making good money as a consultant is to know how to negotiate your rates. This is not a skill you generally learn in college. It takes time, practice, and even if you’re good at it, you don’t always get what you want.

A Recent Experience

Recently, I had the distinct “pleasure” of competing against another company for a relatively short contract. The initial engagement was only intended to be a week, but the potential for more work existed. How much more work had yet to be determined, and it was by no means guaranteed.

My competitor bidding for the same work was another consulting company based out of the Midwest. This particular customer is in downtown Boston and given that I’m only a short 45 minutes away (with no traffic, which NEVER happens), I figured that given the standard rates, I should have won hands down due to travel expenses for my competitor. It didn’t quite turn out that way.

My competitor lowballed the deal by nearly 1/3 and went so far as to include travel expenses. I knew for a fact that they were in trouble. They had been cutting employees left and right and earlier this year they let a consultant go just two weeks into an eight week engagement for a client. I understand the customer was pissed, but that’s not my business. The point is that I knew my competitor was desperate, but I couldn’t fathom how far they’d go to win a single week of work.

Making cash with nothing but your computerI was notified by the customer that I would need to match their low-ball rate via a 2 minute phone call in order to be selected to perform the work. I knew the customer had a preference for a local resource and that aside from my company (Moon River Consulting), there aren’t any other options in New England. Before I finish this story, let’s get into a few rules of negotiating.

Tip #1: Never be the first to mention a price

Standard practice for negotiating anything is to let the other person state a price point first. This establishes the minimum or maximum price. It also tells you whether or not you are in the right ballpark for whatever it is that you are negotiating over. For example, if you are going for a job interview and they ask you what the salary is that you are looking for, then you’re in a difficult position to be able to play this game. If you state a number that is too high, you’ll be disqualified. If your desired salary is too low, then again you’ll be disqualified because they will think you don’t have the required skills, regardless of whether you do or not.

Your goal is to land somewhere in the middle, and preferably at the high end of their price range. Unfortunately, they’re simply not going to tell you what that is unless you ask. If they were willing to pay $70k-$90k for the position and you only asked for $70k, chances are that you’ll end up with less because you set the maximum price by saying $70k.

In every case, someone has to mention the price first or everyone goes home. Companies will generally tell you what their expected range is up front in order to save time, but if they’re looking to save money, a lot of times they’ll simply say something like “salary commensurate with experience”. It’s garbage, but you have to live with it.

When negotiating a consulting rate, you will probably be asked flat out to name your price and there’s no way around it. When this happens, you are setting the maximum bar at which you will get paid and need to negotiate down from there. You might want to pad your number a bit to give you some room to negotiate. Don’t be afraid to pad this number if you’re sitting at the table doing a negotiation. If the negotiation is taking place via email, dodge the question and push for a time to talk. “It depends” is a classic consulting answer and it never ceases to amaze me how well this phrase applies to any given situation.

Tip #2: Never negotiate against yourself

If you’re the first to name a price, never let the other person tell you that the price is too high and ask you offer a lower price. This is known as bidding against yourself. There are two problems here. First, you are giving up ground in the negotiation without the other party doing the same. I’ve seen this happen and I’m sure I’ve been guilty of it myself. Second, you will unintentionally give up more ground than you intended to.

For instance, if you are negotiating a consulting rate, most companies will ask you flat out “What is your hourly/weekly rate?” and the expectation is that you have to tell them. Again, you can’t always avoid naming the price first, so this is pretty common. Just make sure you are in the same ballpark as others who offer similar services. But when they tell you that your rate is too high, ask them what they would be willing to pay or what they see as reasonable. If you say $100/hour, and then drop it to $90/hour, you’ve just given away $400/week and received nothing in return. You haven’t even established the bottom yet, so you have no idea if they’re willing to pay $50/hour or $10/hour.

