New Customer Relationship Management

Start Small

Always start a new customer relationship with the smallest project possible.

Here is a cautionary tale.

A former client firm of mine, which I’ll call Ajaz Systems, had uncovered the single largest sales opportunity in their history.

They usually sold products in the price range of $20,000 per unit. One day a prospect announced that they needed ten units to support a new internal initiative. This potential sale represented a great growth opportunity for Ajaz.

Their competition was a big company, many times the size of Ajaz. Although Ajaz’s solution was technically superior to the competitor’s, the competitor was playing the big-company game.

Just as IBM frequently was accused of doing back when they were the biggest game in town, the competitor was trying to spread fear, uncertainty, and doubt about Ajaz and their ability to support their products and the customer in the long term.

The competition was telling the customer that Ajaz didn’t have the resources to support such a large order, that a small company couldn’t support a roll-out of ten units to five different locations across the country. The competition reminded the customer that they were a large enterprise operating on five continents and could knock out an order like this with their eyes closed.

In one regard they were right. Ajaz had never before won a single order this large. It would be a challenge to Ajaz to manage the project, and the CEO was nervous about the potential liability and the damage to their reputation if they failed.

Thecompetition had maneuvered Ajaz into a classic catch-22 for small companiestrying to compete with the elephants. How were they going to build thecapability to support larger customers with large orders if they were nevergiven the opportunity to try?

“Yes, it seems to me that Ajazwas right to be nervous. Sometimes there are deals that you just shouldn’tcompete for.”

What would you have done in this situation, MILT.

[NOTE: For new readers, "MILT" is an avatar for a CEO or VP sales at a small to mid-sized company.]

“I probably would have passedon the opportunity.”

Why?

“It’s important to recognizeyour limitations. You preach the importance of not wasting time. Competing fora deal that one has extremely low odds of winning is a waste of time.”

Well,that’s one way to look at it. But here’s another way: You can change the rulesof the game to turn your weaknesses into strengths that enable you to compete.

My recommendation to the CEO of Ajaz was to play to Ajaz’s strengths rather than to those of the competition. Instead of trying to convince the customer that they could handle such a big task, Ajaz’s job was to turn the sales competition into a contest over just the first unit the customer would buy.

Ajaz knew they could prove to the customer that they had the better technical solution. And they had great customer references. If they could persuade the customer to buy just a single initial unit, to be followed by additional single-unit orders over time, then Ajaz would dramatically increase their odds of winning all the business.

It worked. They sold the customer on the idea of starting the project with just a single system installation, instead of ten. The Actual Decision-Maker (ADM), who had the responsibility to manage the roll-out and integrate these systems internally, jumped at the opportunity. He saw that there was no downside for him because he was mitigating his risk on three fronts: the initial investment, Ajaz’s performance, and his internal implementation resources.

If the initial system didn’t work up to spec, then the ADM could change vendors with minimal downside. If the customer was satisfied with the initial implementation, then they could order and roll out additional units as needed. Ajaz sweetened the pie by committing to honor the ten-unit pricing they had proposed and said the customer could cancel the first order at any time if they felt it wasn’t meeting their needs. Sell Low, Start Small, Practice Unconditional Support.

“How did the competitionrespond?”

Theyweren’t happy. When the prospect told them he was changing the scope of theinitial acquisition, they lost most of their interest in the deal. They wereexpecting a large order commensurate with their company’s size. When thatchanged it took the wind out of their sails. Most important, it made theprocurement about the products again and not about large-project management.Their competitive advantage disappeared.

Corollary #1: Start small to reduce customer risk

Customers will often welcome your suggestion to reduce the size of an order—especially if you haven’t previously done business with them.

In every transaction between new business partners there are unknowns and concerns and a desire on both sides to minimize the risks. Starting a business relationship with a small order is the best way for the buyer and seller to become familiar with each other. It is the easiest way for the buyer to build trust and confidence in the seller’s ability to live up to their promise to deliver a product that works as advertised.

Decidingto take a small bite is easier for the customer because it costs less than abig bite. Companies typically prefer to manage their risks by making a seriesof smaller changes in place of one big change.

