Episode #33 - Free-Rider Friday - February 2015

Welcome to this week's “Free-Rider Friday.” Most of our shows are “topic” driven, where we dive deep into one subject. Free-Rider Fridays are designed to be “event” driven—whatever issues are in the news that we (or you) find worthy of commentary. In economics, free riding means reaping the benefits from the actions of others and consequently refusing to bear the full costs of those actions. This means Ed and Ron will free ride off of the news, and each other, with no advanced knowledge of the events either will bring up.

The Soul of Enterprise: Dialogues on Business in the Knowledge Economy is now available on Amazon Kindle

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Ed and I are pleased to announce the publication of our first book together, based on the topics from our show.

The book is available exclusively on Amazon Kindle. You can download the Kindle app for free to read the book on a device other than a Kindle.

The book contains six chapters, which are from our show, combined into logical topics. We also added an Introduction and Epilogue.

Further, we’ve added links to many of the ideas, definitions, books, and other interesting things we cite. It’s a complete digital experience.

The Foreword was written by VeraSage Instiute’s G. Robert Newhart Non-Value-Added Fellow, Greg Kyte, and it does not disappoint. There’s also some funny illustrations by the cartoonist, caricaturist and illustrator Andrew Fyfe from Australia, a pure genius.

Here’s a more detailed description of the book:

The world’s economy has been transformed from a twentieth-century materials-based economy to the Age of the Knowledge-Based Economy — and the currency of this realm is ideas, imagination, creativity, and knowledge. According The World Bank, 80% of the developed world’s wealth now resides in human capital.

Perhaps President Ronald Reagan said it best in his address to Moscow State University on May 31, 1988:

Like a chrysalis, we’re emerging from the economy of the Industrial Revolution — an economy confined and limited by the Earth’s physical resources — into, as one economist titled his book, “the economy in mind,” in which there are no bounds on human imagination and the freedom to create is the most precious natural resource.

Written by Ronald Baker and Ed Kless, hosts of The Soul of Enterprise: Business in the Knowledge Economy, the popular radio show on Voice America’s Business Channel, The Soul of Enterprise: Dialogues on Business in the Knowledge Economy sounds the clarion call that organizations can no longer ignore this seismic shift that has occurred in the economy since 1959. The Soul of Enterprise introduces the three components of Intellectual Capital — human capital, social capital, and structural capital — and how to leverage them to create wealth in today’s economy, by revealing:

• The physical fallacy — why wealth no longer consists of tangible things, but of ideas, imagination and knowledge from human minds

• The best learning tool ever invented: After Action Reviews

• Why Frederick Taylor and the Scientific Management movement was a fraud and the wrong focus for knowledge workers

• The fact that effectiveness always and everywhere trumps efficiency

• The First Law of Pricing: All value is subjective

• The Second Law of Pricing: All prices are contextual

• The Morality of Markets: Doing well and doing good

• Why your organization — and you — need to be driven by a higher purpose than profit

The Soul of Enterprise will inspire and challenge readers to unlock the enormous financial and competitive power hidden in the intellectual capital of their organizations and knowledge workers.

Bill Gates Doesn’t Understand Wealth Creation

Ron mentioned an article from The Economist’s The World in 2015, written by Bill Gates. Some excerpts:

…disease and extreme poverty are not inevitable. In the past 25 years, the number of children who die has dropped by a half. …The number of extremely poor people has been going down at roughly the same rate.

We also know why people are escaping poverty: it is thanks to more productive agriculture, better access to financial services, and the spread of functioning health systems that prevent expensive medical emergencies.

Is he kidding? What’s caused people to escape bone-crushing poverty is the spread of capitalism. Free markets are the cause of all the results he cites, yet he doesn’t seem to understand how markets work.

This never ceases to amaze me. Some of the most successful entrepreneurs, and wealthiest, have no idea how capitalism works. They were able to practice it, but they can’t explain it, or offer a theory in its defense.

It validates William F. Buckley Jr.’s quip: “ The problem with capitalism is capitalists.”

Net Neutrality

Next we discussed the thorny issue of net neutrality. We are both against the recent regulations from the FCC that reclassifies the Internet from an “information service” to a “telecommunication service.”

