Why Value Propositions are Overrated

/9 Comments/in /by

Freud famously wondered, ‘what do women want?’

B2B sales people wonder, ‘what do buyers want?’ Unlike Freud, however, they think they know the answer.

The received wisdom is, of course, that buyers want “a compelling value proposition.” As John Caddell puts it in “Another kind of value proposition”

The term “value proposition” has been in vogue in business-to-business sales for twenty years or more. In short, it means that a product for sale must, in essence, create more money (in increased revenue or reduced costs) that it costs to purchase. “If you buy my widget for $x, you’ll get $5x back over the next 10 years,” or something like that.

…The value proposition is a very logical concept. That is its beauty and its limitation.

Just one problem, as Caddell points out: it’s demonstrably not true.

Or, to be more precise, it explains far less about buying behavior than most B2B sellers like to believe. So—truth notwithstanding, the economic form of a “value proposition” remains front and center in B2B sales.

Jeffrey Gitomer puts it nicely: “People buy with their heart—then justify it with their brain.”

The late Bill Brooks, with Tom Travesano, neatly summarized a brilliant survey of several thousand buyers thusly: “People prefer to buy what they need from people who understand what it is that they want.” Not much said there about value propositions.

What “value proposition” doesn’t usually convey is precisely this sense of emotional connection. Caddell notices this too in his recent “customer anthropologizing:”

I haven’t heard one customer say, “I would recommend Company Y because we were able to increase our inventory turns and thereby reduce working capital requirements.”

Instead, they say things like, “I really like that they are easy to reach and work hard to solve my problems when I have them.” Or: “They could have nickeled-and-dimed me when I had to make some changes during implementation, but they didn’t do that.”

In other words, what sticks with customers, and makes them recommenders, are things like “reliability,” “caring about my business,” “saving me time,” “making me smarter.” In other words, the deeper, emotional, fuzzy stuff.

Exactly.

Yet, there’s even more. Sellers can be persuaded they need to be more emotional. But then they confront a next-level problem.

They think being friendly is the opposite of making money, and turn a simple concept into an unnecessary, fake ethical dilemma. They say either:

1. I can’t get too close to them—I have to make the sale, or
2. If I get the sale by being close to them, then I’ve conned them.

Such unnecessary angst.

It seems we may need Freud after all.

Stay tuned for the next installment in the story of Value Propositions gone astray.

Random Acts of Kindness

/6 Comments/in /by

One cardinal blogging rule I try to live by is to say something original, something beyond “yeah, and I agree!”

But every once in a while, you can’t improve on the original.

danah boyd (that’s not a typo) is a Berkeley PhD currently working for Microsoft Research, while at Harvard’s Berkman Center for Internet and Society. She made her career (so far) by studying online social networks for teens—Napster, Friendster, Second Life, and everywhere in between.

She was speaking at the recent SXSW conference in Austin. Here, slavishly quoted, is what happened to her on the way back to Boston:

Due to poor planning, G and I were on different flights back. I was already booked on the early flight and had already been assigned my upgrade. So when we reached DFW, we raced across the airport to get him on standby. Success, but of course, he got stuck in a middle seat in coach. Standing around waiting to board, I’m feeling all mega-guilty about being in first while he’s in coach so I’m more affectionate than normal.

The plane boards and I proceed to 1A. The guy sitting in 1B looks at me and says, "Aren’t you traveling with someone?" After I nod, he says, "Why don’t I switch with him?" I explain that he’s in coach and he shakes his head to say "no problem" but I proceed to protest and point out that he’s in a center seat in coach and he protests further by saying that he flies all the time and no problem, no problem, I should sit with my partner…

By this time, first is wide-eyed. I mean, what business traveler in their right mind wants to give up a bulkhead first seat to sit in a center in coach? But before I manage to protest louder, he grabs his stuff and heads back to coach. The woman behind me and I laugh uncomfortably with big eyes, verbalizing what we were thinking: "did that really happen?"

Sure enough, he proceeds to sit in coach. The flight attendants are astonished and find him a seat in the back with more room and continue on to send back ice cream and food and whatnot. At one point, I asked one of the flight attendants how he was doing and she smiled and said that he was an extremely kind man and that the flight attendants were all loving him. That she had never in her day seen someone give up a first class seat as a random act of kindness. We were all quite floored.

