MSR Consulting TechnoBlog

SMB Sales - Relativity and The Circle Of Trust

May 28th, 2006

Ego Buster:

MSR Consulting develops advanced web applications for the Small to Medium Business (SMB) marketplace in addition to providing Managed Services, and while our client audience has changed from the multi-billion dollar enterprises of four years ago the development process itself remains basically the same.  And rightfully so.  Sure the development teams aren’t as large, and the life-cycle stages are much shorter, but the overall staging and processes would be recognizable to any software developer the world over.

But make no mistake, when you build applications for SMB’s there is one aspect that tends to be drastically different.  The Sale.

When I created MSR Consulting I did so with a vision to bringing large enterprise experience to the SMB community.  I had spent years as a managing partner of a strategic internet consultancy where our average project duration was 3 months at a cost of $1.4 million dollars, and in that time I found that the projects I really enjoyed working on were the business startups.  The ability to impact someones business at such a profound level is inherently addictive to people like me. When a business puts that much responsibility for their success into your hands it forces a true partnership to form, not just a vendor/customer relationship.  Like it or not, their business now depends upon your success.  When the internet bubble burst however the number of startups with the funding available to afford multi-million dollar web projects dried up considerably and the natural transition for someone looking to impact a business at that level was to move into the SMB market.  And thus MSR Consulting was born.

The transition couldn’t have been better (ok, so the money is not as good) or more satisfying.  I have definitely found my home.  And as I mentioned at the beginning, all of those great development and project management processes that I developed over the years still directly applied to my clients’ projects so I had great head start.  So when presenting my company I was using much of the material that I had used in my former life.  Great project management and development methodologies proven through hundreds of projects, risk management processes, lots great 2×2 grids any MBA would be proud of, etc, etc. but my success rate at closing business was becoming greatly disappointing.  I just couldn’t understand why a small business wouldn’t be jumping through hoops to hire someone like my firm, I mean without being too conceited it’s not every day that someone walks into their office with a portfolio like mine.  Let’s just say that the old ego was getting bruised rather badly.

Relativity:

I’ll tell you a secret that the big boys in consulting don’t want you to know.  Selling a multi-million dollar project to an enterprise is easier than selling a $10,000 project to a SMB.  No, I’m not kidding.  The tough part of enterprise sales all about access, once you’re in the door the actual sale really isn’t so difficult.  Sure I’ve had a 10 person team developing a proposal for a solid couple of weeks only to be shot down by some last minute entry who happened to be the friend of an executive at the enterprise we were pitching to, but I’ve also sold a $2 Million dollar project in 15 minutes on the back of a napkin.  I can’t remember the last time the equivalent happened at a SMB client.  By contrast we put at least three times as much effort and time as a percentage into that $10,000 project as we ever did a $1M project, and once we’re there we invariably find that we have to compete with some independent developer who is out of a job and looking for anything they can find to make some extra change.  You know, the ones with the pirated software and desperation on their faces.  When is the last time someone in enterprise sales had to deal with explaining to a client why that’s a bad idea?

I think this is what Einstein was really talking about in his Theory of Relativity.  It’s not the size of the deal, it’s the relative impact the deal has on the decision maker (or as George Bush would say, ‘The Decider’).  Let’s examine the psychological end of the process for a moment:

• Enterprise Client:  The person assigned with sourcing a vendor for a project is typically a few steps below the executive responsible for its success.  They have detailed knowledge of how a development process works and experience in working with outside vendors, they can write a RFP, have a budget range that roughly maps to that RFP, and filter potential candidates for the executive in charge to make a final decision on…usually by way of a presentation and formal proposal.  The amount of the project, while considerable, is often relatively irrelevant as a percentage of the overall business revenue.  And almost always irrelevant to the personal finances of the individual making the final decision.
• SMB Client:  The person in charge of finding a vendor is many times the owner or other executive.  They have no detailed knowledge of how a development process works and little experience in working with outside vendors in this area.  They couldn’t write a technical RFP if their life depended on it, nor do they really know what it should or shouldn’t cost.  They have no baseline to filter potential candidates with, and are thoroughly frustrated with the fact that they receive estimates that range from absurdly low to what seems incredibly expensive but purport to deliver the same thing.  The amount of the project, while not that much, is many times directly tied to the personal pocketbook of the individual making the final decision.