The point is, don’t immediately counter a resistance to your rate with a lower rate, even if you’re desperate for work. In fact, especially if you’re desperate for work. People like a consultant who is confident in their rates, but able to justify them with a list of happy customers who paid that much. Just don’t cross the line into cocky. Prospective customers will walk you out the door and eventually, out of business.

Tip #3: Don’t negotiate your price until you are ready to

Through a long-time friend, I met a guy in Philadelphia several years ago who was interested in having some programming work done for his business. He didn’t want much more than 10-15 hours per week and was looking for what I thought was pretty basic PHP and mySQL work. My thinking was that it was just a meet-and-greet to establish a relationship and then we’d go from there to discuss the work that needed to be done and the rates for that work.

Maybe 5 minutes into the conversation, he asked me flat out what my rate was. Now, in keeping with Tip #1, I tried to dodge the question and was a bit vague, saying that it depended on what he needed done. He pushed hard telling me exactly what programming languages were to be used and how many hours of work each week he was willing to pay for, so I had little choice but to name a number and it was pretty close to our standard consulting rates in the small enterprise space. Immediately he jumped all over it and said it was too high and waited for my response. I certainly wasn’t going to negotiate against myself, so I asked him what he felt was reasonable. Of course he low-balled it at $25/hour, which we both knew was way too low.

I never knew what hit me. It couldn’t have been more than 5 minutes later when we “agreed” on $50/hour and he ended the meeting quickly, saying he had to get going. As I walked away with my friend, I shook my head wondering what the heck just happened. We hadn’t even reached the bar when I realized that $50/hour didn’t even cover my costs, let alone make me any money. In fact, in all my years of consulting I’d never charged as low as $50/hour. What was I thinking?

This is a nice lead in to the next tip, but I haven’t finished with this one so here’s the lesson. If you’re not ready to negotiate a price, don’t. This is really hard to do when someone jumps into negotiating your rate or calls on the phone unexpectedly because you get excited about landing more work and new business. Play it cool. You need to tell them that it’s not a good time and that you will need to reschedule the conversation. Sit down and give it some serious thought, then reschedule. Otherwise, you’re just not prepared or in the right state of mind to negotiate properly.

Tip #4: Establish the lowest rate you can accept and don’t budge

From the previous paragraph, I obviously made two mistakes at the same time. First, I wasn’t ready to negotiate. I had intended to feel out his personality and find his hot buttons, but when he immediately launched into negotiating, I got too jumpy and played the game. Bad idea. Second, I had given absolutely no thought to the minimum rate at which my developers could work for to break even. It didn’t even occur to me until after we’d concluded negotiations. By then, it was too late.

Decide for yourself what the lowest rate you can work for is, and don’t accept a penny less. Losing money is no way to stay in business.

Tip #5: Be ready to walk away if it’s not going to work out

Too many consultants make the mistake of reducing their rate further and further until their prospective customer accepts. You’ll never get ahead this way. If you do good work, people will hire you. You want your rate to increase over time, not decrease. If a customer only has a budget of $2,000 and can’t get a penny more for a week of work, you’d better be willing to work for just $50/hour. If not, you need to walk away and find another customer.

Any retailer will tell you that when you sell at a loss, you can’t make it up on volume. At least not without cross selling other items. It’s “Ok” to do something very short term to lose less money on a particular week or to land a longer term arrangement for more money, but don’t make a habit of it. If a job isn’t going to make ends meet for you, then you need to walk away and find one that does.

In the previous case of my abysmal Philadelphia negotiation, I eventually ended up walking away. There was no reasonable way to renegotiate the rate. For the money and anticipated length of the engagement, it just wasn’t worth the effort.

