By Tom "Bald Dog" Varjan
Do you know what Ford's Model T, the computer and the Wright Brothers' aeroplane had in common? When presented to the government as ways to improve performance and productivity, all three were laughed out of the building.
Yes, government bureaucrats regarded them as silly and useless toys that have no place in the serious business of (mis)leading countries and their people.
All three innovations were assessed on the wrong criteria.
The bureaucrats laughed at Ford because the Model T came only in black.
The bureaucrats laughed at the computer because a prestigious and bloody expensive consulting firm concluded that the total world market was "maybe only for a few computers".
And the bureaucrats laughed at the Wright Brothers because their aeroplane's flying time was only 4 seconds and covered only some 40 metres (120 feet).
And this is what many boutique IT service firm leaders have in common when it comes to selling their services: They allow buyers to evaluate them on the wrong criteria.
That's why I believe every IT service firm should have a buyer's guide to finding, screening, sorting and selecting IT service firms.
So, I want to write this article from the buyer's perspective, helping IT service firms to compile a buyer's guide for their specific services.
But before buyers start asking questions to qualify IT firms, they'd better start by accessing...
It's a common mistake that buyers skip this step and start looking for IT firms right away? And after they've found a firm, liked it and engaged its services, then they realise that, although the IT firm is technically excellent, there is a mismatch between the buyer's and the seller's business philosophies and modus operandi.
But by then it's too late to. Replacing the IT firm would cost too much. So clients and IT firms duke it out until the bitter end by which time they barely talk and never want to see each other ever again.
So, let's start with the buyer's self-evaluation.
(1 being negligible and 10 being mission critical) ...
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* I could have used the popular "partner" here, but that would be misleading. Real partners, as in business and marriage, win, lose, become millionaires and go bankrupt together. As an IT firm, you have no skin in your clients' games, so you're not a real partner.
** The top two hiring criteria for Global Fortune 1000 recruiters. The bottom two are price and physical location.
Here are some criteria in no particular order. Ask buyer to organise the criteria in descending importance (most important on top).
Once buyers are clear on their requirements, they can...
Let's start with something crucial here.
In a way, every project is a competitive bidding process.
Based on their criteria, buyers shortlist 3-5 IT firms to choose from. Initially, the list is a lot longer, but during the due diligence process, most sellers get disqualified based on what buyers have read and heard about them.
And note that at this point, there is no personal connection between buyers and sellers. Buyers are just checking sellers remotely without any human involvement from sellers.
But this is not the typical RFP type reverse auction ("Who is willing to offer the deepest discount?") bidding war where 10 or more sellers are lined up against each other.
Smart buyers know that IT firms that are worth their salt wouldn't even show up for such an RFP circus.
So buyers know they have to manage the selection process rather delicately because quality IT firms wouldn't participate RFP type bidding wars.
And here is a big distinction I learnt as a tech buyer many moons ago.
In privately owned companies, it's almost always the executives who engage outside help. Why? Because they know if they hire the wrong firm and the project goes tits-up, as owners and top executives, they have to live with the consequences of their blunders.
In publicly owned companies, however, there is no real ownership. Even the CEO is just an employee.
So, the burden of hiring outside professionals is dumped on the shoulders of the procurement manager with one key instruction: "Save as much of the budget as humanly possible."
Basically, procurement managers are instructed to hire the lowest bidder. They are also told they are not responsible for the quality of the firms they engage.
According to The Standish Group Chaos Report, only 29% of IT project implementations are successful. 19% are regarded as total failures.
Government projects' failure rate is 81%.
And I dare to bet some vital parts of my anatomy that the high failure rate in government projects is caused by the traditional RFP bidding process.
And what are the reasons of failure.
In most cases, poor project ownership and solutions based on experienced symptoms NOT root causes.
In plain English, clients self-diagnose, develop their, usually wrong, pet solutions and then abdicate implementation to their IT firms: "We want to benefit from the high speed of USB 3.0, and we want you to implement it on a Windows 2000 network."
Of course, those projects fail.
That makes it vitally important that buyers allow sellers to perform thorough diagnostics before they start major projects.
And now let's see some...
If the firm's representative can't tell you why her firm is different from the competition, then keep looking.
Also keep looking if she gives you subjective differentiators, like "We have excellent client service" or "we have top talents."
But what is "excellent client service" or "top talents"? They can't be quantified.
When you say...
"Your project manager will be Fred Cringingnuts, PMP, with 27 years of experience and a master's degree in computer science from MIT. Your account manager will be Webster Sponpule with 12 years of IT account management under his belt, a degree in computer engineering from Queen's University (Kingston, Ontario, Canada) and an MBA from the London Business School. The Cringingnuts-Sponpule duo has been managing projects together for 7.5 years and have completed 67 successful projects to the tune of $103 million with zero guarantee invocation."
This is very specific. The differentiation is objective, so no one can dispute it.
