I have been steadily working my way through the Building a Business podcast from the Oxford University.  All the topics covered are pretty standard but there are a lot of insights available from the top people in their field.  The podcast on negotiation, given by Owen Derbishire,  has some real nuggets.  I’m going to try and summarize them here.  You can listen to the whole lecture here.

No deal is sometimes a good deal

Ever go shopping for the day and come back with absolutely nothing?  It is kind of a bummer.  All that effort and nothing to show for it.  We are naturally biased towards doing a deal.  Its worth remembering that when in any negotiating.  I have a natural tendency to do some deal rather than walk away – even if that deal might be bad.  You can see this in the Dragon’s Den, every episode where entrepreneurs give away large chunks of their business.  This tendency isn’t limited to small timers either.  The infamous 3g auctions of the early 00’s left supposedly smart phone companies over-paying massively for licenses which never made a return.  In short, don’t be afraid to walk away.

If you can: auction

The name of the game in an auction is to guess what a particular item is worth to you.  In our case, this most commonly means bidding on an adword keyword.  The price I pay for adwords is based on what others are paying (eg: if the guy ahead of me bids €1.99, I pay €1.98 per click).  Now, thinking about this for a moment, on average, in any group of people there will be those who guess correctly as to the value of the ad and those that do not – and overbid.  The Google system is set up to reward the overbidders but providing a higher positioning.  This is exaserbated by the fact that there are always people floating into the market, overbidding – losing their shirt, floating away to be replaced by the next over-bidder.

A straight auction is even worse.  In a packed auction room, the highest overbidder wins.  Now, of course, when it comes to ad words, it all depends on how efficiently you convert, and it may be that the highest bidder has a new-fangled foolproof way of converting visitors at a higher rate than the others.  Odds are though, if you are a #1 ranked ad in adwords, you are paying too much.  We aim for position 3 – 4 which gets almost the same number of click throughs.

The first number matters

The first number that is mentioned in a negotiation matters.  Often times – know one really knows what the right price is (buyer or seller).  The first number that is mentioned anchors the discussion however.  That number doesn’t necessarily have to be brought up in the context of your fee.  You can do this explicitly or implicitly.  Something like “I quoted my last client €35,000 but we managed to come in €30,000″.  You could also just wear a really expensive watch or have the latest mac-book air with you in the meeting.  An ostentatiously expensive item in the room will get the client thinking in bigger numbers.  There is a great example of this in the podcast.

I’m OK, your OK

Sorry, what I mean is, cliched as it sounds, there is normally a win/win to be found.  Digging into what either party is looking for is the key to finding the underlying motivation for a bargaining position.  Sometimes, there will be posturing involved, but the basic advice here is to spend a lot of time on communication until both parties really understand what each is trying to get out of the deal.  This means trying to remember that ‘what is good for them, isn’t necessarily bad for me” and vice versa.  One study quoted found that 39% of deals are not done simply because both parties can’t get by this ‘you win, I lose’ type mindset and look for a third way.  Owen describes this as an ‘integrative bargain’.

Stepped so deep in blood, tis easier to go forward than back

Well Macbeth said it better but the idea is that people are twice as motivated by a fear of loss than by gain.  In particular, that means if you can get someone to spend a little with you, they are more likely to want to spend more.  I’ve seen this technique at play for a lot of training courses. An introductory €95 course upsells to a €1,500 course which upsells and upsells until your account is empty.  The implicit message used is ‘in order to get the most of this €95, you really need to go on the next course’ – or put another way “unless you go on the next course, you’ve just wasted €95″.

I’ve seen it a lot in software dev circles too.  The initial quote is competitive but changes (which always arise) are charged on less favourable terms.

Less maniacally, you can get people to spend a little with you at first, and then encourage them to spend more.  In our case, we send people some information on getting into voiceovers.  By spending time reading the book, they are in effect investing.  If they don’t want that time to be waisted, the next logical step is to go on our demo day, and so on.

What Analytics does show however is that there is a lot of power in visualising your statistics.  As many bloggers will tell you, the coloured graphs help to keep the motivation up on those long cold lonely nights when you think no-one really cares.

Much the same goes for building your online cash-flow.  Sometimes it is hard to see the wood for the trees and having up to date accurate info helps to keep going through the dark times.

That is why I’ve mocked up what I think are the key metrics I’d like to see in my own dream analytics account.

At the top I’ve put outbound and inbound emails and calls.  I’ve got a hunch that these two metrics most closely predict our income in any given month.  In fact I know that getting on the phone is the single most effective thing I can do to drum up income.  On the other hand, it is an aversive task.  Clearly being able to see how calling impacts on revenue helps to get stuck in and start chatting to people.

400 people €25 a month

Further down the page blog posts, tweets and inbound links are also measured.  I know they have a secondary impact on sales but they help to make sure that we’re doing enough to market ourselves to voiceovers and more importantly, the advertising agencies that we promise to get the attention of.