Back to my story…

After receiving my unexpected phone call regarding dropping my rate, I decided to delay things a bit. I could have agreed to the rate decrease immediately, as it was simply an offer to “match this one, and you win”. However, I wanted to think it over. The last thing I wanted to do was commit to the lower rate, only to end up in a bidding war and have my competitor cut his rate again, forcing me to match him at another lower rate.Make the deal

I also thought about whether or not the customer was bluffing. After all, I had no proof that my competitor had indeed slashed his rates to the bone. Most retail stores operate with a policy of “guaranteed lowest price” by asking the consumer to show them a competitive advertisement listing a lower price for any product. A store will virtually never sell a product at a significant loss, for fear that customers will take them up on it. But the onus is on the customer to provide the proof that the competitor is offering a lower price.

This brings me to the last tip.

Tip #6: Take what a customer says about your competitors’ rates at face value

Was my customer bluffing about the rate of my competitor or no? Maybe, but I’ll never know. I basically had two options. I could either accept/deny the rate decrease, or I could ask for proof, trying to call his bluff.

Had I called his bluff, there were only two possible outcomes and neither was going to be good.

1) If he was unable to produce proof of the competitive rate, then I could probably have maintained the same rate. However, I would have also been calling him a liar. I somehow doubt that calling a customer a liar is going to encourage them to hire me.

2) If he was able to produce proof, then I still called him a liar because I didn’t believe what he originally told me.

This was a lose-lose situation if I were to attempt to call the bluff and I think he’d have gone with my competitor in either case. Ultimately, I accepted the lower rate because I wasn’t going to lose money on it and I knew it would hurt my competitor a lot more than it would hurt me.

Summary

Before you start any negotiation, make sure you know what you want, know what the minimum is that you’re going to accept, and be ready to walk away if you need to. If you’re not ready to negotiate, don’t. Ask for more time or to reschedule, citing a need to do some research or give some thought. Simply saying that you’re not prepared to discuss it is an honest way to handle the scenario. It tells the customer that you’re not brash and are willing to think things through. They may not want to wait, but this does a lot for your credibility as someone who understands how businesses operate.

Last of all, remember that negotiating your rate isn’t about you winning or losing. You need to ensure that you and your customer both get what you need. The key is to establish a long term relationship with your customers so they keep coming back for more consulting services when they need them. If you nail them to the wall during every negotiation, eventually they’re going to walk away and find someone else to work with

Good luck, and happy negotiating.

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Mike’s Laws of Business

Posted by Mike Taber on May 7th, 2009

This is the first in a series of articles that I’m writing on How to Build a Consulting Practice.

Once upon a time, I wrote an article called “How to bootstrap a consulting business“. It was a good article and was well written for what it was designed to convey. The last line of the article sums it up pretty well:

“The hardest part about the process is having the willpower to make the leap into being self employed. After that, it’s really not that hard.”

If you want to get anywhere, you have to start your own business. It doesn’t matter if you do it alone, or if you have one or more partners. The most difficult thing to do is get started. And that gave rise to the first of Mike’s Laws of Business.

Mike’s First Law of Business: A business in motion will stay in motion unless acted on by another force.

Another way of saying that is that unless you stop thinking about what you should be doing and actually start working on your business, it will never get off the ground. When you work for a large company, there are a lot of cogs in the wheel. Not all of them have to be moving to make the whole business move. In fact, at any given time most of them are watching YouTube. But in most cases, it simply doesn’t matter. There are enough people working at moving the business forward at any given time that a lot of people can slack off and the business will still make progress.

If you’re a one man shop and you take a week off, guess how far your business moves forward? That’s right. It doesn’t. As your business grows and has more employees, it becomes easier and easier to keep the ball rolling, so to speak. But in the early stages, you need to really work at it and work hard to do it. If you don’t do something, there’s nobody else who is going to do it for you. So one of the most effective things you can do to drive your business forward is to keep moving and keep working.

Sure you need to stop on occasion to eat, sleep, and watch some stupid things on YouTube yourself, but always keep it in the back of your mind that you need to be driving the business forward.

Mike’s Second Law of Business: The relationship between the profitability of a consulting company measured by P is directly affected by the average expenses E, average billable hours B, the average billing rate R, the number of employees N and the average salary S. This is expressed as P = (B * R – E)/(N * S).

