Date: Wed, 18 Jun 2003 10:32:52 -0700 From: Terry Lambert <tlambert2@mindspring.com> To: Bill Moran <wmoran@potentialtech.com> Cc: chat@freebsd.org Subject: Advice on consulting (was: Re: Advice on how to straighten out acrappy ISP) Message-ID: <3EF0A244.24D5E1C2@mindspring.com> References: <3EEFC568.70900@potentialtech.com> <3EF02D44.EF07CE6E@mindspring.com> <3EF073EB.9010206@potentialtech.com>
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Bill Moran wrote: > I just don't understand why I have to > pay for the service, then go out of my way to actually get it to > work. I must be a shitty salesman, as I know lots of companies that > have things broken, yet don't need anyone to fix them. OK, this is going to be a long response, since you have related it to your recent attempts to break into the consulting business... -- Up front: you were not in a consulting relationship with your ISP, you were in a customer relationship. You didn't show up at their door, and you were attempting to play the "squeaky wheel" card, rather than legitimately attempting in any way that had the potential for success to obtain their business and solve the problem at the same time. You can use these tactics, which, while legal and ethical, amount to economic blackmail in the limit ...or an education for them: a happy customer tells, on average, 3 people; an unhappy one tells on average 20 people. In a business where word of mouth is a factor in future business (e.g. you must rely on repeat sales or patronage), it's generally worth taking the short term loss for the long term gain. -- On to consulting... There is at least a minor amount of salesmanship involved, but that can be learned. Worst case, take a sales job, where you work on commission, the customers are handed out round-robin or otherwise allocated on a basis other than "first vulture to swoop down on potential customer", and there are older sales guys around who will feel enough pain at a poor job that one will take you under their wing. And then learn sales. Probably that's a too drastic approach that's overkill for the situation, however, unless you really, really suck at selling yourself. Any commercial transaction has to be win/win for everyone to be satisfied with it, and everyone must be satisfied in order to be able to call it successful. In terms of "lots of companies have things broken, yet don't need anyone to fix them", if you are selling "fixit services", then you need to stop thinking like an engineer for a minute, and start thinking like your potential customer. Your customer most likely realizes what's broken, and could probably tell you 10 more things that you don't know about(*) that were more pressing. The first step in doing this is to realize that business has very little to do with technical merits, even if it's nominally a technical business, such as an ISP. It's about cost/benefit calculations. If something costs more to leave alone than it costs to change, then it will be changed. This is true of any good business; excellent businesses will have some additional reluctance to change. This is because they will also consider the time value of money for the cost of making the change, and will make the decision on that basis. For example, take your ISP. Say it would cost them $5,000 to make the fix, and that this will result in them getting a 3% return over 6 months (e.g. the will lose $150 less in terms of amortized customer losses because of the problem, compared to normal customer attrition to broadband, wireless, etc.). Now the question is not whether or not they want that extra 3% (they certaily do), but whether or not there is something else that they can do with the $5,000 that will net them say a 6% return, or a 17% return, over the same period. If there is, that $5,000 means $850; so there is a net loss of $700 in terms of time value of money for fixing the problem vs. doing whatever else they could have done with the money. Your job in these situations is to provide the highest time value for the money that you are asking them to spend, compared to all their other options. Now realize that you also don't have an existing business supplier relationship with them, and that this increases their perceived risk. They take their perceived percentage chance that you will "flake on them" (fail to provide the services) and they have to calculate their real rate of return, rather than their internal rate of return, on that basis. So the calculation changes. Let's say you aren't incorporated, they don't know you from Adam (you are cold-calling them), and you haven't established an industry reputation from which you can either draw local referrals, or you can draw referrals in their market or market segment; but lets say you have the necessary paper credentials. They calculate your chances of "flaking" at 30%. Here's the calculation, if you convince them of a 17% IRR (internal rate of return): 17% * (100% - 30%) = 11.9% ...so they better not have better than 11.9% return on some other deal, if you want to get the work. You can raise their perceived value for the work by dropping your contract rates, with the understanding that you are doing it to get your foot in the door -- that they will allow you to use them as a referral account -- and not because you value yourself lower, or because you were trying to high-ball them before. They will understand that you are ofsetting the 30% value by increasing the 17% value, rather than perceiving the overallcost/value ratio as being less than they tought (the value was 117%; if you lower their perception of the value, then you lower the 17% number without geting anything in return). And that's my sermon on that subject. -- (*) Let them; you will likely find yourself doing some or all of that work, in the customer's priority order, if you are willing to shut up, listen to them, take good mental notes the first time through their list, and then offer to fix them. Mental notes are important, because you are about to turn a casual conversation into a negotiation, and they will clam up if you start taking paper notes on their problems, since that's sensitive information. There's time for paper notes later, in the Statement Of Work Negotiation. -- Terry
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