Can you point to one innovative, heavily regulated industry? Had the government regulated the early days of the computer revolution, we’d probably have Vacuum Tube Valley, most likely in West Virginia.

Even The Economist likes broad rules (fast lanes can’t exceed slow lanes by a certain amount), rather than blanket regulations.

There’s an excellent article by Nick Gillespie at Reason magazine on this issue.

In all fairness, no one has seen the regulations yet. But is there any doubt that once regulation starts, it expands?

Could it be used to require all websites to have a license? Or control content?

I’m sure we will discuss this topic in future shows.

Greg Kyte

Greg Kyte called for the latter half of the show, discussing his work, videos, the Foreword he wrote to our book, and his new business: ComedyCPE.com.

Watch some of his hilarious videos at GregKyte.com, including the above infamous series of queuing up for the Blackberry, Bob’s BBQ, Great Moments in Value Pricing History, Parts I and II, and Billable Hour Scratch & Win.

Episode #32 - Innovating Your Business Model

Andy Grove, founder of Intel said in a meeting with Clayton Christensen:

Disruptive threats come inherently not from new technology but from new business models.

He also defined an Inflection Point as:

A time in the life of a business in which its fundamentals are about to change.

Just think about the following business model disrupters from the past decade:

•             Craigslist (Pew Research, 2008: more people read news online than paid newspaper subscribers)

•             Napster

•             Google Books

•             Uber

•             Driverless cars

Defining Business Model

Ed and Ron discussed the book by Alexander Osterwalder and Yves Pigneur, Business Model Generation, wherein they define business model as:

A Business model describes the rationale of how an organization creates, delivers, and captures value.

Notice that a business model deals with capturing value, which is the company’s pricing strategy.

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When you see a business model, you will probably see a pricing change (from CDs to iTunes .99¢, from Blockbuster video rental to Netflix, etc.).

In the book, the authors explore nine building blocks of the business model:

1. Customers segments

2. Value Proposition

3. Channels

4. Customer relationships

5. Revenue streams—customer is heart, RS are its arteries (RM, Dynamic pricing, etc.)

6. Key resources

7. Key Activities

8. Key partnerships

9. Cost structure

You can find more information about the book, and accompanying App, here.

Disruption Comes from the Outside, and Non-Experts

The daunting task for many companies is:

How to implement and manage new models while maintaining existing ones.

Harvard business professor Clayton Christensen wrote:

Generally, the leading practitioners of the old older become the victims of disruption, not the initiators of it.

Steve Ballmer, former CEO of Microsoft once said:

Google is not a real company. It’s a house of cards.

Michael Dell, when asked what Steve Jobs should do with Apple when he returned in 1987, said:

He should just shutter its doors.

Experts rarely innovate. G.K. Chesterton wrote:

The argument of the expert, that the man who is trained should be the man who is trusted, would be absolutely unanswerable if it were really true that the man who studied a thing and practiced it every day went on seeing more and more of its significance. But he does not. He goes on seeing less and less of its significance.

Consider this, from the book, The Experts Speak: The Definitive Compendium of Authoritative Misinformation (1998):

• 1986 Gottlieb Daimler predicted auto market would never exceed 1Million because you couldn’t train that many chauffeurs

• Robert Milikan, Nobel Prize, phyics, 1920: “There’s no likelihood man can ever tap the power of the atom.”

• “We don’t like their sound. Groups of guitars are on the way out.” Decca Records, turning down The Beatles a second time, 1962

Kodak engineer Steve Sasson invented “filmless photography” in 1975, but Kodak’s business model wasn’t designed to deal with any thing but film.

Xerox’s PARC Labs Xerox invented the interface on computers, but Xerox couldn’t figure out how you put a meter on a computer. It just didn’t fit with their business model. Steve Jobs had a different business model idea.

Creativity is Always a Surprise

In The Black Swan, Nassim Nicholas Taleb wrote:

We do not know what we will know. Invention and creativity is always a surprise. If we could prophesy the invention of the wheel, we’d already know what a wheel looks like, and thus we could invent it.

