Thursday, February 21, 2008

The Dynamics of a Recession

The old saying is; “A Recession is when your neighbor is out of work and a Depression is when you are.” Keep in mind that during a recession over 95% of the employable working population is still gainfully employed. They may modify their spending, which has a trickle down affect, but they don’t stop spending. Here is an indicator; the Consumer Electronics Association trade group forecast industry revenue would grow 6.1 percent over 2007 to $171 billion -- despite rising energy costs, a slumping housing market and the subprime lending meltdown. Television displays are to make up the largest portion of projected sales at 16 percent. Shipments of TVs will grow 13 percent to more than $29 billion, the trade group forecast. Does this sound like a serious recession or is the old saying still true?

The International Monetary Fund projected in December that the U.S. economy would grow only 1.9 percent in 2008, its slowest rate in six years. So what’s up with this? The electronic entertainment industry is going to grow three times the U.S. economy and we’re in a recession. Economic downturns are like the weather. Forecasting a 40% chance of rain in your city doesn’t mean you’ll see rain. It follows Heisenberg’s Uncertainty Principle. We can predict with almost 100% certainty that there will be a downturn in the overall economy, but we cannot predict with certainty what the impact will be on any one industry, business or person. It’s just too granular and elastic.

The amazing thing is that each person, business and industry can take steps to mitigate the impact. The larger the group involved the harder it is to coordinate the effort required to be successful at making this adjustment. Individuals can react very quickly to change their habit. Businesses, with strong leadership, need more lead time to turn the ship because of the mass. Industries require way too much inter-competitive cooperation to be successful. Some business will use the downturn in the economy to sabotage competitors within their same industry making it even harder for the industry to adjust. The point is that each has a decision to make concerning the degree and length of the impact of an economic downturn.

So what are you doing? Are you going to be buffeted by the winds of change, or take the helm and use this wind to go faster? Now is the time to rethink strategies. In an economic downturn the focus must be, more than ever before, on hard dollar benefit to the buyer. Can you make money or save money by using my product? Discretionary spending will dramatically decrease, not go away, but decrease. At the individual level people will put money in things that they can get the money back out of if needed. Can I reduce the heating bill; can I increase the value of my home? Businesses will spend money to reduce the overall cost of operations. Can they automate an operation saving the need to hire additional people? A note here, very seldom will a company intentional set out to downsize their workforce. Downsizing, right sizing and outplacement are almost always the result of a lack of cash flow. It’s a by-product of events, not the objective. Your strategy should be to leverage existing people to do more.

If you use a reseller channel, what incentives are you providing your partners to help their customer buy more from them? Most suppliers provide incentives (typically through discounts) to the partner hoping for a trickle down affect to their customers. Be a little more obvious and intentional. An example might be to provide a payment plan for the end-user through the reseller. The interest on the money won’t be more than the original discount and the ultimate buyer see a direct benefit.

Get away from the victim mentality. Take control of your destiny. Put in place intentional strategies to protect yourself over the next few months. The more you can encourage the market to buy your offerings, the shorter the “recession” will be. It’s good for all of us.

Friday, February 15, 2008

Decision Process Management

Many deals are lost because the sales organization was either unaware of the true decision process or overconfident of their value in this process. Often sales people get trapped in the notion that the decision process is more or less linear. There is a hierarchy of groups or individuals, which ultimately report to single person with total authority over the decision. This is very seldom true. There is a person who has been given the responsibility to sign the contract. That person may have tremendous leeway in making the ultimate decision. But most of the time the one given the responsibility to sign the contract does not feel they have the total authority to sign it. Most of the time responsibility and authority are two totally different processes.

To get to the bottom of this complex transaction, one must first understand the nature of the business problem. As an example, the IT manager who is trying to buy a new processor has been given the specifications, budget and responsibility to acquire the needed resources. But he or she does not own the business process that is driving the need. The value the IT manager puts on the purchase is driven by competition and budget. The value to the functional manager responsible for the business problem is something entirely different.

A big part of decision process management is the ability to understand the needs and responsibilities of everyone involved in solving the business problem. The IT manager is involved in a formal process with defined rules designed to be impersonal to the organization. This process is several steps removed from the functional business needs assessment because the business understands that the IT manager does not need to fully understand the ultimate reason for acquiring the data processing equipment.

The informal decision process is soft and pliable and is based on factors which change from deal to deal. The informal process is very self-motivated. Informal decision makers have “skin” in the game. They generally have a target return on investment that they must deliver. He or she generally has the ability to make decisions for solutions that are outside the box of traditional thinking.

How many times has the IT manager either dismissed a creative solution as not within specifications or “bumped the idea upstairs for review.” The decision of your sales team to engage any set of players in the decision process is an important step in getting the deal. Don’t make the decision process more complex than it needs to be. But understand there can be other forces involved, and make an effort to determine exactly where they stand. Make every effort to know the entire process so that you can make an informed decision as to how to proceed, keeping in mind the true influencer might be a mentor who is not directly involved in either the business process or the formal decision process.

There are three fundamental levels of resistance when it comes to making decisions. The first level is the logical process of understanding the need. When you see a person’s eyes glaze over, eyebrows furrow, or head tip slightly to one side or the other, he is sending you an unspoken message: “I don’t get what you’re saying.” That’s your cue to slow down and touch base with the person before he or she gets so confused or lost in the morass of your idea that he or she loses interest altogether. After all, if he or she doesn’t get your idea, there’s no chance they’ll support it. The consultative approach to selling will help overcome this.

The second level is s based in the emotion of actually implementing change. Concern that something about your idea will make the other person look bad or lose status in the eyes of others, worry that your idea will cost the person his job or endanger his financial security, Nervousness that your idea will cause the person to fail, perhaps as a result of—and in the wake of—your success. Much of what we have discussed here should help to understand the personal risk involved with moving forward.

The last level is the lack of a trusted relationship. Focus on conversation, not presentation. Ask questions to find out what’s going on in the other person’s mind and why he or she opposes the idea. Find ways to connect with others. Paraphrase their concerns to show that you’re listening, embrace suggestions that piggy-back on your idea, and make it clear that there’s room—and opportunity—for others to join you as you move forward to implement the idea.

Take time upfront to understand this thoroughly. It will improve your chances of success and streamline the sales process.