What Can The Inventor Of The Calculator Teach Us about Value
- Dan Greenberg
- Sep 26, 2024
- 5 min read
I’d like to start with an almost certainly apocryphal story about one of the first people to invent a pocket sized electronic calculator, and his visit to an accounting convention. The truth of the existence of the story is much less important than the takeaway from it. As the story goes, the inventor of this revolutionary piece of equipment circled the floors of the convention wowing his audience. The accountants were in awe of the simplicity and functionality of the device. The speed with which they could do calculations, and the portability of the device made it a no brainer. The only issue for the inventor of the device that day was that he did not make a single sale.
You see, each conversation went extremely well until the point where he told the accountant the price. Sure, the calculator was a spectacular piece of technology, and made them better at their jobs, and more efficient. But, the question was, how much better? and, how much more efficient? And, how much, in dollars, was that improvement worth to them? The inventor had answered all of their questions about the product, and the use cases, and even the vision of what their world would be like when using the tool, but he didn’t answer that last and most important question. How much was that new reality worth to them, in terms of real dollars, right now.
There are four basic ways to position value as far as your solution is concerned. It either drives revenue, reduces costs, improves efficiency, or mitigates risk. There can be overlap. Solutions often reduce costs, and mitigate risk. Solutions can often maximize efficiency, which in turn, reduces costs or drives more revenue. But the point is that you have to be sure which one resonates most with each person you are talking to, and then you have to figure out how to quantify that value, and then pit it against the negative value associated with not making a change. The inventor of the calculator never did that with his accountants and therefore the first time they thought about the price of the solution was in a vacuum. An expensive product is only expensive relative to something. If I tell you that you need to give me $1 million and in exchange, I’ll give you $2 million tomorrow, I may sound like the infamous Nigerian Prince, but assuming you believe me, that $1 million cost is not expensive. In fact, it’s the opposite. But if you hear that something costs $1 million in a vacuum, and you are not thinking about it in context of the benefits and costs associated with the status quo, then $1 million is expensive, and that is the first and only thing you will think about.
The other thing that sellers need to be very aware of, when it comes to value is understanding if they are selling something that is revolutionary or simply incrementally better. Selling a revolutionary solution means you better convince the buyer that they have been doing things incorrectly for a long time. You need to provide insights that show the costs of the status quo, and you have to prove to the buyer that the value of doing things differently far outweighs the risks of the change and the costs of the status quo. If you can do this, you are likely to have little direct competition, but that is not something that is easy to convince a buyer of. Incremental sales mean you better convince the customer that you are the best, that you are an exact fit for the category they already have, and that the switching costs are worth the incremental improvement. This means that the client has already identified the problem and taken steps to address it. They may even already have a vendor. The value equation here is much different because instead of pushing back against the status quo and alleviating concerns of risk, you are positioning your value directly against the value of competitors. They may cost more, or produce less efficient results, or solve fewer problems, thus indirectly leading to higher costs, or have any one of a number of other potential deficiencies that you can speak to, but the point is that the value conversation is much different. The value that you provided does not have to be established as being needed, but it does have to be proven. In these situations, you don’t have the hurdle of convincing the buyer that there is a better way, you just have to prove you are the best among stiff competition.
Your clients will not normally take the time to build a scenario that shows the status quo or the competitor and all the costs associated with that decision versus the benefits, and then compare it to you. procurement may do it at a very cursory level, but it will be highly focused on costs and resource allocation, with a tacit nod to benefits. They will also almost certainly not discuss it or share it with stakeholders. Stakeholders most likely will not do this because they feel like they have a good understanding of the issues, and can reason it out without spending the time doing this. Even if they do it, it will likely be to check a box, and may not factor in all of the components that are important.
As you move towards the end of a sales cycle, if you have provided insights, and not acted as a one dimensional cheerleader for your products, you will likely have earned the social and relationship license to help the client in their calculations. You are allowed to do this because you are a salesperson, trying to make a deal, and everyone knows that, and we are not trying to hide from it, so it is expected, but at the same time, you have not spent the entire sales process blindly advocating for your products without taking into account your client’s other constraints and business realities.
In this moment, you have moved to a point in the process where you can transition from someone who was helping them bridge the gap from problem to outcome, to someone who is now helping them bridge the gap from decision to execution. If they are leaning towards buying they will want that help, and you giving them a story to tell internally to procurement, accounting, and other stakeholders is helpful.
When you help your client build a model that assesses costs vs. benefits, you can do a side-by-side with competitors, or simply show your value-add relative to the status quo. This is a decision for you to make in the moment, and depends on a number of factors. Don’t give a competitor legitimacy by including them, if you think you are the favorite. At the same time, if you think you have a definitive way of out positioning your competitor, and you think it is a tight race, you may want to include them. A lot of the decision making process on this will come down to where in the pecking order you feel you are, and if you are pitching incremental improvement or revolutionary change.
Once you have made your decision, factor in all of the costs of selecting your solution for the client. If you just factor in the cost of the solution, they will take you much less seriously, because you didn’t bother to factor in resource costs, and other process costs required for implementation and integration of your solution. Add those in and ask if you are missing anything. This also gives you license to add benefits that are tangential to a decision to go with your solution. Be realistic, and help them understand the real value tradeoff. This is important because they will likely not have put all of this together in their head yet, even though they conceptually understand it all. But it is also important because you are giving them an anchor point from which to tell their story internally.
Excellent insight