Friedrich Hayek wrote:

The mind can’t see its own advance.

Another book Ron likes on this topic is Seizing the White Space by Mark W. Johnson (2010).

The white space is not uncharted territory or an underserved market, but rather a range of potential activities not defined or addressed by the company’s current business model. It requires a different model to exploit.

Johnson points out that more than 30% of the 350 Business Model Innovations he studied in the past ten years were enabled by internet technology. So it’s not just about technology, but rather a fundamental change in creating and capturing value.

Peter Drucker on Business Models

One of Peter Drucker’s (1909–2005) many articles published in the Harvard Business Review (September-October 1994) was entitled “The Theory of the Business,” which laid out what he considered to be the essential elements executives would have to define in order to create wealth:

Not in a very long time—not, perhaps, since the late 1940s or early 1950s—have there been as many new major management techniques as there are today: downsizing, outsourcing, total quality management, economic value analysis, benchmarking, reengineering. Each is a powerful tool. But, with the exceptions of outsourcing and reengineering, these tools are designed primarily to do differently what is already being done. They are “how to do” tools.

Yet “what to do” is increasingly becoming the central challenge facing managements, especially those of big companies that have enjoyed long-term success.

What accounts for this apparent paradox? The assumptions on which the organization has been built and is being run no longer fit reality. These are the assumptions that shape any organization’s behavior, dictate its decisions about what to do and what not to do, and define what the organization considers meaningful results. These assumptions are about markets. They are about identifying customers and competitors, their values and behavior. They are about technology and its dynamics, about a company’s strengths and weaknesses. These assumptions are about what a company gets paid for. They are what I call a company’s theory of the business.

In fact, what underlies the current malaise of so many large and successful organizations worldwide is that their theory of the business no longer works.

It usually takes years of hard work, thinking, and experimenting to reach a clear, consistent, and valid theory of the business. Yet to be successful, every organization must work one out.

What are the specifications of a valid theory of the business? There are four:

The assumptions about environment, mission, and core competencies must fit reality.The assumptions in all three areas have to fit one another.The theory of the business must be known and understood throughout the organization.The theory of the business has to be tested constantly. It is not graven on tablets of stone. It is a hypothesis. And so, built into the theory of the business must be the ability to change itself.

Even if a particular business did not follow Drucker’s sage advice and postulate a theory of its business, one could certainly argue that since the macroeconomic environment of nearly any developed country is comprised of millions of businesses, the aggregate marketplace is a testable hypothesis in its own right, whereby customers spending their own.

George Gilder on Innovation

In his book, Wealth and Poverty: A New Edition for the Twenty-First Century, George Gilder weighs in on business models and event the efficiency vs. effectiveness debate:

Firms at the top of their S-curves of growth: the time when innovation dwindles and heavily bureaucratized companies seek minor new adaptations, packaging changes, and manufacturing efficiencies in order to wring the last gains of productivity from an essentially static industry that has already long passed its phase of ‘fast history.’

Auto companies at the very pinnacle of productivity had lost all room to maneuver. New developments almost never emerge from the leading companies in an industry. None of the carriage makers and buggy whip producers could create a salable automobile, and the gaslight and candle businesses neglected the promise of electricity; slide rule people at Keuffel and Esser succumbed without response to the handheld calculator; just as IBM lagged behind other companies in adopting most major innovations in business machines, from copiers to word processors; and as even Texas Instruments finally became relatively rigid and uncreative in the microprocessor field.

The very process of rationalization and bureaucracy by which a company becomes the most productive in an industry tends to render it less flexible and inventive. An exclusive preoccupation with statistical productivity—simple coefficients between inputs and outputs—can lead to a rigid, and in the long run, unproductive economy.

Here's a matrix that explains this phenomenon, from Ron’s book, Implementing Value Pricing: A Radical Business Model for Professional Firms:

History of Innovation

Luddites: Firms that resist technological advances and other innovations that are merely table stakes risk being Luddites. They have both low efficiency in doing things right, and low effectiveness at doing the right things—not a bright future. Fortunately, not many firms are in this category. If you are here, you are dead already and the funeral is a mere detail.

