WOW 12, Part 2

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As we explored in the previous blog post, WOW 12, Part 1, many people struggle when it comes time to talk ABOUT money in personal and professional settings. In this 99WOWs Blog post, we’ll dig deeper into this powerful topic, look at an insightful case study and explore six strong money-centric questions that can help entrepreneurs learn more about a client’s budget even with the most tight-lipped client. Not all of these questions work in every situation, but having such questions in your entrepreneur’s toolkit will help when such opportunities arise. This post is an expansion of a WOW from 99 Creative WOWs—Words of Wisdom for Business, a recently released quick-read book for thriving and striving entrepreneurs, biz whiz professionals, recent grads and creative wizards of all sorts. The book is available at www.amazon.com.

Converse well about money to negotiate fairly for all.

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In the last post, we explored why people shy away from money conversations. Businesses also tend to “leave out” this key data point when attempting to secure proposals, too. To help ensure competitive bids are apples-to-apples, clients know they must share information consistently across all bidders. Competitive bids are only as useful as the information upon which they have been built. Why do clients typically provide endless minutia in RPFs while withholding all information about money so often?

Conversely, even if clients withhold this information, why do suppliers, entrepreneurs and others preparing proposal also avoid this pesky topic? Here are a few popular reasons—

  1. Many companies have corporate policies that prohibit executives and managers from disclosing financial information.
  2. Even when executives are not restricted, they often choose not to share the budget because on some level many business professionals have been coached to believe that by communicating their budget, that’s exactly where the bids will come in. This can be the start of an adversarial relationship and can be interpreted as a lack of trust.
  3. Other professionals have been coached that by sharing their numbers, they could be over-spending. This is a manifestation of the “party who names the first number loses” approach.

When budgets are low, a common occurrence in tight economies, it makes even less sense to keep the budget number under wraps. In Plan A, the Case Study below illustrates what can happen when a client with too low a budget does not share financial information and what can possibly happen when a client does provide this key data point.

CASE STUDY

Serita is a pharmaceutical executive. She has only 3 months and $25,000 to deliver a highly important 16-page marketing brochure for a trade show that is 4 months away. She’s asking for a 3-week turn to have time to ship the brochures to the event and allow for emergencies with printers. She is soliciting bids from 3 proven marketing vendors she trusts. In reality, to meet the specs and deliver strong results, Serita knows that neither her 3-month timeframe nor her $25,000 budget is really sufficient. Let’s compare two possible outcomes that Serita could encounter by not sharing and then sharing her budget.

Plan A: Blind Budget RFP Approach

Instead of “coming clean” with these trusted suppliers that she has less time and money than anyone would like, in Plan A of this scenario, Serita released the blind budget RFP, hoping one of the three would somehow magically hit her number. Because she shared the timeframe, every supplier expressed concern about the schedule, stating that they needed four months minimum to write, design, produce, print and deliver the brochures. Because of the tight schedule and complete lack of budget information, all three suppliers not only came in over her budget as she expected, they all added fees for the compressed RUSH schedule.

This RFP process took three weeks: One week for Serita to prepare her RFP, a week for the suppliers to prepare and submit their proposals, and a final week for Serita to fret about what to do next since none of the bids worked as submitted.

At the end of week 3, Serita ultimately decided to call the supplier she’d thought all along would be the best fit for the work. After burning three weeks, she confessed her budget and asked the supplier for ideas about how they might figure this out together. Had Serita considered sharing the budget from the start, she would not have burned almost 25% of her work schedule securing bids that didn’t work.

Plan B: Disclosed Budget RFP Approach

In Plan B of this scenario, Serita not only shared the date, she also openly acknowledged that she’s short on both time and budget for this plum assignment. She further disclosed to all three suppliers that everyone’s competing against proven bidders so that what she really needs is help figuring out how to do a great brochure in 3 months for $25,000 all-in. This time, she asked for their input and ideas and she stressed that the supplier who truly demonstrated that the work could get done for this time and budget would win the assignment.

Two suppliers offered up suggestions on how to save time and another offered two ways to simplify the workflow. This same supplier also suggested that money could be saved with some value engineering ideas if Serita would be willing to consider them. This supplier suggested a change in paper stock, a digital print process to save four days and a plan to use imagery that was less expensive. This supplier submitted a schedule that showed how the work would get done and even capped every aspect of the design and writing fees to help allow for a printing surprise. Serita was so impressed with this team’s willingness to think out of the box that she awarded them the assignment with a stronger sense of confidence that she had found the right partner for this work.

