Prepare Your Exit from the Start

January 26, 2021 at 13:29 · Filed under Increasing Value and Profits ·Tagged , ,

Very few startups exit in a public offering. Only 19 companies went public in the first nine months of 2020. COVID may have had some effects, but there were only 159 IPOs in 2019 and 160 in 2018 (Note 1).

Forty five percent of my high-tech clients (Note 2) exited their companies by selling to a larger organization. They all offered solutions to real problems, talked to customers early and built products that customers could validate quickly. Those who built a growing, sustainable, transparent business, with a focused strategy had the highest valuation. They were ready to exit when the opportunity emerged.

Preparing for an exit from the start requires focus on key customers, repeatable bookings, a verifiable business forecast, financial transparency, and an early connection with a good investment banker. These are the same factors that reduce the need for outside investment and help founders keep more of their company’s value.

Key customers count.
The potential acquirer will want to know the type of customers buying your products. Closing sophisticated, well known customers suggests that you have a viable solution for that particular market segment. This indicates your ability to convert strategic prospects into customers.

It is common to welcome every potential customer during the start-up stage, but some customers are more valuable than others in terms of a small company’s credibility. Many acquirers feel that a small company is more legitimate when large customers are investing in their products. Customers who can provide sales expansion and become references in their industry are the most prized. Make a target account list and pursue them.

Acquire the right type of revenue.
Sales volume helps to set valuation, but non-repeatable sales, such as custom and service deals are usually discounted when determining the company’s value. Customers with repeat business potential for existing products help the acquirer to project future bookings.

Avoid customization for a single customer. Create product options or upgrades only if new product features offer additional sales volume from the general market. It is counter intuitive to turn down business in the early stages, but the development resources, future maintenance, testing, and support requirements can affect a small company’s ability to grow. Many acquirers know this and will discount custom and service business for valuation purposes. Focus on the core products to increase valuation.

Maintain accurate business forecasting.
Sales forecasting helps to record business activity, track progress, and anticipate future sales. Updating individual business opportunities with the sales team is essential. Regular forecast reviews reveal patterns and uncover problems with product, positioning, pricing, and sales productivity. Demand a forecast from every salesperson and update it weekly.

An acquirer may want to verify the sales forecast to make sure you are “on-top” of your business. A good forecast inspires confidence in your sales projections. I have had a potential acquirer insist on speaking to some of the forecasted prospects with specific questions about the opportunity to do business together. An acquirer may also want to see how well previous forecasts track to actual sales.

Keep clear financials.
A common mistake in the early days of a private company is loosely adhering to accounting practices. This may seem like an advantage in the beginning, but it can quickly turn against the founders when the time comes to exit the company.

I advise my clients to run their finances as if they were already a public company. I have found that this lends credibility, which translates into valuation at the time of exit. Having to restate or explain numbers can affect confidence and make an acquirer look deeper into other areas during due diligence. Lost trust can delay and even unravel an otherwise good deal.
Keep your accounts clean from day one.

Engage early with an investment banker.
Most startup companies are focused on building and not exiting. It is, however, advisable to begin looking for an investment banker before you need one. The right investment banker (Note 3) will strive to understand your goals and position your company based on the overall value to potential acquirers.

An investment banker who knows the industry and has a long-term perspective for their clients can advise you on ways to increase your valuation. Finding an investment banker who will build a long-term relationship with you and be on the lookout for potential exit opportunities is well worth your time.

Plan a profitable exit from the start.
Technology M&A markets can turn very quickly. Planning your exit early will help guide product development, customer focus, sales forecasts, and financials in ways that increase valuation. An investment banker who knows you and your market, can provide a first-mover advantage to you as soon as an opportunity arises.

—————————

Notations:
1. https://www.statista.com/statistics/270290/number-of-ipos-in-the-us-since-1999/ Statista offers insights and facts across 170 industries and more than 150 countries.

2. https://inregion.com/clients In Region Inc. offers strategic and operational advice for entrepreneurs, founders, and c-level executives to achieve maximum revenue growth.

3. https://www.harvestmp.com/ Harvest Management Partners provides unique M&A services for technology companies. They have a long term perspective and have successfully completed dozens of mergers and acquisitions.

Leave a Comment

Nothing Happens until an Entrepreneur Sells Something

August 14, 2016 at 17:02 · Filed under Increasing Value and Profits, Selling for Non Sales People ·Tagged , , ,

Every visionary who has muttered the words “I am not a salesperson”, understands that visionaries also have to become sales people. Entrepreneurs need to convince investors of the merits of their idea. They must persuade good people to come to work for them at lower than market rates of compensation and take the higher risk. Entrepreneurs must motivate potential customers to take the risk of deploying a new product or idea and help to “build traction”.

Entrepreneurs need to understand sales principles even if they are not sales people. Evangelism is not enough, Evangelists can use their passion to tell their story, but selling requires mastery of the art of persuasion and the ability to close.

Entrepreneurs need to know how to:
• Turn your passion into a sales value proposition
• Prepare for the not-so-cold prospecting call
• Write emails that get interest
• Apply telephone techniques to get appointments
• