Chapter 18
IN THIS CHAPTER
Defining risk for prospects and companies
Handling risk in a variety of ways
Making sure a deal doesn’t die due to risk
In this chapter, I discuss the role of risk and its mitigation in a new business sales environment, specifically how to mitigate risk in a business solutions context. Risk management is a complex topic, and many books are dedicated to the subject alone. Here, I just try to highlight the issue and give some pointers on what you can do to allay the fear of risk. I don’t intend this discussion to be chapter and verse on dealing with risk because it’s far too complex a topic to cover in a single chapter.
Nothing is without some form of risk, and nothing worth achieving is ever done without an element of risk. I define managing the perception of risk simply as understanding the issues and taking steps to reducing adverse effects.
Some people are risk averse, and if you come across prospects who fall into this category, then your sales efforts won’t be as straightforward as they otherwise may have been. It’s also worth remembering that from the prospect’s point of view, doing nothing to address his business needs means that he’s also taking a risk. You may need to point that out and address the complexities and fallouts with him.
According to the International Organization for Standardization (ISO), risk is the “effect of uncertainty on objectives,” and the effect of it is a deviation in either a positive or negative sense from what’s expected. In plain English, this means that the potential for anything other than a straightforward solution is, in reality, risk.
All of us take and are exposed to risk every single day, but generally we never give it a second thought because our inbuilt safety mechanisms help us to mitigate or avoid it; for example, crossing a busy road could be perceived as a risky venture, but we don’t avoid doing so, even though our brains recognize it as a risk. Therefore, you shouldn’t get hung up on the idea of risk being introduced as a sales objection; it’s just one of those things you have to work with.
In this section, I explore the ways in which buying your solution may represent risk to your prospect. Keep in mind that risk works both ways, and part of your new business sales role is to protect your company from any unreasonable risk that’s associated in dealing with your prospects.
When dealing with the perception of risk in a business solution that you’re proposing, you need to consider what the elements of risk are to your prospect, which can be broken down into four major areas:
May not work: The fear that the solution you’re proposing meets the prospect’s needs but may not work (or may not work correctly) may be a reasonable one to harbor at the beginning of the sales cycle as far as your prospect is concerned, but the sales cycle progresses as if nothing is wrong.
Beyond the very early stages, this fear should diminish. If it hasn’t, then you’re probably not doing your job correctly. A fear that the proposed solution may not work isn’t a valid risk if your prospect continues with his buying cycle beyond the initial stages.
May not do the job: The perception of risk that your solution may not do the job for your prospect’s needs can be taken back to the original requirement specification. You can reasonably assert that your solution meets the stated needs and is a good fit for the job as defined to you.
If this risk is raised as the sales cycle progresses, then push back on your prospect and tell him that as long as the need requirement was done correctly, then he has nothing to fear because, as he’ll have seen for himself, your proposed solution more than adequately meets the stated needs.
May be a bad decision: The perception of risk here is a tell-tale sign of an inexperienced or nervous buyer. You should have identified this as part of the qualification processes when getting to know the key members of the decision-making unit. And if you perceive the problem at that stage, that is when you should take action to perhaps ensure that another member of the decision-making unit is kept fully in the loop.
The last thing you want to do as a new business salesperson is to get to the end of the sales cycle only to discover something you should have covered has reared its head and risks, at best, a delay or, at worst, cancellation of a project.
By far the biggest risk your company faces in winning new business is one of delay or cancellation of the order, owing to circumstances that you haven’t seen or adequately covered — for example, a company takeover, your key prospect leaving his job, or simply you as the new business salesperson failing to correctly qualify the opportunity in the first place.
Beyond that, five separate areas have the potential for some risk. You need to understand these risks and be able to mitigate against them (I discuss dealing with risk later in this chapter):
May overstretch resources: If a new business deal is larger than expected, is more complex than expected, or just comes in when it’s not expected, then it will have a serious impact on your company’s ability to deliver the ideal solution in the timescale required.
In Chapter 13, I cover the impact of resources on a deal, which as an element of risk is important to note, but if the deal doesn’t match the expectations that have been set, it could cause a problem.
May be a client from hell: We’ve all heard of them, and some have experienced dealing with them firsthand. The client from hell is one who really isn’t worth having, and you’ll be much better off just walking away from such a deal (see Chapter 20 for help). Unfortunately, sometimes the nature of the client doesn’t become apparent until it’s too late to do anything about it.