The truth is that I was completely flabbergasted and without a script in which to operate. I never caught the man’s name. I couldn’t find him after we landed. I never really got to properly say thank you. But, Mr. Nice Businessman, if you’re out there, I want you to know that your random act of kindness made me a giddy happy kid; flying home next to G was really wonderful. And you made a lot of people smile. So THANK YOU!

I’ll resist my temptation to comment beyond thanks danah!

 

Do We Learn From Our Mistakes? Or Not?

/5 Comments/in /by

The NYTimes today reported yesterday on a Harvard Business School study of venture capital-backed entrepreneurs to test whether or not we learn from our mistakes. The results are confounding to many—including me.

Here’s the story. Several thousand VC-backed companies were studied over 17 years. First-timers had an aggregate success rate of 22% (success meaning going public).

The study is about those trying for a second time. Did the 78% who failed the first time learn from the experience, and do better the second time? Or worse? How did the 22% first-time winners fare—did they get lazy and decline? Or did they somehow do better the second time?

No less an expert than Gordon Moore, sainted ex-leader of Intel and the author of “Moore’s law,” said “You’re more valuable because of the experiences you’ve been through under failures.”

I’m with Gordon. But according to this data, we’re both wrong.

Those who succeeded the first time upped their success rate, to 34%. But those who failed the first time stayed mired in the muck, at 23%. So much for the myth of the gritty, plucky lads who pick themselves up and learn from their failures.

Apparently the data are not the problem: “the data are absolutely clear,” says Paul Gompers, one of the study’s authors. Yet it is still far from clear what the data mean.

As is often the case, data are one thing, and explanation another. Of course, the obvious explanation may be true: people just do not learn from adversity. This seems to be the study’s authors’ view—that the learn-from-failure ethos celebrated in Silicon Valley is really just anecdotal tales over-told.

Then again, maybe we actually do learn more from success than from failure. If so, perhaps that’s because of increased confidence resulting from one win.

Or, maybe only the really good people learn at all. And they can learn from experience alone, whether success or failure.

Or, perhaps these conclusions are only true of a certain type of person, characterized by some cross-cutting characteristic, such as risk tolerance. (Did you know height is correlated with IQ? True: short people score lower on the same IQ tests that tall people take. Of course, if you separate young children from the adults, or use age-normalized tests, the correlation goes away).

Or, to channel a recent 30 Rock storyline, maybe the first time winners are just very good-looking people who are actually horrible, but live in a bubble in which others let them pass. Hey, you never know!

Causal deductions are never fully provable—thanks, Dr. Hume. But progress can be made toward explanations.

So, what do you think’s going on?

And I’ll throw one idea into the ring, borrowed from Karl Popper, who developed the falsifiability theory of meaningfulness. A theory which is highly disprovable, but which remains standing, is superior to a hard-to-disprove theory.

Maybe people who fail have a much greater chance to learn. Why it is that they don’t still seems a mystery to me.

Applying Business Best Practices to Relationships

/6 Comments/in /by

Metrics money managementI ran across a blog the other day singing the importance of relationships in business. Fair enough.

As I recall, it started by saying:

“Let’s start with some undeniable facts. What gets measured gets managed.” ‘Uh oh,’ I thought, ‘I’m gonna have to write about this one.’

All right, let’s trot out the whole set of logical fallacies.

1. If you can’t measure it, you can’t manage it
2. If you can measure it, you can manage it
3. If you can’t manage it, it’s because you’re not measuring it
4. If you can manage it, it’s because you are measuring it.

Not one of those is true.

First, there is management by fear and intimidation; by shared values; by guilt-tripping; by walking around; by praise; and so on. None of which require measurement.

Second, the act of measuring per se does nothing to cause “management” to happen.

Of course, just because something is illogical doesn’t mean people don’t assign meaning to it. But why do so many people insist so strongly on connecting management and measurement?

I can suggest two reasons.

Go back to “what gets measured, gets managed.” What that really means is, “I’m the kind of person who, when someone measures me, falls into line and behaves according to the desired metrics.”