Up front and center (or to the left) is the average income and total income.  Purely by seeing these figures every day, its motivates towards growing them.  What gets measured gets done and purely by pulling my attention towards the actual amount of income made this month, every month, I’m convinced I’ll improve the figure.  My personal target is 400 people paying €25 a month and any activities which distract from this only get in the way.

At the bottom is my task list.  All these stats are great but it is activities which drive sales.  Having to scroll down past by my own performance each day would be a powerful reminder of why you have to make that nth follow up call to someone who really isn’t all that nice to deal with in the first place .

Me gusta helado.

Not everything is reflexive.  Only certain verbs and you just have to learn which are and which are not.   There is a list of reflexive verbs but I think one is missing.

To be worth

I’ve been playing around with different pricing points for AgTweet this week and the problem is that although we’re used to reading the price of stuff on labels, pricing is reflexive and so is value.  Its impossible for anything to be worth €10.  It can only be worth €10 to somebody. There is a broad range of people who use agtweet from students to IT geeks and the trick will be in coming up with price points for each.  In setting a price all I am hoping to do is guess the price that will be good value to enough people to make the service fly.  Its a bit of a cath-22 situation.  Price too high and too few sign up.  Price to low and you end up sponsoring the whole thing.  Decisions, decisions.

You can check out the (mostly javascript) tool at http://www.jameskennedy.ie/plannr.

So what does it do?  It aims to help you discuss price points for your subscription service.  It assumes there are 3 ‘levels’ of subscription and you can play with the figures ( prices, % of people on each plan, total number of subscribers etc).

When you are ready to you can add a comment at the bottom and email it off.  None of the data is saved on my server and all the information is held in the URL.

I’ve pre-populated the table with figures which look kind of like what I’m thinking of for AgTweet.  If you have any ideas on what pricing structure I should put in place for it, by all means fill out the sheet and let send it on to me.

I got an email last week from my invoice supplier, Blinksale.  In a cleverly worded email they let me know that their free service was no longer available.  No real problem, I’m already a paying customer.  A quick trip to the website reveals that they have in fact been sold.

This is the second free website I’ve come across in the last couple of weeks that has been sold and the had the free plan removed.  Twollow did the same thing some time last month.  I’ve no doubt that Blinksale was making money but a > 1% conversion rate from free to paid accounts was always going to hurt.  The aquirer was obviously planning to recoup some of their investment by removing the free option for a boost to sales.

It seems that the steady march towards paying for stuff is online is underway.

As your players more around the board in a game of backgamon, they become more and more valuable.  It takes effort to get pieces all the way around the board, therefore the ones that are almost there have a lot more ‘energy’ stored up in them.

Why?

The closer a piece is to your home board, the less energy (or throws) it takes to get them ‘home’.  Self evident you might think.  It takes at least 3 ‘throws’ to get a piece from the opponent’s board to mine while it takes less ‘throws’, the closer the piece is to home.

So what has this to do with my sales funnel?

Prospects that have signed up to the email newsletter are less valuable than prospects that have picked up the phone and called.  Prospects that have called us are less valuable than those than have bought.  Those that have bought are less valuable than those that have upgraded. Customers that have upgraded are less valuable than those that recommend your services and refer customers.

Now consider how you spend your marketing budget (or dice throws if I really need to keep up with the analogy).  Why would I spend the same amount of money and/or effort marketing to ‘leads’ as I would ‘referers’.  Referrers are more valuable and yet, at the moment anyway, we don’t really do much to thank them for their loyalty.  They are on the same email list as all the others, they get the same promotions but we don’t really do anything special to look after them.  This seems wrong.  These guys are worth more therefore we should think about spending more on marketing to them.  For example, maybe we can provide them with better discounts or upgrades.

I can recognise the gag.  As a jobbing programmer I came up against this type of scenario all the time.  Client expectation is hard to meet for development projects.  They are difficult to estimate and by and large there is  a huge skill in managing the process.  At the same time, in a shrinking world, defending on price is also difficult.  I don’t think its because I’m bad at what I do.  Plently of other professionals run up against the same challenges.

So why isn’t development/accountancy/design etc easy money?

My answer if FEAR.

There is not much uncertainty when buying a DVD or a meal out.  You have probably done it before hundreds of times.  The same is not true for most consultancy services.  You only move house every so often in your life and god help us – you hopefully don’t pay to develop too many software projects.

The other variable is price.  Contracting a professional normally involves a fairly hefty fee.  This also ads to the fear.

So our strategy for the last few years has been to reduce the fear in my clients by reducing the price.  However, I’m starting to think I’ve missed a trick.  Reducing the prices does help (400 people paying €25 a month instead of 2 paying €60,000 for the year).  What really makes a difference is clearly defining an output.  The client must exactly in advance what they are going to receive.  This is very hard to do in plain old consultancy.  Creating a tangible or well-known and predictable result reduces client anxiety and therefore makes the money you get for the service much easier.

The video does still irk me a little.  If you are in the services industry – you have to expect these problems.  Either that or get into a business where the deliverable is clearly defined in advance.  You may even be able to charge up front for it like record stores do.