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Why Value Propositions are Overrated

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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.

Jack Welch Renounces Increasing Shareholder Value: Pigs Fly

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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.