This view is the choice of the one being measured; it’s not a trait of the measurer, nor an outcome of the act of measuring. It’s a rather passive choice by the measuree: it doesn’t require much thinking, and doesn’t invite challenge.

Which is exactly what most managers intend measurement to do: to communicate desires from boss to employee, in narrow, quantitative, often financial, terms.

But most of all, “what gets measured gets managed” reflects a belief that measurement is good, and that more measurement is better. Break it down to the elemental levels, let’s really manage this puppy.

Well, let’s test-drive that idea. Go ask your wife how you’re doing as a spouse (or reverse, etc.). On a scale of 1-10, please.

Now, that might get you into a pretty good conversation. It might even be so good that your actual performance as a spouse improves as a result.

Suppose further that you work in a company that believes “what gets measured gets managed,” and decide to apply this “obvious fact” to your home life as well. So you ask the wife the same question next month. Scale of 1-10 again, please.

Your spouse says, “didn’t we just have this conversation a few weeks ago?”

“Why, yes,” you say, “and it was really useful, and I want to be an even better spouse, so I figured I’d starting taking regular metrics readings so I can establish a benchmark performance level and track my improvement. I learned that technique at work. Do you think monthly reports on my spousal performance will be enough? Maybe I should ask you for weekly ratings?  And let’s be s ure to talk about rewards for achieving and exceeding my metrics.”

Now, if your spouse has any relationship skills, and any self-image to speak of, you’re gonna be sleeping on the sofa for a while.

And while explaining these new arrangements to you, you may hear something like, “and by the way, thanks for ruining that great conversation we had a few weeks ago, because now I see you never meant it, you were just in it for your own ego-gratification, and I feel like an idiot because I actually thought you might have cared, but now I see not only are you a jerk, but I deluded myself, and I now don’t even trust my own assessment skills, I was so far off in even thinking we had a good thing going, now I feel even worse, etc.”

This is the emotional equivalent of the Heisenberg Uncertainty Principle. You have just proven that the act of measurement can alter the thing being measured. (And by the way, who cares that you meant well, anyway?)

I have a friend who works at GE designing sophisticated fluid control measurement tools used in the oil industry. Crude oil doesn’t much care how often or how precisely you measure it. Unfortunately, spouses do.  As do people in general.

Which is why the unthinking, inane concatenations of measurement and management so often fail when applied to people.

Best practices aren’t universal. The management of capital and hydrocarbon resources doesn’t necessarily tell us much about the management of human “resources,” aka people.

Trust Reader Volume 1

/0 Comments/in /by

Greetings.

Competitive Disadvantage: New Sales Strategies for New Business Models is the first article in a series of ebooks I’m releasing called The Trust Reader. The Trust Reader will be published roughly every few months. Articles introduced here will be available thereafter on the trustedadvisor.com website, but you’ll see them here first.

The highlighted article is part sales, part strategy. Titled Competitive Disadvantage, it explores the implications of an increasingly connected world for business strategies, and by extension, for sales strategies. That article is contained in its entirety here.

The other two articles are Client Service, Not Client Servility, and Some Kinds of Sales Motivation Are Better Than Others. Both these articles are abstracted in this issue.

The Trust Reader series joins the Trust Matters Primer series—an occasional selection of the best from from the blog Trust Matters.

Download the first edition of the Trust Reader here

You can find previous issues of The Trust Matters Primer here:
Volume 1
Volume 2

If you would like to receive email updates for the Trust Reader and Trust Matters Primer, please subscribe here.

You can find previous articles published by Charles H. Green at http://trustedadvisor.com/cgreen.articles/

As always, if you prefer not to receive our series, simply email me or click the link below to let us know.

The Trust Reader Volume 1

/0 Comments/in /by

Greetings.

Competitive Disadvantage: New Sales Strategies for New Business Models is the first article in a series of ebooks I’m releasing called The Trust Reader. The Trust Reader will be published roughly every few months. Articles introduced here will be available thereafter on the trustedadvisor.com website, but you’ll see them here first.

The highlighted article is part sales, part strategy. Titled Competitive Disadvantage, it explores the implications of an increasingly connected world for business strategies, and by extension, for sales strategies. That article is contained in its entirety here.