Platitudes like "top talent" and "world-class client service" can be challenged and very often, the challenge is hard to defend.
Some firms work collaboratively and some work in isolation and show their work only at the "big reveal" moment.
They barely involve clients until the big reveal. They argue that involving clients every step of the way slows down the project and the fall behind on deadlines.
Well, if that's the problem, it's time to communicate with clients and to tell them that due to XYZ client action, the deadline has slipped by two weeks.
Good clients understand it and bad clients can always be dumped. I mean almost always. If you operate on a hand-to-mouth basis, then you need every penny clients pay you may they be either good or bad clients.
Yes, collaborative work is slower and can be a tad annoying here and there, but remember that the more clients are involved in their projects, the more they claim ownership.
This is vital because "lack of true ownership" is one of the main reasons why IT projects fail.
And the remedy is rather simple.
Clients know that technology can produce unexpected bugs and glitches, a.k.a. risks, but they still want some kind of guarantee for their money.
Of course, there are so many moving parts in most IT service projects that no one can guarantee specific results.
No general can guarantee victory and no surgeon can guarantee full recovery (not even survival of surgery) to his patients.
And no IT firm can guarantee their clients' satisfaction. Satisfaction is an emotion and no one can guarantee someone else's emotion.
So, then what can be guaranteed?
Look at project risk as a seesaw. Either the client takes all the risk or the IT firm does.
With hourly rates, clients take all the risk because sellers get paid for the passage of time. Clients know that, so they try to haggle down hourly prices.
Everything changes with value pricing, which is much more dynamic than hourly pricing. You can charge significantly more for your projects than the sum of billable hours, but you have you offer your share of carrying the risk.
The more risk you take over from your clients, the more you can charge.
If you offer an unconditional money-back guarantee, then you can make pretty hefty profits.
Now you may ask, what if clients ask their money back after project completion.
Let's say, your firm has built some custom software for the client which took nine months. The project is done and the software is seamlessly running on your client's system.
And then your client, hoping to recover the price of the software, pulls the trigger on your guarantee.
Fine. Then you delete the software from the client's system and Bob's your uncle.
To make way for your software and to avoid possible interferences, you've already deleted the original software from the network, so after deleting your software, your client has nothing. 500 employees are standing still because the network is down until... hell knows.
Let's say, your client paid you $250,000 for the software. You've returned his money, but now his production line is down indefinitely, losing $50,000 production per hour. Your client can "finance" the downtime for five hours out of the money you've just returned, but what happens after that?
Who will recover the old system? Who will build a new system?
Yes, you're out of $250,000. And your client is up shit creek without a paddle.
You can offer the guarantee, and, most probably, no one ever will trigger it for full return.
Clients don't want their money back. They want to get fully functional software for their money.
The very first step should be a paid road map session to...
The conclusion of this session is that you write up your findings and the last few pages of your road map report is the proposal to move forward to implementation.
You can price this road map session at 5-10% of your typical project price.
If your buyer wants to jump to implementation right away, then dump him. Project work is a sort of dance, but as the expert, you have to lead.
And if your dance partner keeps stepping on your toes and prevents you from doing a great job, then you'd better bail out before it's too late.
Clients are rightfully worried that after the project is done and you're gone, they are there to fend for themselves.
Well, yes and no.
This sword is double-sided.
Some firms work collaboratively with their clients' full involvement. Many firms even let their clients select in-house project managers and IT firms' project leads work with in-house project managers. This is the best way to make sure clients take ownership of their projects, so they can maintain the improvements their projects have delivered.
And there are many IT firms that forgo collaboration. They work in isolation and involve their clients only for the big reveal.
And what is the result? Lack of ownership.
In his book, Rules for Radicals: A Pragmatic Primer for Realistic Radicals, community organiser Saul Alinsky wrote a story about the government of Mexico.
One day, the government decided to return mothers' pawned sewing machines to them as gifts. Everyone was happy. Yet, within three weeks, all sewing machines were back in the pawnshops. Those mothers weren't interested in "gifts" because they didn't believe they owned those gifts. The whole initiative was a big flop.
Alinsky concludes...
"Self-respect arises only when people pay active roles in solving their crises, who are not passive, helpless and puppet-like recipients of services. To give people help while denying them a significant part in the action contributes nothing to the person's development. It is not giving help but taking away a person's dignity. Denial of the opportunity for participation is the denial of human dignity and democracy."
That tells it all really.
Who has higher customer loyalty? The local furniture store or Ikea?
From your local store, you select a ready-made solution (chair, sofa, etc.), have it delivered and you have it.
With Ikea, you have to go to the store, buy your furniture, take it home (drop it on your toes a few times), put it together and then you have it. And the involvement creates tremendous loyalty.
And collaborative clients own their projects and have a vested interest in maintaining the improvements after their IT firms are gone.