If your billing rate is $50/hour, you are able to bill for 40 hours per week, and your salary is $2,000/week, then your Profitability P is 1.0. That’s not good. It means you’re not making any money. Technically, you’re not losing any money either which is great, but you’re not getting ahead either or saving for a rainy day. If your profitability is less than 1.0, then it’s only a matter of time before you don’t have enough money in the bank and can’t pay your own salary.

Keep these numbers and ratios in mind because they will inevitably affect how well your business does. If you spend 10 hours in a week doing paperwork and only 30 doing billable work, you’re losing money. However, if you raise your billable rate by 25%, you can cut your average number of hours to 30 and still make ends meet.

With the exception of the monkeys running the US automakers these days, this math isn’t incredibly difficult and I would expect that any programmer worth his compiler can follow this formula. Don’t forget to factor in expenses either. It’s very easy to overlook other expenses there are to running a business. Rob Walling has a pretty good outline of many of the expenses that you will run into when you start your business, but probably wouldn’t think of until you got into it and started working for yourself. But don’t let that list scare you!

I’ve found that the biggest costs are not associated with hardware or software, but are the monthly fees you pay for insurance and taxes. Business insurance alone can cost more than $5,000. In the US, you will pay employment taxes that amount to about 11%-12% on top of salary, even if it’s your own. Profits at the end of the year will be taxed an additional 25% – 35%, depending on your tax bracket. When I first started out on my own, I was lucky enough to be able to depend on my wife’s job for her health insurance, which helped make my business wildly profitable.

Mike’s Third Law of Business: For every bit of business advice out there telling you to do something, there is someone else saying that you shouldn’t.

No matter what anyone tells you, myself included, take it with a grain of salt. Beware of people who say something is absolutely true without exception. As in, the only way to be successful is to run out and get Angel Investors or Venture Capital funding for your business. It’s simply not true. Success is a very subjective measurement. The guy down the street who barely makes enough money to feed his family, but loves what he does might not be successful to me, but he might very well see it that way. Each and every one of us will measure success in our own way. Some measure with money, others will measure by the number of customers, and some will even measure it by how long they haven’t had to work for “the man”. Personally, I’m coming up on 4 years for that mark. In fact, this is the longest I’ve ever had a single job.

So now that I’ve told you not to listen to anyone who speaks in absolutes, I feel safe in saying this. There’s only one person who can cause you to fail, and that’s you. No matter what else happens, and no matter what anyone else does, the only person who can make you fail is you. The economy may be terrible, but it’s been terrible before. Remember the 30’s? No? Me neither. Maybe it never happened. Who knows. But I do know that the world is still here, so it apparently hasn’t turned into Ghostbuster slime.

The only thing that means is that you are still in control of your destiny. People complain all the time that they don’t have time to do things. I’m guilty of this too. I complain about it virtually every day. But I saw a quote on my Google homepage reminding me that I have the same number of hours in a day as Albert Einstein, Linus Torvalds, Bill Gates and Larry Wall. It’s time that people come to grips with reality and stop blaming their failures on everyone else. People need to take responsibility for their own actions, or lack thereof.

I know this is going to be a little controversial, and in some cases downright mean, but if you’re not successful, then it’s your own fault. Period. Somewhere along the line, you made a mistake. That’s the bottom line.

There, I said it. Now if you find yourself on the losing end of the road to success, you have approximately two options. First, you can break down and cry about it. If that’s your chosen road, let me know. My sister has a PhD in psychology and might be willing to help you out. Unfortunately, you’re probably broke and couldn’t pay the therapy bills so that takes us to your second option.

If at first, you’re not successful, take a good hard look at what went wrong. Maybe it’s you personally. Maybe you just made some bad decisions due to incomplete information. In either case, once you’ve pinpointed the problem, fix it and try again. Persistence in the face of inevitable defeat is why everyone loves the underdog. Just don’t get carried away.

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