Buggy Whips: Usually when an industry is at the apogee of its efficiency, it is at risk of being made obsolete by new technologies or business models. As Peter Drucker said, no amount of efficiency gains would have saved the buggy whip manufacturers from the automobile.

Innovators: As George Gilder wrote in Forbes, “Knowledge is about the past; entrepreneurship is about the future. If creativity was not unexpected, governments could plan it and socialism would work. But creativity is intrinsically surprising and the source of all real profit and growth” (“The Coming Creativity Boom,” November 10, 2008). Innovators are firms that are willing to invest some of today’s profits into tomorrow, while at the same time sacrificing efficiency for effectiveness. Innovation, creativity, and Total Quality Service are the antithesis of efficiency—ideas such as Google Time, experimenting with new ideas, investing in education, all reduce efficiency metrics. But if firms do not make these essential investments they are simply coasting on their existing intellectual capital, and in today’s economy, knowledge becomes obsolete more rapidly.

Humpty Dumpty: This is a precarious future. This represents firms that are highly efficient and effective. I am arguing if you are here, you better be sliding back to the Innovators position and start sacrificing some of that efficiency for innovation and making the firm more valuable to its customers. Humpty Dumpty eventually falls and ends up like the industries mentioned under Buggy whips. Efficiency is not the answer. Effectiveness is. This is precisely why we warn companies to avoid putting efficiency ahead of effectiveness. Any industry at the apogee of efficiency is an industry in decline.

Parting Thoughts

Embracing a new business model requires leadership and vision. It requires knowing you are doing the right things, not just doing things right. It requires focusing the firm on the external value it creates for the customer and simultaneously building the type of firm people are proud to be a part of and contribute to—the sort of organization you would want your son or daughter to work for. It requires a sense of dignity and self-respect that you are worth every penny you charge, and you will only work with customers who have integrity, whom you enjoy, and respect. It requires an attitude of experimentation, not simply doing things because that is the way it has always been done. It requires less measurement, less fear, and more trust. It requires boldness and risk-taking—there has yet to be a book written titled Great Moderates in History.

Episode #31 - Who Is in Charge of Value?

We have had the privilege of posing this question—Who’s in charge of value in your organization?—to thousands of leaders around the world. We're usually met with a momentary staring ovation, and then someone will inevitably shout out, “Everyone!” Really? Ron lives in California, where he's told everyone “owns” the Golden Gate Bridge. He would like to sell his portion; unfortunately he encounters what economists call the tragedy of the commons.

If everyone owns something, no one does. No one has an incentive to protect and maintain the value of the asset in question. Think public toilet.

Pricing is far too important to the viability of the company to be left to mediocre pricers. No other area—not cost cutting, efficiency increases, or growth—can have as large an impact on profitability as does pricing.

It is time for organizations to recognize that if they are serious about pricing commensurate with the value they create, they need to establish a core group of enthusiastic pricers to make pricing a core competency within the firm.

value

Appoint a Chief Value Officer

To understand value, we have to understand the customer. This is not accomplished with more accurate cost accounting, better project management, or any other internal initiative. Companies have a wealth of information on how long things take and what they cost; they have a paucity of metrics on the value they create for customers.

Someone needs to be in charge of value. BMW has a Customer Experience Officer, responsible for the entire BMW experience, from decision to purchase, to service and trade-in. Many professional firms have now created this position, with the CVO overseeing a value council.

One question that continually comes up is what are the traits of a successful CVO, or value council member? The acronym LACEY is a useful framework for identifying what characteristics are essential for a successful CVO:

• Leadership

• Attitude

• Commitment

• Experimentation

• Youth

Leadership

An organization will never rise above its leadership. CVOs implicitly and explicitly understand that the firm’s prices are the language in which they strategically communicate value to customers.

Perhaps the first important characteristic of a successful CVO is high self-esteem; they believe that their company’s services are worth every penny they charge. There is great nobility in being paid what you are worth.

A CVO must have demonstrable leadership skills, while commanding respect and creditability across multiple functions within the firm. She will be responsible for communicating the importance of pricing and value to the media, thereby negating price wars within the industry.

