by Norm Brodsky
At one point, for example, I got a chance to pitch our records storage service to a large accounting firm in New York City. A friend of mine had helped me arrange a meeting with the partner who handled purchasing for the firm. I knew going in that this firm would be a tough sel . The partner had a close relationship with his current storage company, and he didn’t try to hide it. He said, “I have to be honest with you. I’ve been doing business with these people for a very long time, and I like them.” He also told me he planned to show them any proposal we made. My guess was that they wouldn’t have to match our bid to keep the business. They’d just have to come close. In effect, he was using us to negotiate a better deal with them. That’s al he real y wanted.
What I wanted, of course, was the contract. To have a shot at winning it, I had to show the partner how we could help the firm save money. I suggested that I spend some time in the firm’s records room, studying how its files were managed. “Records management is my business,” I said.
“It’s not yours. I think I know more about it than you do, and I can give you some suggestions on how to improve your system.” He thought that was a great idea and had his office manager take me down to the records room.
What was I looking for? Two things: internal savings and external savings. I wanted to find ways that the firm could save money, not only by changing how it operated internal y, but also by reducing the charges it incurred for external services. As it turned out, I had no trouble spotting opportunities to do both. The firm had what was essential y a manual system for keeping track of its files. There wasn’t enough space in the records room for someone to enter the contents of files directly into a computer. So, instead, the records people would write the information down in a log, send the boxes out for storage, and do the computer work later. They were a year behind, however, and used the computer mainly as a backup.
The system was extremely inefficient. It required too many people, wasted tons of time, and resulted in costly errors. It also led the firm to spend more money than necessary on archive retrieval services. Because there were too many boxes on the premises, for example, the firm was constantly having to send some back to make room for new ones coming in. As a result, it wound up ordering—and paying for—five deliveries a week, when it should have needed only one.
I spent about two hours in the records room. Later I cal ed the partner. We agreed to have a fol ow-up meeting, including three people from my company and seven from his. The meeting began at 5 p.m. and ran for almost five hours. I told the people from the firm everything I’d found and gave them numerous suggestions for cutting costs, many of which they could implement immediately. I also offered to help them find the software they needed to upgrade their computer-based tracking system, using contacts we’d developed in our work with other businesses.
Understand what I was doing here. First, I was educating the partner and his people about my business. I was teaching them how to save money by being smart consumers of records storage services. The more I told them, the more questions they asked. It was as if they’d never real y understood what they were paying for.
Second, I was letting them see what they weren’t getting from their current supplier—without saying a negative word. As I noted earlier, I never bad-mouth my competitors to customers. I believe that when you do, you wind up looking bad. Stil , you have to show how you’re better and why the customer is going to benefit from using you rather than them. So I took care to point out a number of potential external savings that I knew the accounting firm couldn’t get from its current supplier. Our competitor didn’t have the right technology. We did.
Third, and most important, I was building trust. How? By giving away our ideas and our expertise. By going forward without any guarantees. By investing a significant amount of time and effort in helping the firm save money, with no promise of a return. In effect, I was making the case that the partner should give us the account because he could depend on us to watch out for the firm’s best interests. I was showing him not only that we could help him save money but that we cared about saving him money, that we were trustworthy. I was giving him the best reason in the world for switching suppliers: peace of mind.
That’s exactly what you have to do if you’re going to compete successful y in an environment of extreme customer loyalty. You have to prove that you deserve a customer’s loyalty more than your competitors do. Believe me, it’s a long, difficult, and expensive process, and you don’t always walk away with the sale. Fortunately, in that particular case we did, but it took another eight months. During that time, we continued to offer our advice to the firm and spent hours upon hours working on the specific terms of a possible deal. Meanwhile, the firm was also negotiating with our competitor.
In the end our patience was rewarded, and we landed the account, much to my relief.
Of course, we probably wouldn’t have pul ed it off if I hadn’t been so involved in making the sale. I’m not bragging here. The fact is, you need to know your business extremely wel to be able to sel this way, and who knows it better than the person who built it from scratch? In other words, an entrepreneur’s knowledge is a significant competitive advantage. I use mine whenever I can.
Ask Norm
Dear Norm:
I have a three-year-old company that produces job fairs, and we’re riding a roller coaster. Business is great for three or four months in the spring and again for two or three months in the fall. In between, there’s nothing. Our cash flow falls to zero. Meanwhile, we still have to pay our employees. We’ve tried attracting customers by offering off-season discounts— tono avail. The cash crunch gets so bad that we spend most of the good months just recovering. This problem is crippling the business and my emotional stability.