Let’s look at it a different way.  You are a tech geek (no offense intended) and you make your living on a computer.  You work for a large company that needs you to purchase 50 new computers for them.  In the meantime you also need to buy yourself a new computer.  You are not rich.  Which of the two purchases do you spend the most time researching and worrying over?  If the computers turned out to have some flaw which required their return or caused issues, which would you lose the most sleep over?  I’m betting it’s not the 50 computers.  You see the SMB views their purchase much like the second example above.  Sure it’s not 50 computers, but that one computer has more direct impact on them personally than those 50 ever will.  The SMB client tends to view the business financials as a an extension of their own bank account, which in many cases it is.  When is the last time you made a sale to a large enterprise and your client had to pay themselves less money that year because of it?

Process vs Education:

The effect this has on the pre-sale process cannot be understated.  If I was forced to sum up the difference and simplify it into one statement I would say that you sell to an enterprise customer based on PROCESS whereas you sell to a SMB based on EDUCATION. 

We won the vast majority of our enterprise projects because of our strong focus on our development and project management processes.  These clients walked away from our presentations totally blown away by the thought put into and the strict adherence we had to our proprietary processes.  It is what gave them comfort.  But you have to understand that the only reason they were so impressed is because they had enough project experience themselves to understand the benefits and assurances that our processes would offer.  A SMB client usually has no such benchmark.  If I gave them the same presentation they would think that it seemed impressive, but have no means of knowing whether or not it would benefit their particular needs or more importantly to know what value they should place on those processes.  To them it may just be a lot of fluff meant to justify our rates.  Does it make us more likely to succeed?  Is it really worth the premium when compared to the guy who walked in yesterday and said he could do it for 1/10th what our proposal was?  This is where the “Education” begins.

You must be willing to educate your client to the point where they are able to make an intelligent choice in their selection of a development partner.  And you must understand going into it that you are going to do all of this education for free and that in some cases they will just take all that information and still choose a lowball vendor.  You cannot be a “vendor” to a SMB and be successful in the long run, you must approach it as a “partnership”. 

Be Selective:

I see this as a two-way street, and I would recommend that you do to.  I consider the pre-sales process to also be MY filter.  Any prospective client who cannot see the benefit of true relationship vs. a bidding war after all of my education is not a client that I want.  That may sound harsh, and even unrealistic if you are struggling to obtain business, but it is much more profitable in my experience to spend that time cultivating new relationships with the clients you do want than to spend it working for a client who is happy to put you into a bidding process for every project they have and whose projects in turn will usually be less than profitable.

Personally, I just like becoming a part of someones business and I would seek out these types of relationships even if it didn’t make the most financial sense.  God knows just the lower stress levels would be worth it to me.  But let’s summarize why it is the most sensible way to do business.  If you know that the cost of sales (or acquisition costs) for a SMB is much more expensive than enterprise sales, yet your pricing for services and labor is somewhat fixed due to a competitive marketplace (and therefore your profit margin) then there are only a couple of ways to increase profitability without drastically changing your business model….the best being to RETAIN YOUR CUSTOMERS!  Obvious right?  I mean not only are you saving on the cost of sales for that customer, but you’re saving time that you can spend on closing new customer as well.  Then how come so many of you are out there trying to get on every bid list?  How come you publish ‘specials’ on your services to try and get in the door?  How come you took that deal with the business owner that you absolutely know is going to be a pain in the ass as soon as you send the first invoice?  Do you really think your premiere long term customers are those that found you because they were looking for a cheap price?  When I was running Interactive Marketing for a premiere marketing firm we called it “Relationship Marketing”, and I think that’s remained a pretty good name for it.  I would highly recommend getting yourself familiar with the principles behind it,  my favorite book was:

• Relationship Marketing : New Strategies, Techniques and Technologies to Win the Customers You Want and Keep Them Forever – Ian Gordon

Trust In Me:

Securing this type of SMB relationship is all about one thing, TRUST.  And I don’t mean trust in your abilities as a developer.  While that’s important, it falls far down the list of trust priorities and frankly receives very little time in our initial client discussions.  There are plenty of capable developers out there, what the SMB really cares about are the aspects of the business relationship….not the code.  Here’s a few of the more important items of trust from my firms perspective, consider it our mantra.