Since competitors tend to judge a firm’s pricing behavior based upon its most ruthless actions, think of the message appointing a CVO would send to others in your industry about how committed you are to price for value and not engaging in self-destructive price wars.

Leadership is essential, and leadership demands tough decisions (the word decision comes from Latin decidere, meaning “to cut off”), and some times individual opinions have to be sacrificed for the good of the organization. Margaret Thatcher, former Prime Minister of Britain, was fond of pointing out: “Consensus is the negation of leadership.”

Attitude

The CVO and members of the value council have to view pricing as an enormous opportunity for the firm to create and capture value, rather than a limitation imposed on them by the market, which they have no control over, like the weather. Pricing is far too important to assign to narrow minds. Pricers have to be intellectually curious, constantly learning, reading, and studying why humans behave the way they do.

Look for a CVO who is moving through the five levels of learning: awareness, awkwardness, application, assimilation, and art. Pricing is an iterative process of the mind and it will always require human judgment.

Commitment

A CVO and value council that does not have the support of the CEO are destined to be feckless. Effective centralized pricing has to have total authority, which needs to be vested in one individual so there is one throat to choke.

Taking it a step further, the CVO should report directly to the CEO. This will send a powerful message throughout the organization that the leaders are serious about value and pricing, as well as to competitors, thereby possibly reducing the threat of price wars. This also provides a competitive advantage, since competitors can only monitor historical pricing, not value.

Perhaps the largest commitment required will be in the area of pricing talent. Since this is a relatively new skill in the marketplace, talent is presently hard to find, and firms will have to develop it internally.

If resources are limited, the best advice is: Read, read, read. There are many more books out there on pricing than there were even ten years ago. Assign the council a reading list, and make every member teach what they learned, and what they think the firm should do differently as a result, to their colleagues.

There are also graduate level courses on pricing taught at many universities’ executive education divisions, which are worth the price of admission. Be sure to join the Professional Pricing Society, which provide seminars, workshops, and a chance to share intellectual capital with other pricers.

As Professor Ernest Rutherford, the man who split the atom, said: “It’s true we don’t have much money so what we have to do is think.”

Also, as with any new initiative there is bound to be inevitable mistakes, failures, and setbacks. The CVO must be committed to the process. Pricing is hard, but so is training for the Olympics, or anything else worth doing. Obtaining a competitive advantage is never free. Determination and commitment defeats diffidence.

Experimentation

The CVO has to take a stand for the customer, constantly asking how the company can provide more value. They have to be willing to experiment and cannot be prisoners of the past. “That is the way we have always done it,” should inspire nothing but contempt from CVOs.

Soren Kierkegaard wrote, “Purity of soul is to will one thing.” What is more important than to champion the cause of value creation within today’s organizations? A CVO is never satisfied with the status quo because they will constantly be on the search for new ways of doing things, all the while eliminating procedures and processes that do not add value to the customer. This is the CVO mandate.

Youth

Out of all of the characteristics in LACEY, we will admit a certain amount of uncertainty as to the implications of this last one. We are not suggesting you cannot teach an old dog new tricks. Instead, research on age and innovation suggests you should not expect an old dog to innovate a new trick to add to the repertoire.

If organizations want innovation and dynamism, they will have to give more authority and responsibilities to their youthful team members. At the least, some people in their twenties or thirties should be on the value council. Organizations, like people, tend to calcify with age, and youth can keep the blood pumping at a more vigorous pace.

No doubt they will make more mistakes and incur more failure, yet risk is where profits come from. What is the alternative? Ossification is not an option.

Not Final Thoughts

It is often said we get what we measure. If this is true, isn’t it time we measure what we want to become? Who in your company is measuring value? Unless someone in your organization owns the value function, it will not get the proper executive attention, respect, and resources it deserves.

If you are competing against a firm with a CVO—either for customers or talent—you may well be at a severe competitive disadvantage. The Roman God Janus had two sets of eyes, one to see what lay behind and the other to see what lay ahead. A CVO is an outward-looking position, with duties carried out in a world of risk, uncertainty, innovation, and faith in the future, where value is solely arbitrated by the customers your firm is privileged to serve. If the only set of eyes you possess look behind you—at historical costs, hours, activities, and efforts—you are destined for a perilous future.