As the seller, you get your foot in the door and give your company a chance to prove that it’s just as capable as a larger company. Who cares if the initial order is only for one unit?

Once you get one, you’ll get them all—and not just the initial ten systems, but all the orders after that, too. You’ll be locked in as the vendor of choice. As long as you continue to provide unconditional support, the buyer will keep returning to you for future orders. By going small, you get rid of the competition—not just in the beginning, but forever.

**Corollary #2: Start small to reduce your risk**

Risk is not one-sided. Neither are trust and confidence. There are tales too numerous to count about small enterprises that won the big order from their dream customer and ended up being mortally wounded by it.

How many times has an SMB won a big order from a big company, bought inventory and hired people to support it, and then had the customer freeze all purchases for three to six months because it had a downturn in sales? The SMB is stuck with inventory and employees it doesn’t need and begins to suffer under the weight of this unanticipated financial burden.

Akey reason to start with small bites is to lower your risk in the transaction.Rather than depend on the customer to live up to their end of a deal, make iteasier for them by starting small and growing incrementally.

“Are you saying that I shouldn’ttake an order for 20 units if I can get an order for two units?”

Notat all. What I am saying is that if the customer says they need 20 units oversix months, then sell them on the benefits of buying two units now, installingand integrating them as required, and proving that your product works anddelivers the benefits as promised. Then take an order for the next two, and soon. Match the order to the customer’s actual requirements.

Rightsizingyour orders, or taking smaller orders, also reduces your sales risk. The biggerthe order you are trying to win, the higher within a customer organizationyou’ll have to sell. The smaller the project, the easier it will be to keep thedecision with the Actual Decision-Maker (who can claim internally that he savedthe company money and reduced risk).

Corollary #3: Start small to level the playing field

If you are in a tight competitive situation, reducing the size of the prize is the best way to level the playing field.

Bigcompanies are reluctant to change course in the middle of a sales cycle. If youare able to convince the customer of the benefits of starting small, yourcompetition will take this as a sign that the prospect is backing away fromtheir urgency to buy something. If the size of a potential order suddenlybecomes much smaller, the bigger competitors will lose interest and leave amore open field for you.

Thekey for you, as the smaller business, is to stay the course. One risk to you inthis approach is that the customer will rethink their entire requirement. Stayengaged with the customer with high-value responsive communications that givethem solid financial and product reasons to buy your product.

Lookat this from the perspective of the customer. By rightsizing the order, youjust made it easier for the customer to make a decision. Starting small isn’treducing the size of the project. It’s reducing the risk. You have made thedecision easier for the customer as well.

Immediate Need vs. Ultimate Requirement

Buyers often frame their needs in terms of their ultimate requirements. For example, let’s say a company called Kaliphan, Inc. contacts your firm and a big competitor about their product requirements: “We are going to roll out ten new offices this year; therefore we need ten new systems.” Like customers everywhere, Kaliphan wants sellers’ undivided attention as well as the best possible price, so they combine their requirements into one procurement. But that isn’t all that they want.

Kaliphanalso wants to protect their downside risk. They want to succeed, but more thanthat, the people making the purchase decision don’t want to fail. They’llpurchase all ten systems at once if they have to, but they would prefer toprocure the ten systems on a schedule that matches their roll-out or usagerequirements.

Asa Zero-Time seller, you are going to give Kaliphan the same support and servicewhether they buy one system or a hundred. But as a smaller business you wouldprefer that they buy just one. And that works to your advantage. Kaliphan knowsthat you can support one system but might be uneasy about whether you couldsupport ten at one time. Ironically, the customer will have very littleobjection to buying ten systems from you if they can do it one or two systemsat a time. At the end of the day you’ve sold and are supporting ten systems,but you’ve done so using a method that plays to your strengths.

Younever have to prove to the customer that you can support ten systems at once.You just have to prove that you can support one system and then do it ten timesin succession.

Ifyou allow a bigger competitor to define a sales competition, they will cast itas a contest between the two of you to support the simultaneous implementationof ten systems. You wouldn’t be favored to win that battle, and you’re likelyto lose it. The competitor’s sales team will be licking their chops andspending their commission checks in anticipation of winning the battle.