When suppliers have all the information, problem solving and value engineering works. When major variables like budget are missing, suppliers are flying blind, which ultimately limits the effectiveness of competitive bids. When both time and money are tight, no one can afford to waste 3 weeks on poor RFP results.

While clients often withhold budget information, just imagine the same secrecy with a schedule: By keeping the required delivery date a secret, would clients ever think that competitive bidders might complete the work sooner than needed? “Gee, if I don’t state I need these in the warehouse by June 1, maybe I’ll get them even earlier?” But less is always more when it comes to money in a competitive bidding stance.

So, as an entrepreneur, how might you more effectively navigate these murky money waters?

ASK.

You may not always get an answer, you may occasionally get a false answer or an answer you don’t like, but you stand a much better chance of getting some valuable information you can work with by asking.

Six Strong Money Questions

Here are six direct questions entrepreneurs can ask of potential clients. Granted it may seem easier to pose these questions to clients with whom they have established relationships, but new potential clients can just as reasonably reply to these questions.

First, ask the most obvious question:

  1. Will you share the budget you have to work with? If you do not ask, you will never know.
  2. If clients will not share their number overtly, try a less-direct approach: I’m sure that just as you have clear specs for the rest of this assignment, you must also have a set pre-approved budget for this work. Would you share a range with all potential bidders in order to ensure you receive estimates within that range? When clients resist, and they might, you’ll be ready to follow up with the value of corralling the estimating process by helping to ensure that many weeks of bidding time are not wasted.
  3. What are the top three factors you will consider when making your final decision? I’m sure budget is in there; will you please rank these three. This answer will give you a sense of the client’s true priorities.
  4. While you’ve said you cannot share your budget with all bidders, based on your experience with this type of assignment, is the budget sufficient enough to deliver everything in the RFP as it is described? If you sense hesitation or even when receiveing a direct response, ask if it would be helpful for your client to also receive some value engineering recommendations. When the answer is yes to this question, you have shown your awareness of the challenges they face, offered to add value to this process, and potentially differentiated your proposal from the others.Even if your client takes you up on your offer to make cost-saving recommendations and then shares this request with the other bidders to keep the playing field level, you’ve still set your company part: you’ll be associated with this strategy going forward. Be sure to follow up on this question by asking the client to identify a few areas where value engineering is most reasonable to explore. As examples, if your client has extra time in the schedule, perhaps a different staffing strategy could lower prices; if a component could be cut or adjusted, or if materials could be modified or functionality could be modified, these kinds of questions not only give you a sense of where to focus, they also allow your knowledge to shine through.
  5. It will be extremely helpful for us to understand how you prefer to work when it comes to money. Without sharing specifics, would you share a few best and worst past experiences you’ve had with vendors about money? We want to be sure we can adapt our direct financial strategies to the experiences you’ve had up to now. Even when clients cannot share specifics about their current budget, they’ll often share past stories. By listening carefully to past experiences, you’ll understand your client’s hot buttons—to avoid them and provide a positive experience.
  6. Lastly, entrepreneurs can often glean information about money by NOT making money the focus of their question. If all three bidders came in at exactly the same dollar amount, how would you choose the right supplier for this project? If this answer does not align with question 2 above, you’ll know a bit more about the client’s current clarity about the work, the bidders, and the budget.

Try practicing these questions. The more comfortable you are incorporating them into your business conversations and business language repertoire, the easier it will become to actually ask them!

Do you have questions to add to this list or experiences to share about how you manage challenging money talks? Post your comments below.

 


 

WOW 12, Part 1

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Even though people often quip that “Money talks,” many people have a very difficult time talking ABOUT money in personal and professional settings. In the next two 99WOWs Blog posts, we’ll explore some of the factors that may be behind even the savviest entrepreneur’s resistance to facing money conversations head-on. These two articles are an expansion of a WOW from 99 Creative WOWs—Words of Wisdom for Business, a recently released quick-read book for thriving and striving entrepreneurs, biz whiz professionals, recent grads and creative wizards of all sorts. Because money conversations are as stressful as they are critical to ongoing success, in this first article post, we’ll demystify a few complexities about this key business tool.

Converse well about money to negotiate fairly for all.

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You may not believe how many otherwise gutsy and fiercely competitive entrepreneurs are actually afraid to talk about money. To an even greater degree, other business professionals are often more reticent to discuss this fundamental aspect of conducting business effectively. And yet, money matters so much to all parties, why is this so? Why are even gregarious, confident entrepreneurs often willing to ask for more information about a host of other project aspects, but suddenly fall silent when it comes to asking direct questions about money? Is this behavior a conscious choice or does it possibly spring from a more emotional place?