The other two articles are Client Service, Not Client Servility, and Some Kinds of Sales Motivation Are Better Than Others. Both these articles are abstracted in this issue.

The Trust Reader series joins the Trust Matters Primer series—an occasional selection of the best from from the blog Trust Matters. If you would like to sign up to receive blog posts by email just use the email signup at the top left of the Trust Matters page.

Download the first edition of the Trust Reader here

You can find previous issues of The Trust Matters Primer here:
Volume 1
Volume 2

You can find previous articles published by Charles H. Green at http://trustedadvisor.com/cgreen.articles/

As always, if you prefer not to receive our series, simply email me or click the link below to let us know.

Trust and New Media: Request for Favorite Stories

/14 Comments/in /by

I’m giving a talk in a few days to a large software company about trust and new social media.  I want to use examples to demonstrate the power of social media to increase trust–and to destroy it.

I’ve got several, but would love to hear from you.  What are some examples of trust creation or destruction involving new social media that you consider to be important, archetypal, paradigmatic (or any other big impressive adjective)?

Please add your stories via comments below: it could be a really interesting list we all could benefit from.

Thank you!

The Problem with B-Schools is the Problem with Business

/5 Comments/in /by

The New York Times’ business section yesterday published an article by Kelly Holland (perhaps her best yet) titled, Is it Time to Retrain B-Schools?

The putative answer was ‘yes,’ and I agree. But what does that mean? From the article:

“It is so obvious that something big has failed. We can look the other way, but come on. The C.E.O.’s of those companies, those are people we used to brag about. We cannot say, ‘Well, it wasn’t our fault’ when there is such a systemic, widespread failure of leadership.” Ángel Cabrera, Dean,Thunderbird School of Global Management in Glendale, Ariz.

“We lived through an enormous extended period of financial good times, and people became less focused on risks and risk management and more focused on making money. We need to move that focus back toward the center.” Jay Light, Dean, Harvard Business School

“The schools suffer from an overemphasis on rigor and an under-emphasis on relevance. Business schools have forgotten that they are a professional school.” Warren Bennis, USC Business School and noted leadership author.

“A kind of market fundamentalism took hold in business education. The new logic of shareholder primacy absolved management of any responsibility for anything other than financial results.” Rakesh Khurana, a professor at Harvard Business School

“Business creates value in terms of services and products. That’s what business delivers, just like medicine delivers a healthy person.” Sharon M. Oster, Dean, Yale School of Management.

“There are extraordinary things taking place in business education, and a lot that is very promising. But what’s the central theorem of business education? It’s wanting.” Judith F. Samuelson, Exec. Director, Business and Society Program, the Aspen Institute.

The bookend quotes have it right. Cabrera when he says there’s an obvious problem, and Samuelson when she says the central theorem of business education is wanting.
Those in the middle, IMHO, are not yet at the core of the answer.

So here’s my take.

The first post I ever did in this blog—October 2006—was looking back from a 30th reunion at Harvard Business School. It was about this very point, and I think it holds up. Here, in part, is what I said then:

The biggest single characteristic of business in future is that everything is getting connected. In a connected world, a focus on competitive relationships isn’t useful. What we need is an emphasis on connectivity, trust and collaboration.

HBS needs to teach less competitive differentiation and more collaborative value-adding; less how to win supply chain negotiations and more how everyone gains by operating them as a system; less about transactions, more about relationships.

We don’t need more ethics courses—we need an ethos of business itself.

Last I looked, the ethics course at HBS teaches a “balanced” approach to three spheres: competitive, legal, and social.

Meanwhile, down the hall in the core strategy courses, those same students are taught that business at its core is about corporate competition. To define strategy that way is to define ethics as a branch of strategy—how to steer the corporate ship between the Scylla and Charybdis of the law and society.

In that Hobbesian world-view, there is no room for an Other. And where there is no Other, There Just Cannot Be any such thing as “ethics.” “Business ethics” is become an oxymoron.

There can be no ethics until “strategy” reclassifies customers, suppliers and employees as co-equal with shareholders—rather than as categories of “competitive forces.”  Which is exactly what is taught now, and which lies at the heart of the matter. 