The Client Circle Of Trust:  The client must…

• TRUST that you understand their business and its objectives – They don’t have a large technology staff to write out functional requirements.  They need to be able to depend on you to effectively translate their business objectives into technical specifications.  Something you can only do if you understand business, being a good coder won’t help you a bit
• TRUST that you will price your solutions fairly and not take advantage of their lack of knowledge in certain areas – If you cannot provide them constant, clear reasons for not doubting your pricing you will never have a true partnership and you will always just be a vendor.  It hopefully goes without saying that you should really be fair, not just make the client believe that you are.
• TRUST that you will communicate clearly and effectively and educate where necessary – All too often we consultants begin a project and immediately go silent.  We put our heads down and work our butts off, but forget that there is a client at the other end who tends to lose a bit of confidence for every day that we don’t speak to them.  Whether your client expects it or not you should communicate status frequently and clearly.  This makes them a part of the development team and eliminates surprises and misunderstanding, and frankly is just good practice anyway
• TRUST that you will deliver as promised – Under promise and over deliver, always.  Always find ways to add value to a project beyond what the client initially perceived.  If you now understand their business and you know what can be done in development you should always be able to find some nugget to add to the application that they haven’t thought of but will find extremely useful.  Insure that you are perceived as an INVESTMENT and not a COST.  Timeframes will slip sometimes and budgets will overrun, we’ll never be perfect.  If you are maintaining the trust from the above items however you will automatically recieve it in these situations.  Don’t do the above though and just watch how fast a missed budget can create mistrust and awkward conversations.

You’ll notice that the only item on the list that is even remotely dependent upon your coding skills is dead last.  It’s not that it isn’t important, of course it is.  It’s just that it is a given.  Hopefully the client can assume that you wouldn’t be in this business (at least not for long) if you aren’t any good at development.  You should also notice that I called it a “circle” of trust, there is a direct benefit returned back to your long term bottom line if you can maintain these items of trust.  In the SMB marketplace if you can consistently earn your trust in those areas you WILL be successful.  Here at MSR Consulting we have taken this ‘partner vs. vendor’ relationship mentality to the extreme as we now maintain over 70% of our clients as long term retainer relationships and virtually all of our new business is on direct referral.  At that point the clients are yours to lose, so don’t take them for granted.  Running a Managed Services relationship has its own nuances which I’ll address in a future article.

So if you are still pitching your unique development processes and stages and your massive coding expertise to your SMB clients without first subtly educating them and attempting to understand their business or determining whether or not this is going to be a long term relationship, or if you just don’t see anything wrong with doing it that way then please let me know….I’d love to have your clients, and you should really consider whether the SMB market is the right one for you.  Enterprises respect great coders and love new processes, and I can easily find you a job with one if you’re having trouble.

This is part 1 of a 8 part series on the consulting life-cycle for Small to Medium Businesses.  Next in the series is a discussion on Managing Client Expectations

[Side Note: Please, please, understand that many technology consultants can come across as arrogant asses when they attempt to ‘educate’ a prospective client (i.e. the tech support guy on Saturday Night Live).  Many others go overboard with their education and want to delve to far into the technical (believe it or not most clients don’t care about the semantics of an If-Then-Else statement, go figure).  Give yourself an honest assessment, or better yet have someone else do it.  If it’s not something you can pull off without seeming condescending or like a total geek then immediately find someone who can and put them in of the client.  Foster relationships with your local competitors and use them as a sounding board. Afraid of cahorting with the enemy?  Fine, bounce your ideas or specific situations off of me.  I’d be happy to provide any input I can.  I certainly don’t have all the answers but sometimes my grey hair does come in handy]

Matt Ridings is president and founder of MSR Consulting, a top 50 CRN Fast Growth company.  In previous lives he was the managing partner of a $65M consulting firm and the Technology Strategist for a $700M Venture Fund.  He is a product advisor to various software companies targeting the SMB sector and writes for multiple publications.  MSR Consulting focuses on providing complete Managed Services to the SMB sector, they also maintain a complete test lab where they review SMB hardware and software products for their clients and publications.

(C)2006 MSR Consulting – All Rights Reserved

Entry Filed under: Internet, Internet Business Tools, Consulting