So, who is in charge of value in your company?

Other Books and Resources

Pricing on Purpose: Creating and Capturing Value, Ron Baker.

Human Accomplishment, Charles Murray (for the link between youth and innovation)

To Be or Not to Be: The Customer Experience Officer.

Marriott on Pricing

Episode #30 - Crafting the Value Conversation with Dan Morris

Ed and I had the pleasure of interviewing Dan Morris, co-founder of VeraSage Institute, and one of the world’s leading experts on crafting the value conversation. Dan did a video for the AICPA on the value conversation, which is well worth watching.

We’ve also included an excerpt from the value conversation chapter of Ron’s latest book, Implementing Value Pricing: A Radical Business Model for Professional Firms, as well as some additional books and resources mentioned during the show:

The Value Conversation

Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question. Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.

––Eric Hoffer, Reflections on the Human Condition, 2006

Any company that establishes prices based upon value will agree that the conversation with the customer is the most important part of the process. Skipping an in-depth conversation is similar to a contractor attempting to build a customer’s dream home without any architectural plans. The better your firm comprehends the customer’s value drivers, the more likely you will be able to create and communicate maximum value, convince the customer they must pay for that value, and capture that value with an effective pricing strategy custom tailored to the customer.

This is an opportunity for you and the customer to create a shared vision of the future, to analyze where the customer is at this point, and to develop the necessary action plan to move them to where they want to be.

This focus is crucial, because if you do not discus value with the customer, you will be forced into a discussion of costs, efforts, activities, and deliverables, usually by procurement, or some other professional buyer within the customer’s organization. Remember that the customer is trying to maximize the value they receive while attempting to minimize your price. It is far more strategic to engage in a discussion over what the customer is trying to maximize rather than what they are trying to minimize. If all you focus on is price, it can never be low enough. If the customer says your price is too high, what they are really saying is, “I don’t see the value in your offering.” It is not a question of money; rather, it is lack of belief.

Naive Listenting

When I am getting ready to reason with a man I spend one-third of my time thinking about myself and what I am going to say, and two-thirds thinking about him and what he is going to say.

––Abraham Lincoln

Questions require doubt, something salespeople who are experts in what they sell are not comfortable with. After all, we are paid to have the answers, not express doubt; and if you already know the answers there appears to be no need to gather any more information from the customer, chaining ourselves to the limits of our existing knowledge.

For this reason, during the conversation the customer should talk at least twice as much as the salesperson. This is incredibly difficult because it requires self-restraint. Naïve listening is difficult because you think much faster than people talk. While someone is talking, you are usually listening with one-half of your brain and formulating your answer with the other. Active listening is a skill that needs to be developed.

Talkers may dominate a conversation but the listener controls it. Taking notes conveys to the customer that what they are saying is important and that you care enough to record it. It also helps you remember exactly what they said. But most of all—and this is precisely why psychiatrists and psychologists take notes—is the person will provide much more detail. The more you know, the more value drivers you will be able to uncover, and the higher prices you will command.

You also want to deal with the economic buyer—the person who can hire and pay you. Many consultants believe you are wasting your time if you cannot get in front of this person, because most likely you will be dealing with gatekeepers who can only say “no,” never “yes.” This may take a few iterations, but the customer is sending a signal they are not serious if they deny you access to the economic buyer, and you may want to invest your resources in more profitable opportunities—such as servicing existing customers.

Avoid the ever-present temptation to provide solutions to the customer’s needs and wants. That is not the purpose of the conversation at this stage. You are on a value quest with the customer, not in a venue to begin providing solutions. Your role at this point is to ask questions and have the customer formulate—or at least articulate—a vision of the future. Before doctors prescribe, they must diagnose, which is the role you must assume at this stage in the conversation. Anything less is malpractice.

Starting the Conversation

This is one of the most effective statements to utilize somewhere near the beginning of the value conversation, regardless of whether you are meeting with a new or current customer:

Mr. Customer, we will only undertake this sale if we can agree, to our mutual satisfaction, that the value we are providing is greater than the price we are charging you. Is that acceptable?