Kent
Dear Kent:
First of al , off-season discounts usual y don’t work and may undermine the profitable part of your business. Instead, you should look for ways to diversify. Are there other types of shows you could produce in the down months? Could you do consulting during those times? You have to be creative, but diversification is general y the best solution to seasonal fluctuations. Meanwhile, deal with the cash-flow problems directly. Can you negotiate to pay your leases during the months when you have more money in the bank? Can you speed up your col ections when cash is tight? Also try explaining the problem to your employees and asking for their suggestions. They may wel come up with ideas you’d never think of.
—Norm
Listen and Earn
Oddly enough, one of the best ways to increase sales is also the most obvious, although you’d be amazed how few people actual y use it. I’m talking about listening to customers. It happens so rarely these days that you can actual y gain a competitive advantage just by doing it.
I’l give you an example. One day, I was showing two people from a large New York law firm through our records storage facility, hoping they would give us their business. We hadn’t gone too far before one of them, the office manager, said, “By the way, we want to keep al of our boxes in numerical order. If you take one out, we want it put back in exactly the same spot.”
Now, normal y, we don’t file boxes in a particular order. Our bar-coding system al ows us to find boxes instantaneously no matter where they’ve been stored. But I always try to give customers what they want, and this potential customer had just told me what she wanted. I said, “Fine, no problem.”
She looked at the other person, then back at me. “Aren’t you going to tel me I’m crazy?” she asked.
“You didn’t ask my opinion,” I said. “You told me what you wanted, and I’m sure you have your reasons.”
She started to laugh. “Wel , everywhere else we’ve gone, they’ve tried to talk us out of it. You’re the first person who just said, ‘Yes.”’ We got the account.
In tel ing this story, I don’t mean to imply that listening to customers is easy. On the contrary, it’s the most difficult part of the sel ing process. Al k
inds of extraneous issues get in the way. For one thing, you often believe you know what’s best for the customer, and sometimes you may even be right. I can readily understand, for example, why my competitors tried to discourage the law firm from keeping the boxes in order. From a storage company’s point of view, it’s an inefficient practice. You get nothing but hassles with no apparent benefit, and the customer winds up paying more for the service. The other companies may wel have thought they were offering the law firm a better alternative. There was just one problem: it wasn’t what the customer wanted.
And, when you’re sel ing, your entire focus should be on figuring out what your customers want and then, if possible, giving it to them. You don’t real y know what’s best for them, after al . How could you? In any situation, there are numerous factors of which you are completely unaware. I’m not arguing against helping customers find better ways to deal with their needs, but you have to be careful. It’s too easy to confuse your needs with their needs, particularly when you’re trying to make a sale.
Pride also gets in the way of listening to customers. As a salesperson, you natural y want to emphasize the best things about your company, and why shouldn’t you? You’re proud of them, and justifiably so. You want people to know about the special services you offer, or the hot, new product line, or the state-of-the-art computer system in which you’ve just made a six-figure investment. So what happens? You oversel . You don’t hear the customers when they say the computer system isn’t important to them. You think it should be important to them. You know that, if they knew more, it would be important to them. So you keep on touting its benefits, and you don’t notice that their eyes have glazed over. You’ve lost them.
Then, of course, there’s ego. I give tours to prospective customers, and some of them wil look around at al the boxes in my warehouses and say,
“Gee, are you afraid of having a fire in this place?” In fact, I’m not afraid of a fire, and I might wel respond, “No, we’re protected. It’s not a concern.”
But that would be my ego talking. When a customer asks such a question, it’s because she is worried about a fire. Why she’s worried is none of my business. The point is that I need to respect her fear, not minimize it. So my answer is, “Yes, certainly, I’ve thought about the danger of fire, and let me show you what we’ve done about it.” Some people might say I am being disingenuous. I prefer to think I am being unselfish. I’m putting my ego aside and responding to the concerns of the customer.
And that is my goal as a salesperson. I don’t worry about closing sales. I worry about making customers feel as though they’ve been heard, understood, and responded to. I want them to leave with a warm and fuzzy feeling. If they do, the sales wil fol ow.
You can’t make customers feel warm and fuzzy if you don’t listen, if you don’t shut out al your preconceptions and prejudices, your agendas and opinions, and hear what they’re real y saying. Doing that doesn’t come natural y. It requires discipline and practice. You have to develop routines to block out the distractions. I myself sit quietly for a couple minutes before taking customers on a tour of our facility, and I try to make my mind a blank slate. I repeat over and over, “No preconceptions. No preconceptions.” I wipe out any thoughts I might have that would keep me from hearing or observing the customers. Yes, I’m going to talk about our product, emphasizing what I consider to be the important features and benefits, but I’m not going to push anything on people. I’m going to find out what they want. I’m going to look for the clues, verbal and nonverbal. I’m going to listen to what they say and what they don’t say, and I’m going to respond accordingly.