It’s likely that past outcomes are driving current unwillingness to risk raising awkward money discussions. When entrepreneurs have risked asking money questions in the past only to get shut down, silenced, or even looked at askance, it makes sense that going forward, even the boldest entrepreneurs often shy away from asking direct questions about money. Those past risks didn’t serve them well. Why go there again? The answer is simple: because, to do business well and negotiate fairly for all, entrepreneurs must be able to converse about money wisely.

Entrepreneurs tend to be quick learners, sometimes too quick for our own good. When an entrepreneur gets stonewalled, or worse yet, criticized for taking a particular risk with no positive outcome or response, entrepreneurs often rapidly regroup and correct their courses on the spot. Because money discussions can be difficult for everyone, it makes sense that this would be a topic where entrepreneurs have met a lot of resistance and hence, opt “not to go there anymore.”

Entrepreneurs don’t want to risk irritating clients or prospective clients. The ROR (Return on Risk), that of getting back valuable information, can be low when it comes to money so many entrepreneurs simply avoid the issue, deciding not to go back into that particular lion’s den again. This strategy, however, may reduce tension for both clients and entrepreneurs, but the decision not to explore money early on in any business relationship usually comes with a high price tag for all parties.

Why are money discussions so difficult?

Money is shrouded in secrecy. To be privy to budgets and other financial matters, one often needs a certain level of status or clearance in an organization. Money is also interesting to many, though often relevant to only a few. For example, while team members might be highly curious about the salaries of those around them, unless they are directly responsible for payroll and benefits, they don’t require this financial information to do their jobs, but many spend a lot of energy seeking out this financial information nonetheless.

Money is often perceived as the ultimate measure of worth. To discover one’s earning less or more than a colleague can impact performance, commitment and ego. It’s tough for many people to ask for a raise, stand firm when pressed to lower a price or to even broach the topic of “how much”?” in many different personal and professional situations.

In addition to the impact of past experiences and the low ROR described above, another possible reason that business professionals hesitate to jump into money talks relates to tipping one’s hand. Many business leaders fear that the party who names first number loses. This belief may well explain why in a negotiation or a project assignment, clients are so willing to share every other absolute.

“We need x units for y markets and we need them delivered onsite live no later than midnight on z date.”

These demands are clear and concise—though one key variable is notably absent. Requests for Proposals in competitive bidding situations often spell out myriad specifications and project requirements in infinite detail. Clients are typically extremely specific about every want and need associated with a potential assignment, save one: HOW MUCH MONEY they have to spend. WHY is this so often the case in so many industries?

By the time clients have gotten internal approval to solicit RFPs, they typically have a very clear understanding of—

WHAT they need to create,

WHEN they need it delivered,

WHERE the deliverables must be sent,

WHO the users will be,

WHY they need this particular assignment at this time,

HOW it must be produced and in what final form it must ultimately be submitted.

In order to receive competitive bids that are apples-to-apples, clients know they must share all of this information consistently across all bidders. In addition to these critical bid parameters, clients rarely secure internal approval to proceed with RFPs without also knowing HOW MUCH they are approved to spend on the assignment. While it is true that sometimes clients float out an early pre-approval RFP to get a sense of the probable cost in order to create a budget, when it comes time for an actual competitive RFP process to begin, most clients already know HOW MUCH money is in their budget. Why then do clients typically withhold information about money so often?

Conversely, even if clients withhold this information, why do suppliers, entrepreneurs and others preparing proposal also avoid this topic? Because it is often so uncomfortable to discuss money, many entrepreneurs hide behind the unspoken “I’m not telling you anyway” caveat: THEY DON’T EVEN ASK. Why?

I’ve asked this question of clients, peers, colleagues and mentors—the answers are similar:

  1. Some companies have corporate policies that prohibit executives and managers from disclosing financial information.
  2. Even when executives are not restricted, they often choose not to share the budget because on some level many business professionals believe that by communicating their budget, that’s exactly where the bids will come in. This is often dubbed “setting the table” of expectations.
  3. Other professionals have been coached that by sharing their numbers, they could be over-spending. This is a manifestation of the “party who names the first number loses” approach.

In the next article, we’ll dig deeper into this “money-conundrum” and look at a case study and focus on six money-centric questions entrepreneurs can ask clients about this highly sensitive subject.

Do you have insights to share about why money talks are so challenging for so many? Post your comments below.