This establishes the right tone near the beginning of the conversation that yours is a firm obsessed with value, along with the willingness to demonstrate the economic impact that your products and/or services can have for the customer—how it will improve the customer’s life or business. It also subtly suggests that you will not enter into relationships that do not add value for both parties—the exact tone you want to set, as both sides to a transaction must profit if it is to be sustainable.

Questions You Should Ask the Customer

If all patients were the same, medicine would be a science, not an art.

––Sir William Osler, one of the fathers of modern medicine

Something similar to Osler’s statement can be said of questioning—it is an art and skill, not a science. Each customer is unique, and so must be your approach to questions. Just as with naïve listening, one should not be afraid to take the Lt. Columbo approach and ask simple questions. As English mathematician and philosopher Alfred North Whitehead wrote, “The ‘silly question’ is the first intimation of some totally new development.”

Peter Drucker also taught an effective approach to assignments: approach the problem with your ignorance:

I never ask these questions or approach these assignments based on my knowledge and experience in these industries. It is exactly the opposite. I do not use my knowledge and experience at all. I bring my ignorance to the situation. Ignorance is the most important component for helping others to solve any problem in any industry.

There are questions you should ask every customer to assist you in determining just where on the value curve your customer is located. The more information you seek from customers, the better equipped you will be to assess their price sensitivity. Always ask open-ended questions to engage the customer in discussing goals, aspirations, fears, desires, and dreams of the future. This has a tremendous psychological impact, because most people’s favorite topic is themselves. Start with the following questions:

• What do you expect from us?

• What is your business model? How do you make profit?

• What are your company’s critical success factors and Key Predictive Indicators (KPIs)

• How will the services we provide add value to your customers?

• Which of our company’s offerings is of the highest value to you?

• Who is the next best alternative (competitor) to our company?

• What characteristics do they have we do not, and vice versa.

• What is your current pain?

• How do you see us helping you address these challenges and opportunities?

• What growth plans do you have?

• If price were not an issue, what role would you want us to play in your business?

• Do you expect capital needs? New financing?

• Do you anticipate any mergers, purchases, divestitures, recapitalizations, or reorganizations in the near future?

• We know you are investing in Total Quality Service, as are we. What are the service standards you would like for us to provide you?

• How important is our service guarantee to you?

• Why are you changing suppliers? What did you not like about your former supplier that you do not want us to repeat?*

• How did you enjoy working with your former supplier?**

• Do you envision any other changes in your needs?

• If we were to attend certain of your internal management meetings as observers, would you be comfortable with that?

• How do you suggest we best learn about your business so we can be more proactive in helping you maximize your business success?

• May our associates tour your facilities?

• What trade journals do you read? What seminars and trade shows do you regularly attend? Would it be possible for us to attend these with you?

• What will the success of this engagement look like?

• What is your budget for this type of service?

*Do not denigrate the predecessor supplier. First, this insults the customer and reminds the customer of a poor decision. Second, it diminishes respect and confidence in the industry as a whole.

**Even though the customer is changing suppliers, almost certainly the customer liked some characteristics of the predecessor. Find out what these were and exceed them.

Believing Your Worth

There is great nobility in getting paid what you are worth. Nothing is more satisfying than customers who believe—and act on the premise—that they get what they pay for. The best way to achieve this is to have a value conversation.

Book and Resources

• Bosworth, Michael T. Solution Selling: Creating Buyers in Difficult Selling Markets.

• Cohen, PhD, William A. A Class with Drucker: The Lost Lessons of the World’s Greatest Management Teacher.

• Hoffer, Eric. Reflections on the Human Condition.

• Johnson, Robert. Kick Your Own Ass: The Will, Skill, and Drill of Selling More Than You Ever Thought Possible.

• Khalsa, Mahan. Let’s Get Real or Let’s Not Play: Transforming the Buyer/Seller Relationship.

• Marcus, Stanley. Minding the Store: A Memoir.

• Rackham, Neil. SPIN Selling.

• Mahan Khalsa’s free iTunes podcasts on How to Dramatically Increase Sales by Helping Clients Succeed.

• Simon Sinek’s Ted Talk: Start with Why.