Boutiques lose more deals to a competitor we call “Do Nothing” than any other competitor. On this episode, we discuss how boutique owners can improve sales results by defeating this pesky competitor.
TRANSCRIPT
Sean Magennis [00:00:15] Welcome to The Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that boutiques lose more deals to a competitor we call do nothing than any other competitor. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s chief investment officer. Greg has helped many boutique owners improve sales results by defeating this pesky competitor. Greg, good to see you and welcome.
Greg Alexander [00:01:06] My man Sean, good morning. Good to be here.
Sean Magennis [00:01:08] OK, Greg, let’s jump in. Can we start off with a description of the competitor we are calling, “do nothing”?
Greg Alexander [00:01:16] Sure. So do nothing refers to the project that went away. The prospect did not hire a firm any firm. They just decided not to move forward with the project. In other words, they decided to do nothing.
Sean Magennis [00:01:28] Got it. The quirky name makes perfect sense. And Greg, you feel this competitor is the top competitor boutiques must defeat to grow. Why do you feel that way?
Greg Alexander [00:01:39] So founders of boutiques are time starved. They have too many things to do and not enough time in the day to get them all done. When they pursue new business, the pursue takes up a lot of time. If this time spent does not produce revenue, it can be devastating. Fifty percent of all lost deals are lost to do nothing in the professional services game. This stat was true in my firm and it is proving to be true in the firms led by collective 54 members. Defeating this sneaky competitor will save Founders’ a ton of time and boost revenue.
Sean Magennis [00:02:11] Wow, 50 percent is a big number. This just became a priority for many of our listeners. Before we get into the recommended solution, can you share with the audience the root cause of this issue?
Greg Alexander [00:02:24] Sure. So the root cause of the problem is founders of boutiques are peddling solutions, looking for problems. They are selling vitamins when they should be selling painkillers. Let me explain my analogy. People buy painkillers when they are in pain. When someone is in pain, they do not decide to do nothing. They buy immediately. In contrast, people buy vitamins occasionally. It is an optional activity, maybe tied to a New Year’s resolution or some new health kick. However, many people, when faced with the decision to buy vitamins, just decide to do nothing. It’s not urgent. Boutique Founders’ can get enamored with their solution. They think every prospect needs it, and they are surprised when many prospects decide not to buy it. They have a solution looking for a problem to solve. This is the root cause of this issue. Vitamin instead of painkillers.
Sean Magennis [00:03:16] Yes, Greg, I can see this. So founders can fall in love with their solution. And at times this can blind them to the commercial realities of the marketplace. They get caught up in the technical sophistication of their solution and they do not think about how it will be bought and sold. Greg, I imagine you have some practical advice to avoid this mistake. Please share it.
Greg Alexander [00:03:40] I do. And I’m excited to share it because it’s based on common sense and it is easy to implement. There are four things to do. First, be sure you can state the problem you saw for clients, clearly. This seems like a duh comment, but surprisingly it is not. For example, when I ask a boutique founder what problem they solve for clients, they tell me about their solution. They do not tell me about the client problem. I recently asked an IT consulting firm what problem they solve with clients, and he said we provide cloud migration services. This is not a problem statement. This is a solution description. In this instance, a better answer might have been our clients are trying to migrate legacy apps to the cloud. This is taking too long, costing too much and causing too much downtime. Now, that’s a problem statement and positioning a solution against this has a much better chance of resulting in a win.
Sean Magennis [00:04:33] This is a great before and after illustrative example. The difference between a solution description and a problem statement is subtle, but it’s so important. Greg, you mentioned four things to do. We covered the first. Let’s hear about number two.
Greg Alexander [00:04:49] OK, so the second thing to do is determine if the problem you are solving is pervasive. To grow your firm, you need lots of sales opportunity. If you are solving a problem only a few clients are experiencing, you are limiting your growth. This is a big reason why “Do Nothing” is the number one competitor. A founder gets in front of a prospect, makes the pitch and the prospect says something like, I can see why your solution is very valuable. And if I had the need for it, I would consider hiring your firm. But it does not apply to me right now. Check back with me in six months. You just lost to do nothing. You just wasted your time and a prospect which is never going to buy. If you have to kiss a lot of frogs who never turn into a prince, you will be celebrating your one hundredth birthday before you scale focus only on pervasive problems.
Sean Magennis [00:05:37] Greg, I must admit, I’ve heard many prospects say that to me over the years, almost verbatim. If I think about how many hours I wasted in pitch meetings with prospects like this, I cringed. Anyway, okay I’m hooked on the subject. Tell me about the third idea on defeating do nothing.
Greg Alexander [00:05:56] OK, so number three is proving that the problem is urgent. When a founder pitches a prospect, the prospect is determining if what he is hearing is worthy of making it on his priority list. Prospects just like founders of boutiques are time time starved. If they are going to take on another project, it better be worth it. Prospects prioritize their projects based on urgency. The most urgent go first and get the most budget, the least urgent go last and get the smallest budgets.
Greg Alexander [00:06:29] The action for the founder is to prove that your solution solves an urgent problem and therefore it should be prioritized. Our listeners are wondering right about now how they do this. We don’t have enough time to go into this on this episode. So let me just hit the tips of the wave. To prove you a solution solves an urgent problem, do two things. Number one, calculate the cost of inaction. Make sure the prospects know exactly how much it’s going to cost them if he does not act right now. Number two, show that the pain is getting worse over time. Make sure the prospect knows that if he does not act now, it may be too late down the road. A small problem today will be life threatening six months from now. So let’s giddy up.