Here is the contradiction. It firms often say they want to partner with their clients, but they set their prices in such a way that no matter how badly they mess up their projects, they get paid anyway. That's the typical hourly pricing: "You pay me because I've spent time working on your project."
The problem is that "work" can be anything.
Imagine you start writing an invoice for client A. Soon after, you get a call from client B. In the meantime, you get a text message from client C.
By the time you've finished with client B and C and have finished the invoice for client A, an hour and a half has gone by.
So, what to do now? How to bill for this work?
Simple. Bill 90 minutes to EACH client. This is common practice for firms that charge hourly rates.
And what can be the reaction?
From client A: "If it takes you 90 minutes to write in invoice, you're an idiot. And I'm not paying for your stupidity."
From client B: "According to my phone bill, the call took 9 minutes, not 90."
From client C: "Our chat took 5 minutes, not 90. What gives?"
When you charge by the hour and buyers ask you about price, all you can say is, "Our rate is $X and I don't know how long it takes."
In the best case, you add, "But I can give you an estimate."
But buyers don't want estimates; they want exact amounts.
And what happens when you come in with acceptable hourly rates?
Buyers know you're likely to grossly overstaff the project and stretch billable hours thinner than phyllo pastry with zero or very little value created.
The reason why value pricing works so well is because buyers prefer certainty. So, if they can choose between free estimate (a.k.a. highly likely bait and switch) and a paid proposal with three carved-in-stone price options, they prefer to pay.
And the ones who prefer the free estimate should be unceremoniously dumped because they are prone to problems later on.
When buyers ask me about my rates, I tell them that as a pro, I get paid on a project basis and work on specific objectives towards specific deadlines. When we start, we jointly establish your project's scope, parameters and your expectations of it, and then I give you three options to accomplish your objectives at three price points with three matching client experience levels to choose from.
The kind of buyers I want to work with understand it. And those who don't, well, we're not a good fit to work together. It's that simple.
There are low-end vendor firms that prepare price quotes at the drop of a hat and premium firms that precede project proposals (NOT price quotes) with several meetings, conversations and questionnaires.
They have totally different approaches.
First, if a shortlisted IT firm matches you with a traditional salesperson, with sales skills but without tech- and industry-specific business savvy, you'd better run very fast and very far or you will be hammered senseless with idiotic sales pitches.
What you need is a salesperson with both technical- and business savvy. Tech-savvy helps him to understand your technical predicaments and business savvy helps him to understand your technical issues within your business context.
Without this contextual understanding, there is no point in touching your technology.
Proposals should talk about expected bottom line improvements not merely a list of technical tasks and deliverables. Faster internet may sound like a nice deliverable but how does it make the client better off?
The proposal should demonstrate return on investment.
Also, don't expect your IT firm to write you a proposal without doing the project. That IT firm is Not in the proposal writing business, so it's people don't write proposals as a spare time activity.
A proposal is like a marriage proposal.
By the time a guy proposes to his fiancée, they are pretty committed to each other, and in 99.9% of the cases, the answer is yes.
Good IT service gigs, just like good marriages, are based on engagements. If you create a bidding war, you end up with a prostitute IT firm: I do anything for money.
Good IT firms don't play the idiotic RFP game.
Different IT firms operate differently, so it's important to mention this little difference.
After the project is finished, someone has to take over operating the new system.
Some firms offer ongoing services to do the ongoing monitoring.
Some firms offer retainer services so the client's in-house operating team has someone to call whenever they reach their wit's end on some misbehaving equipment.
Offering ongoing IT services is the same having a builder on retainer in case some bricks fall out of your house's wall or the roof caves in.
And since this monitoring service is not as much premium as IT system design or software development, the best firms don't even take it on.
But what premium firms do it that they enable their clients to monitor their own systems and when certain indicators go haywire, they can engage the appropriate specialist IT firms to deal with the problem.
Designing and building out a network requires special expertise, but monitoring it doesn't.
And putting a Cisco Certified Architect (AAC - Cisco's highest level of certification), with 20 years of experience to monitor a newly-built system is just wasteful and bloody expensive (The average annual salary of a AAC is north of $150,000).
But having a CCIE (Cisco Certified Internetwork Expert) or a CCA on retainer, so experts can answer some high-level questions and help out the in-house IT staff. But remember, retainer work excludes physical work. It's just access to an expert's smarts.
It's all well and good, but to apply it all, you need to know how your target market perceives your firm.
Is it a fungible IT vendor or a respected IT authority?
It's the market that hangs your brand around your neck based on the outside perception of your firm.
But you can also influence the outside perception by tweaking your firm's inside reality, that is, your culture, by consciously transforming your firm from vendor to authority.
In this peddler quiz, you can check whether your firm is more of a fungible IT vendor or a respected IT authority.
In the meantime, don't sell harder. Market smarter and your business will be better off for it.