The solution doesn’t lie in Dean Oster’s redefinition of value; nor in Dean Light’s move back to the balanced risk center. Nor even in de-emphasizing shareholder value.

The solution lies in modernizing our ideas of how business actually works. Away from an ideology of corporate competition forged in the past. Toward recognizing the collaboration of many in the pursuit of commerce that is fast becoming reality today.

Collaboration is the new competition. We are not isolated anymore. We are all linked. It’s a fact, and one that our mental representations need to catch up to.

We can no longer afford competition-centric thinking—neither in business, nor in the b-schools.

 

Jack Welch Renounces Increasing Shareholder Value: Pigs Fly

/3 Comments/in /by

First it was Saul on the road to Damascus. More recently, it was Alan Greenspan. Yesterday, Jack Welch seems to have had a conversion.

Speaking with the Financial Times, Welch said:

Jack Welch, who is regarded as the father of the “shareholder value” movement that has dominated the corporate world for more than 20 years, has said it was “a dumb idea” for executives to focus so heavily on quarterly profits and share price gains…

…“On the face of it, shareholder value is the dumbest idea in the world,” he said. “Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products…”

…The birth of the shareholder value movement is commonly traced to a speech that Mr Welch gave at New York’s Pierre hotel in 1981, shortly after taking the helm at GE.

What they’re talking about is the commonly held belief that “the purpose of business is to increase shareholder value.” That belief is variously attributed to Milton Friedman, Adam Smith, and “obvious commonsense,” none of whom are guilty as charged (though Friedman probably came close).

But no matter: it was what people heard, and used to justify all kinds of behavior for several decades. And Welch, whether he ever said specifically those words, has a great deal of responsibility for having advanced the idea. The FT is right to headline the significance of this conversion.

In any case, the newly converted Welch, to judge by the above quote, really does now get it right.

Profitability, shareholder value, even measures like EVA profoundly miss a point that Welch now articulates. Namely, ‘shareholder value is a result, not a strategy.’

I think what Welch means is that all economic results are properly viewed as outcomes, not as end-state goals or objectives.

This would be quite right.

Imagine two companies. One is devoted to increasing shareholder value (and EVA, etc.) by carefully finding out what customers want, and giving it to them.

The other is devoted to giving customers what they want—which results, among other things, in increased shareholder value, etc.

I suggest company #2 will do better in the not-very-long run. Because the company is being run for someone other than solely the financial stakeholders and managers.

Jack Welch is obviously no dummy. So it looks to me like his conversion experience has been thorough, and well thought out. If he can contribute to articulating this new view, it will go a long way to changing a deeply entrenched, increasingly dysfunctional and destructive ideology.

Let’s hope he does.

 

Oprah and Two Trust Tests

/3 Comments/in /by

Trust is bustin’ out all over. Or, to be more accurate, its perceived absence is creating a lot of press.

It’s one thing to become a focus for Steven H.R. Covey Jr.—but it’s yet another level of phenomenon when Oprah puts trust on the front page of O Magazine.

Of particular note is a self-scoring “trustometer” self-assessment trust test by Martha Beck.

It’s a good quiz; go take it, you’ll learn something.

There are three kinds of trust surveys: those that measure trusting, those that measure trustworthiness, and those that measure the combination, i.e. trust. Ms. Beck’s trust test measures the first—trusting.

The thrust is: how clearly can you see things for what they are, rather than as they appear through your own obscured ego-driven lenses? Your gut feelings are probably very good—unless you get in their way.

This is a good message—the ability to intelligently take risks, to trust, is a powerful thing. In the Age of Madoff, where trusting is an unpopular concept, this is a welcome reminder of the importance of trust.

So much for trusting: how about, can we measure how much people trust us?

Yes we can. If you’ll forgive the shameless self-promotion, that’s what the Trust Quotient™, or TQ™, measures—our level of trustworthiness. (To be precise, since it’s also a self-assessment, it’s our best guess about how much others trust us).

Unlike the Beck trust test, which gives you a one-paragraph “if your score was between __ and __, you are ….”, the Trust Quotient trust test gives you several pages of analysis and recommendations about the various components of trustworthiness.

Take them both: the Beck Trust test on your ability to trust: and the TQ Trust Quotient test to assess your trustworthiness.