And it works. I watch, I listen, I hear, and I find out unexpected things. Sometimes a comment wil be made about an issue on which I have a strong opinion, and I’l have to remind myself, “Don’t take sides. Don’t take sides.” It does require some effort to avoid being distracted. The sel ing part, on the other hand, becomes much easier when you listen careful y to what people are saying. You just turn around and tel people what they want to hear. Not that you should mislead anyone. The information has to be true and accurate, but you can emphasize the parts they’re most interested in. You don’t have to create a sales pitch. Your customers tel you what to say.
The Capacity Trap
I hope you understand that I’m not suggesting you give customers whatever they ask for. Sometimes they ask for things you can‘t, or shouldn’t, provide, such as a price substantial y below what you need to charge in order to earn a reasonable profit. Most businesspeople are smart enough to realize they can’t do much discounting of that sort without getting into serious trouble. There is one form of price cutting, however, that even experienced businesspeople fal victim to. I’ve seen it wreck entire industries and bring down established companies, not to mention countless start-ups.
Ask Norm
Dear Norm:
I am a fledgling neckwear designer, and I’ve finally gotten all my ducks in a row. I contacted a local menswear chain and persuaded the buyer to take a look. I sent him tie samples, fabric swatches, photos, everything. Two months ago he assured me he was going to place an order. Since then I’ve called him repeatedly, and he always tells me he’s about to fax the order, but he never does. I’m having second thoughts about doing business with someone whose word doesn’t mean anything. Should I keep pestering him?
Pam
Dear Pam:
I’d bil him for the ties with a tongue-in-cheek note. Say something like, “I’m sure you loved my ties so much, you’re probably wearing them, but as a smal -business person, I have to get paid for my services. If you are not satisfied with the ties for any reason, you can always return them.
Otherwise please send me a check.”
—Norm
I’m referring to the practice of sel ing unused capacity at a discount in order to make sure it doesn’t go to waste. The extra capacity might take the form of an empty warehouse, or machinery that’s used only sporadical y, or even the time of, say, a consultant. When an opportunity comes along to sel that capacity at a reduced rate, most people find it hard to refuse. They think only about the money they’re going to make on something that would otherwise go to waste. They ignore the problems they’l create if they charge significantly less for their service than it’s worth.
I cal this the capacity trap. Why a trap? Because, at first glance, it looks as though you’re making a sound business decision. In fact, you’re putting yourself on the road to bankruptcy.
Let’s take the classic example of a guy who leases a truck, hires a couple of workers, and goes into the freight-hauling business. He charges the standard rate—say, $45 per hour—and manages to book three days a week of business. Then he hits a dry spel . He can’t find anyone else who wants to buy his service at that price. Final y, a customer shows up and offers to rent the truck for the other two days at $25 per hour. The guy thinks,
“Why not? I have to pay for leasing the truck anyway. I might as wel get some income out of it. I sure don’t want it to just sit here.” He accepts the offer, which brings in an additional $400 per week in sales. The guy is satisfied. He is getting ful use of his truck. He’s not letting any capacity go to waste. What could be wrong?
Plenty. For openers, he is no doubt making less money on the sale than he imagines. That’s because he’s focusing on one factor: capacity—
what it costs to lease the truck. Meanwhile, he’s ignoring al the costs he incurs only when he uses the capacity—gas, wear-and-tear, maybe labor.
He might actual y do better by letting the truck stand idle those two days, but he wouldn’t know it because he’s looking only at sales, not profit. It’s a common failing, especial y among people starting out in business. Unfortunately, it’s sometimes a fatal one.
But let’s assume this guy has taken his operating costs into account and figured out he can make a profit on the sale. It’s stil a bad idea for him to rent the truck at a lower price. I’d argue that
it’s almost always a bad idea to cut prices simply to avoid having unused capacity—for four reasons.
First, there’s the cost of capital. Whenever you make a sale, you are, in effect, loaning money to a customer, at least until the bil gets paid. It’s like making an investment in the form of credit. You need to make sure that you’re getting a good return on your investment—that you’re using your capital to generate enough profit to keep you going. It’s a mistake for any business to waste capital on low-margin sales. It can be suicide for a new business, which has limited capital by definition and wil never get beyond the start-up phase if its capital runs out.
Second, there’s the opportunity cost. When you fil capacity with low-margin sales, you leave no room for high-margin sales. What wil the freight hauler do if he finds another customer who’s wil ing to pay the ful price? Wil he even bother looking for another ful -price customer?
Meanwhile, by cutting his prices, he has just brought a new competitor into his market: himself. This is the third reason not to go after low-margin sales, and it’s based on a general rule of business—namely, that prices always seek their lowest level. When you charge two prices for exactly the same service, you are competing against yourself, and it’s only a matter of time before the competitor with the lower price wins. Customers are not stupid. Sooner or later, they’l figure out that you’re wil ing to sel for less. When they do, you’l have a very hard time getting any of them to pay more.