Some warning signs are specific to your sector, but some are generic — for example, the prospect who wants special treatment or a special deal just for him and feels that his needs are so unique that a standard approach just wouldn’t be suitable, regardless of how many times your company has implemented the solution in the past. Another generic warning sign is when the prospect wants a pricing deal. Be aware of the risk of taking on a client from hell and consider whether it’s truly worth it.
May lack commitment: A prospect who appears to want your solution but isn’t really committed to it can be worse than losing a sale in the first place. In many instances — indeed, the majority of the time — closing the sale is just the beginning, and if you perceive a lack of commitment from your prospect, then this truly does represent a risk that will only increase as time goes by.
Putting your neck on the block is an excellent way of securing commitment. If you have a lot to lose, you’re going to go out of your way to ensure that whatever the risk is, it’s not standing in the way of success. Entrepreneurs understand this very well and indeed thrive on risk.
Dealing with risk can be broken down into six actions, and one of them is likely to provide a solution that you’re looking for. Here are the options available to you as you protect your prospect and your company from risk (the topics of this section):
Mitigate. Mitigating against the possibility of risk is perhaps the most commonly used risk management strategy. Mitigation limits the impact of the risk so that, if it occurs, the impact it creates is smaller than it otherwise would be and therefore easier to fix. You need to understand the potential risk and take agreed, documented steps to ensure that the processes and procedures are in place to minimize the impact.
Note: Limiting and mitigating may seem similar, so to be clear about my meaning, limiting is taking steps to reduce the likelihood of adverse impact associated with risk, and mitigating is taking steps to ensure that any impact is understood in advance and has actions in place that are ready to provide some form of correctional activity in the event of the risk happening.
Sometimes you may need to actively encourage your prospect to take a risk. For example, you may need to remind him that not taking action has negative consequences, too, and that his original needs or problem won’t be addressed if he doesn’t take at least a little risk. Or you may need to gently push him in the right direction and remind him of why you’re involved in discussions. Your job is to help him understand the reality and potential consequences of not taking certain risks.
If no one ever took risks, then nothing would ever get done. The world of business and commerce sees people taking risks every day, and the majority of them are relatively low-level ones that lead to progress. New business sales don’t usually incur high levels of risk in absolute terms, and sometimes you need to make your prospect get on board with this fact. Ultimately, your role is to get your deal over the finish line by mitigating the impact of any potential risk and not getting hung up by it.
If your prospect fears exposure to a perceived risk, then part of your role is to protect him from that exposure and guide the solution past the risk. To do this, you first need to understand what the real issue is; however trivial it may seem to you, if it’s a real issue for your prospect, don’t underestimate its impact on your deal.
For example, if your solution is going to address your prospect’s fundamental problem successfully but do nothing about addressing a secondary problem, you need to set these expectations accordingly at the outset of the sales cycle so that perceived failure to address the secondary problem isn’t an issue that comes back to bite you.
User references are a powerful sales tool, but you do need to be careful how you use them because you have no real control over what people say. Your top customers are good reference sources, but so are some of your newest customers because they’ll be better able to identify with the risks that your prospect is facing, having recently come through the buying experience themselves.
Take the time to engage with as many stakeholders as possible. This is especially important if they form part of the identified decision-making unit. Don’t leave your prospect isolated if an issue of risk needs to be addressed. Direct engagement with stakeholders helps protect your prospect from side issues that he may not be immediately aware of. If you can head these off before they become issues, then you’ll be both protecting your prospect while also moving the sales cycle forward.
One of your duties as a new business salesperson is to ensure that not only is your prospect protected against the perception of risk but also your company.
One thing I’ve come across fairly often in dealing with the perception of risk is that prospects want it all one-sided — that is, they’re interested in protecting only themselves. I’m quite open about this and tell prospects that I’m willing to take steps to share some of the risk but that I’m not going to carry all the risk. Push back if you get into this situation because it can be an early warning that all is not right.
I’ve encountered this situation a few times when selling services. The prospect wants every form of guarantee possible in order to protect himself and wants me to take all the risk; in other words, if anything however remotely connected to the project doesn’t go according to plan, then the prospect wants me to resolve it and will accept no responsibility, even if the issue comes as a result of his actions. I always push back on this and try to demonstrate reasonably that his expectations are unrealistic. This is one situation where I will walk away from a deal rather than have risk be too one-sided. (Look at Chapters 12 and 20 for more on walking away from a deal.)