Sean Magennis [00:07:19] I had heard the urgency suggestion before, but I had never heard it from a thought leader on how to create the urgency. Calculating the cost of inaction and showing the client the problem is escalating are brilliant ways to get a prospect to move from buy to buy now. Let’s hit the fourth idea.
Greg Alexander [00:07:40] OK. The fourth recommendation to defeat do nothing is to confirm the prospect is willing to pay for the solution. Often founders make the pitch. The prospect says yes, and he sees the price and he changes the yes to a no. When asked what happened, the prospect says we just don’t have the budget for that right now. And guess what? He just lost the do nothing. The fix to this is to confirm that prospect is willing to pay for the solution to the problem. So how does one do this?
Greg Alexander [00:08:10] Every proposal must come with a cost justification and the cost justification must be believable, populated with the prospects own figures. For example, in my time in SBI, we would sell prospect’s projects around sales effectiveness. Each proposal came with the cost justification based on two things. Number one, decreasing the prospects cost to acquire customers and number two, increase in the lifetime value of each customer acquired. These two items were expressed in hard dollars, and the math was based on the client’s current baseline.
Greg Alexander [00:08:47] In each, our fee was placed in this context, the client could clearly compare the benefit in the cost of the project. As a result, we defeated do nothing regularly. I am not sure what metrics our listeners would use in their cost justifications, but I do know they need to figure that out if they are going to defeat do nothing regularly, it is the only way to get the prospect to having high willingness to pay.
Sean Magennis [00:09:13] This is fantastic. So overcome the prospect price objection with a cost justification in the proposal and make it easy for the prospect to have a high willingness to pay. These four ideas state the problem clearly to pursue only pervasive problems, prove the problem is urgent, and use a cost justification to increase the prospects willingness to pay. This will defeat, do nothing and help our audience members grow.
Sean Magennis [00:09:46] And now a word from our sponsor, Collective 54. Collective 54 is a membership organization for owners of professional services firms. Members joined to work with their industry peers to grow scale and someday sell firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.
John Ferguson [00:10:12] Hi, my name is John Ferguson. I’m the CEO TBM Consulting Group. We’re a global operations and supply chain consultancy, serving manufacturers, distributors and field service organizations in North America, Latin America, Europe and Asia. Our primary clients, our C Suite operations executives and operationally focused private equity firms. TBM helps to reduce costs, improve cash flow and to leverage those gains for sustainable, profitable growth. We provide diagnostics, go forward plans and hands on implementation support to create speed, flexibility and responsiveness throughout our client’s manufacturing and supply chain operations. If you need help leveraging operational excellence to accelerate value creation, contact us at TBMCG.COM. My direct email is JFurgeson@TBMCG.com Or you can reach us via 1-800-438-5535.
Sean Magennis [00:11:13] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit Collective54.com.
Sean Magennis [00:11:29] OK, this takes us to the end of the episode, let us try to help listeners apply this. We end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist and our style of checklist is a yes no questionnaire, we aim to keep it simple by asking only 10 questions. In this instance, if you answer yes to eight or more of these questions, you are not losing to the competitor called Do Nothing. If you answer no, too many times, you are losing to the competitor called Do Nothing. Let’s begin with the questions.
Sean Magennis [00:12:17] Number one. When you explain the problem to your family, do they understand it? Number two, when you explain the problem to your friends, do they understand it?
Greg Alexander [00:12:29] So the reason why family and friends is here is because they’re not in the weeds, right? So if they can’t understand it or if they do understand it, then, you know, you’re communicating clearly. You know, I will add one little funny story. Yeah. So I used to bring my dog Rocco to work. And if I was in these early days of SBI and if I was pitching on the telephone, if he got up and left, I knew I was in trouble.
Sean Magennis [00:12:52] Rocco was a smart dog.
Greg Alexander [00:12:52] He was.
Sean Magennis [00:12:52] Number three, does the problem exist in more than one industry?
Greg Alexander [00:12:59] This goes to pervasiveness.
Sean Magennis [00:13:01] Number four, does the problem exist in companies of all sizes? Number five, does the problem exist in many geographies? Number six, are clients paying to solve the problem today?
Greg Alexander [00:13:17] Right, which is a great way to judge whether the problem is urgent, if they’re already spending money to solve it, then they’re voting with their wallet.
Sean Magennis [00:13:23] Right. Number seven, have clients been paying to solve the problem for years?
Greg Alexander [00:13:29] Yep another important thing, right?
Sean Magennis [00:13:32] Number eight, if the client does not solve the problem, are the consequences severe? Number nine, is there a trigger event that puts the client into the market for your solution?
Greg Alexander [00:13:44] Right. So a trigger event is is something that happens to the client that causes them to act.
Sean Magennis [00:13:50] And number 10, when clients have the problem, do they work to get it solved by a certain deadline?
Greg Alexander [00:13:56] From from buy to buy now.
Sean Magennis [00:13:58] It’s great, Greg. So in summary, do nothing is defeating you 50 percent of the time, whether you know it or you don’t know it. So to beat this competitor. Be sure to pick a problem to solve that is pervasive, urgent, one that prospects are willing to pay to solve. And be sure you can explain it simply. In other words, start with the problem, not the solution. If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm.
Sean Magennis [00:14:38] Greg, thank you again. I’m Sean Magennis and thank you to our audience for listening.