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Keep Calm and Pay Up

April 14, 2018

There used to be a saying that to be a "big shot" you had to pay your bills. Looking at the list of "big shots" with various bankruptcies on their resumes, maybe it's not true anymore. It has been replaced by the current trend of haggling and negotiating every price, no matter what we're buying. Everything in B2B is up for "negotiation."

 

Prices seem to be suggestions these days. There's a scene in Monty Python's Life of Brian that illustrates the banality of this trend. Brian is in the ancient marketplace rushing to buy a beard and is consequently happy to pay retail. The market stall owner, unused to that behavior insists they observe the custom of "haggling". There's a modern-day example in this in a video entitled "What if we negotiated in the B2C world the same way we do in the B2B world?". The closing restaurant scene with the customer conceding to pay, after his initial refusal, but insisting that the chef "reveals the method so he can bring it in-house next time"...would be hilarious if it wasn't so representive of the absurd reality that is now routine. These days every transaction takes on the appearance of a Persian bizarre. So where did this behavior come from, why has it become the new normal, or did it always exist? Finally, why we would encourage you to proceed with caution when you think about "sticking it" to your latest vendor, especially when you're buying services (which includes SaaS these days). Remember, when you sign a services contract, it's only the end of the beginning. Give me 15 minutes of your time, and I'll walk you through it…Alright, I'll take 10!

 

Loss of Trust

 

In the tech industry, maybe buyers felt let down by vendors and their implementation partners high prices and low deliveries. Large ERP and CRM projects cost millions in software and services and seemed to universally under-deliver. While buyers should not be excused their role in "less than stellar" enterprise implementations, one of the consequences was that buyers started to refuse to pay multiple seven-figure price tabs for a product they construed as "write once and sell many." So, did buyers suffer a loss of trust from what they perceived to be companies over promising and under delivering?

 

The Culture of Chaos

 

The professionals of the procurement sector would agree with the argument above. Their narrative would be one of previous crimes and misdemeanors by vendors, resulting in the creation and rise of the professional procurer seeing themselves as the guardians of justice and righteousness. They might well be right.  The 1980's saw a parade of "success manuals" on the subject of negotiating everything and negotiating to win claiming you "don't get what you deserve, you get what you negotiate." These contributed to the popularization of an attitude which marked a decline in business culture, particularly in the financial sector. Lower standards and the lack of moral compasses, for example, lead directly to the meltdown of 2008. It became all about "getting yours," (and of course "Crushing It") which in the financial sector is a zero-sum game. Someone wins, and someone loses. And sometimes, someone wins, and everyone else loses BIG-TIME. After the Mortgage crisis, Wall Street won big, and Main Street? Not so much. Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar paints a grim picture of business culture specifically in the finance sector. The 1986 movie Wall Street's attempts at warning us of this cultural demise backfired. Oliver Stone  ended up glorifying characters like Gordon Gekko. Greed is Good became a rallying cry. The effect was the promotion of a macho business culture advocating "negotiation" as part of the narrative. It positions everything as a zero-sum game. So, if I can't trust anyone anymore, AND I have to ensure I'm maximizing MINE, it's no wonder everyone wants to argue about everything. The choice became one of being "ScrewER" or "ScrewEE" - the kind of poor binary thinking we have succumbed to. 

 

It's Not as Bizarre as You Think it is…We're just Human

 

Psychologists might show us that humans are once again guilty of faulty thinking. Annie Duke's book "Thinking in Bets" argues that we are victims of "extreme views." For example, big wins or terrible losses with nothing in the middle. Anything that is not a spectacular success must be an abject failure. While that's just not true, it does represent the fashionable thinking of "go big or go home" which conditions us to view outcomes in the extreme. When it comes to "doing deals" that seems to translate into the old "I must do unto others before they do unto me."  A binary proposition. In Factfulness, Han Rosling calls this the Gap Instinct. Again, we think in polar opposites. It's a dramatic way of looking at life, and as we know we all love a good story, and we all love some good drama – right? Sure, it's human nature.

 

Haven't we always been on guard against getting ripped off by the "snake oil" salesman? It was always Caveat Emptor – buyer beware. The marketplace has always existed,  and people negotiated every dotted i and crossed t. Life and business are and always have been one big Persian Bizarre. In fact, it's gotten more so as technology has eradicated one of the tenants of classical economics, the buyers' imperfect knowledge of the market. The customer is King, and he's going to let you know it.

 

The Verto Verdict

 

Here's our advice.

  • If you are working for someone else, you might be obligated to negotiate price. Or at least step to one side while Mr. (or Miss) Excitement from procurement enters to "do the pricing thing." If you're in a mid-size or smaller company and senior enough to have some juice, or run or own the company, you should think hard before haggling for the hell of it.

  • I'm not suggesting that you become financially careless.  Do your research and get some points of reference for comparison. Understand and assess the value this product or service is providing. If you conclude that the vendor's price is too high, you need to have lined up your logic in reaching this conclusion. Ask the vendor to justify themselves and be prepared to share your thinking in return. This is a reasonable and grown-up way of conducting business. All this "we don't pay the rack rate," or "we never pay the first price offered" approach is juvenile and self-defeating, despite what they taught you at that over-priced business school you went to (BTW - did you negotiate the fees with them?)

  • When buying services, remember agreeing on the price and signing the contract is just the beginning. You're dealing with human beings (well at least for now) who have feelings and memories. Mistreat them, and quite rightly they'll remember. What is hilarious are those people who misbehave – they beat down vendors on price and terms and then always pay late, and still wonder why they get ignored. My advice is not to screw vendors down. You will get a better service by being reasonable and preserving a good relationship.

  • Once you have agreed on the price and terms, move on. Don't spend time second-guessing what you have decided or putting the vendor through the mill every five minutes. That doesn't mean you don't monitor deliverables and KPI's, etc. If you pay the retail price, you have all the right in the world to be demanding. The vendor will have made commitments and promises and one of the reasons to pay them what they asked is precisely that you can hold them VERY accountable.

 

Final thought - people used to define a good deal as a win/win, when both parties walk away happy. I don't know about you, but I've witnessed very few of these. You can always take the contrarian view and define a good deal as when both parties walk away UN-happy. Well, maybe just a little unhappy, anyway.

 

 

 

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