You may need to address compliance issues as part of a deal. My business quite often faces this when clients provide us with data to work with. We need to ensure that the relevant data compliance regulations are correctly dealt with, and, although we’re happy to sort this out, we do charge for it and are upfront about this. We also won’t proceed with a deal unless this is agreed on because we’re not prepared to take all the compliance risks. I turn these issues into sales benefits by suggesting that the prospect may like to consider how our competitors who don’t insist on compliance are going to handle it and who will have the ultimate exposure. Being open, honest, and upfront about it positions us well in the prospect’s mind as a company that will protect him, even though there’s an extra cost for doing so.
Product liability can be an issue at times, and you can insure against this. If your solution falls into this category, you should have a suitable insurance policy in place to protect you in the event of a problem. You need to discuss liability insurance with your senior managers and insurance company.
As in most things with new business sales, it’s best to handle the perception of risk during the early stages of the sales cycle in such a way as to ensure that it doesn’t destroy a deal. You do this through qualification (a process I discuss in Chapters 9 and 19).
Recognize that some prospect types thrive on the possibility of risk and love the adrenaline rush that it provides. They’re typically pioneers in terms of adoption cycles, and you need to manage them in a different way from the majority of prospects that you’re likely to deal with. Pioneers and early adopters won’t be put off by the perception of risk and will often actively seek the more complex solutions on offer, pushing the boundaries.
The majority of prospects that you’ll deal with won’t fall into this category, however, and you need to carefully manage the perception of risk so the deal doesn’t fall apart. I provide pointers in the following sections.
If, in the early stages of the sales cycle, it becomes apparent that your prospect has an adverse attitude to the perception of risk, you may be better off thanking him for his time and walking away from any potential deal, because the requirements on your time and patience are likely to be stretched. You’re not going to win every opportunity that you uncover, and you need to manage your time carefully.
As a successful new business salesperson, your prospect’s perception of risk should never come as a late surprise because you’ll have dealt with it during early qualification (covered in Chapters 9 and 19).
You need to gain an understanding of what the problem is and of the real risk your prospect may be hiding behind something else. What exactly is the problem or potential stumbling block? You of course can address only issues that you know about, so make it clear that you can probably help but only if you know what you’re facing. For some reason that has never been satisfactorily explained, prospects don’t always tell you the truth and will hide behind something else almost as a smoke screen. You need to penetrate the smoke screen to uncover the real underlying issue so that you can address it and move the sales cycle on.
When dealing with the perception of risk during qualification, don’t just accept it as a real issue; push back, seek to understand the details and why a risk is perceived, look for an immediate solution to head off an issue, and document it in a contact report.
As with many areas of winning new business, I can’t overstate the importance of building a solid business relationship with your prospect. The strength of this relationship will frequently guide your prospect beyond the perception of risk and toward a deal. (I explain how to start with making a good impression in Chapter 3.)
If your prospect allows you to guide him, using the benefit of your experience in selling and implementing solutions similar to his requirement, then you’re well positioned to act as his champion and to lead him around any obstacle that stands in the way.
If you can mitigate the perception of risk by revisiting the structure of the financial aspects of a deal, then this may be a worthwhile exercise to conduct. (Chapter 11 has full details on structuring deals.)
As I discuss in the earlier section “Protecting your company,” any movement toward restructuring a deal is on the basis of sharing the risk and not passing the risk entirely to your company. Taking on the entire risk of the project is a poor business deal, whereas sharing risk is often a sensible move that can assist in driving the deal toward a successful conclusion.
Structuring the deal in terms of stages with associated stage payments is often a sensible approach. Bear in mind, however, that this arrangement can have a negative impact on your company’s finances if your normal terms are payments in advance. One way you can alleviate this payment risk is by being prepared to load costs — in other words, accept stage payments — but increase the overall cost to compensate for the delayed revenue. This is something that I do as a matter of routine when prospects request stage payments. Sometimes this leads to objections, but it then becomes a matter of discussing sharing the risk instead of one party carrying it all. If no deal is possible here, then you need to consider whether this is a client you really want to work with.
In Chapter 11, I discuss guarantees and offer some advice on how to work with them. Guarantees also play a role when the perception of risk is an issue, and providing a structured guarantee can be a good way forward and around any impasse. Be aware, however, of exactly what you’re guaranteeing, and make sure there’s no room for ambiguity, with everything clearly defined in writing.
One of my first consulting clients demanded a personal guarantee as his way of mitigating against risk. Undoubtedly, this cost him business and was seen by many as an over-the-top reaction that was very one-sided in its implementation. I could never recommend this as a solution, even though I did sign such an agreement once as a new supplier to this client, who did on one occasion threaten to implement the personal guarantee and that proved to be the kiss of death to that business relationship. The phrase “having your cake and eating it, too” seems most appropriate here.
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