All businesses make software purchases. It is necessary to be efficient and to compete. These purchases are made to solve a problem and often times they do, but how do you maximize the value of your purchase?
In my experience, maximizing the value of your software purchase is like herding sheep; if you know what you are doing it can look and seem effortless, but if you don’t, it can be a disaster. Regardless, it takes a fair amount of work gaining internal and external alignment to proceed with a purchase which I will attempt to explain in this post. I’ve spent over 10 years in Supply Chain Management where one of my core responsibilities over the years has been negotiating contracts. I’ve negotiated hundreds of software contracts ranging from a few thousand dollars up to several million dollars. Through these efforts, I’ve observed three principles for success that are generally the same in all purchases.
Principle #1 Scope
This is often the most difficult task in a purchase and understandably so. It is fairly easy to identify a problem, but there can be dozens of solutions. Additionally, assuming you are talking to multiple vendors, each vendor will have their own solution and those sales reps are highly incentivized to convince you that theirs is the best. So what do you do?
As the independent party, I will work with the decision maker to help them scope things out. This could be the VP of Marketing or the Sales Operations manager. Essentially, we are building a framework for how we will make a decision by dissecting the problem into its smallest components. It is not uncommon to include a vendor in this process. Vendors are experts in this space and for businesses that are solving a problem for the first time, this can be a great way to speed things up (be sure to keep in mind the biases that may enter the process). Through this process, I am not taking the problem statement as granted, my job is to challenge everything. This has 2 benefits. First, this helps me thoroughly understand the scope we are establishing and second, it ensures we avoid scope creep . Like any project, the more you narrow your scope, the better the result.
Another key component of scope is timeline. Timeline has the biggest impact on the whole purchasing decision. It is important to understand and test the decision maker's timeline as much as possible. When I am discussing timeline, I am also setting expectations for how much time we will need to asses vendors, negotiate pricing and finalize legal terms. Naturally, depending on the complexity of the negotiation and impact this purchase will have on the business, the process can range from a few weeks to many months. And along the way, my role is to re-iterate the timeline and discuss tradeoffs for expediting or delaying. If you scope things well, the rest should hopefully flow smoothly.
Principle #2 Consistency
During the process of negotiating a contract, it is important to be consistent. Inconsistencies in scope, how we view the problem and what we say to vendors can delay the timeline and cause unnecessary costs. Additionally, it is pretty common for a sales rep to try and reach different people at your company to try and steer the project in their favor. This can create misalignment internally that will need to be resolved.
For the sake of this post, while consistency can mean many things in the context of a software purchase, I am going to focus on what we say to vendors. When it comes to communicating or negotiating with vendors, I have worked with people that believe we need to deceive the other side in order to get a good deal. In my experience, the opposite is true and here’s why.
We have a very short amount of time to build rapport and credibility during this purchasing process. And in my opinion your credibility is everything. If we purposely state something that is revealed to be false, this can severely impact the relationship. If you damage the relationship during the purchasing process, this can kill your negotiation right there. Your likelihood of receiving a concession goes down when your words could be interpreted as bluffing. Additionally, a damaged relationship can have a lasting impact. If a vendor has any reason to distrust you, you will struggle to receive upgrades, early access to new feature or a rate hike discount in the future.
My advice, to make sure you are being consistent, is to ask all internal stakeholders to talk to you before communicating with a vendor. Whether it's by email, a phone call, or in person, make sure you know what is being communicated. You will find that the stakeholder may be saying something inconsistent with what has been said in the past, in which case you will want to challenge them before moving forward. Or, they are revealing a pertinent piece of information to the vendor that you will need to know so that your future conversations are consistent with that piece of information.
Principle #3 Flexibility
Now this is going to sound a bit contradictory to principles #1 and #2, and in my opinion, it kind of is, but keeping the team flexible to different options or solutions is how you truly maximize value. For context, this is in reference to the second half of a negotiation, at this point you have sifted through multiple vendors, you are familiar with all the capabilities available, initial proposals have been reviewed and you are revisiting your initial scope. At this point, you have likely learned many new things which have likely influenced your final scope. In fact, you may even view your problem completely differently now.
Additionally, you may have to go back to the vendors and explain why you view the problem differently or why the scope has changed. This may seem inconsistent to vendors, but hopefully your transparency and credibility established upfront paired with your logical explanation of why things have changed along the way will yield a positive result.
In practice, having flexibility to me means walking through a few hypothetical scenarios with my internal stakeholders. A few examples of what this may look like:
If vendor A adds these features would you choose them over vendor B?But if vendor B drops their price to $X, would you choose them?If you didn’t get this functionality, could you still make things work?
And this helps give me some guardrails around how to make a final decision and how to negotiate final terms. It also causes the decision maker to think critically about the final solution. It is very common for the decision maker to want the “best” solution and they may be fixated on a single vendor, but my job is to see what it would take for them to choose an alternative. If I can get them to consider a different option going forward, then I can go back to a vendor that would normally be out and get them back in play. And when the “best” vendor is about to lose the business, we all of a sudden have real leverage to get a better price.
The principles above have helped me navigate hundreds of software purchases. While each decision maker that I work with is unique, these principles have remained constant and allowed me to “herd sheep” successfully. I encourage everyone to give this a shot and find their way of maximizing the most in their purchases. Good luck!
Find Alex Morales on chief.io, a community of experienced business software users