So,you talk with the Actual Decision-Maker at Kaliphan about the advantages ofstarting small, reducing implementation complexity, reducing risk, andincreasing the chances of success: “Let’s make sure the system is integratedsmoothly at one location before going to other locations.” “Let’s make sure weunderstand how to integrate and develop a process that can be used at all theother locations.” With these ideas you are creating value in the eyes of thebuyer, increasing the chances of success. Which will make him/her look better.

“What happened with Ajaz?”

Theygot the first order and made sure the first installation was successful bysupporting the customer like there was no tomorrow. And then they took theorders for the nine additional systems. One at a time.

Key Takeaways

In new customer relationships, reduce the customer’s risk, and yours, by starting small.
Increase your competitive advantage by right-sizing the order.
Reduce your implementation risk by starting small.

How To Reduce Risk

To increase your odds of sales success you need to reduce the risks of failure, for both yourself and the buyer.

If you can reduce the customer’s risk in buying from you, you’ll reduce your risk of losing the order. Reducing the customer risk increases the odds of a deal happening.

“Whoa, hang on there for a second.”

What can I do for you, Milt?

“I’m not sure I understand what you mean by reducing the risk of failure.”

Fair enough.

First, let’s look at risk from the perspective of thecustomer. When a customer purchases a product or service from you they areassuming several risks: Will your product work as you advertised? Will you beable provide the level of support the customer needs to fully utilize yourproduct? Will your company be around to support the customer in the long run?Will your product be reliable? What happens to the buyer, and their career andcredibility within their own organization, if they choose the wrong vendor orproduct?

Second, evaluate risk from the perspective of you, theseller. When you sell a product to a buyer, you risk being unable to deliverthe product on time and in the quantity the buyer demands. What if the customerasks you to sell a quantity of product that will stretch your resources tosupport? In that case you are taking a risk that you will fail to satisfy therequirements of the buyer. You risk losing their business, but also run therisk that your competitors will use your failure as a competitive wedge infuture deals.

Evaluate every potential sale you are working on in this light:

Where are the risks for the buyer if they buy from us?
How do we contribute to those?
What are the risks to us if we win?
How can we win and reduce the risks for the customer and for us?

“How do we go about reducing risk?”

The easiest way to reduce the risk to your customer isto decrease the size and scope of the opportunity you are working on.

“Why would I want to take a smaller order from the customer?”

If you succeed with the initial order you’ll increase your odds of getting get future orders from the customer.

Creating A Risk Profile

I have an easy method to evaluate your prospects inorder to strategize how to reduce risk to increase your chances of winningtheir business.

I recommend that you create a risk profile for eachdeal in your forecast.

Use a scale like the one in the Risk Assessment Quad below. In the RAQ the x-axis represents your execution risk if you win the deal. The y-axis represents the customer’s execution risk in giving you the order.

Let’s look at what types of deals we could find ineach quadrant.

Quadrant 1:

The customer wants a large quantity of your product to be delivered quickly. It would be a stretch for you to achieve this. You determine that the customer has the resources to deploy the product in the time frames they specify.

Quadrant 2:

The customer wants you to develop a customized version of your product to be delivered on an aggressive schedule. It would be a stretch for you to achieve this. And the customer needs you to deliver on schedule or they’ll miss their deadline with their customer.

Quadrant 3:

The customer has asked for bids for a small quantity of products to be installed in one location. The delivery requirements fall within your normal timeframes and the customer has the resources to deploy your products in the timeframe specified. Any support resources required will fall well within the support you normally provide to customers.

Quadrant 4:

The customer needs your product to integrate into a system they are delivering to their biggest customer. The required delivery schedule is not a problem for you. But if you don’t deliver on time your customer will miss their deadlines with their customer and be subject to financial penalties.

To start, map your entire current pipeline on an RAQ.

“What do I do with this information?”

Once a week, plot your deals on the Quad. Strategize a way to move as many of your forecast orders to the lower left quadrant (#3) as possible.

Your Action Items

Plot your entire current pipeline on the Risk Assessment Quadrant.
Strategize how to reduce the scope of prospect orders in Quadrants 2 and 4.
Repeat each week in sales meetings or one-on-one pipeline reviews.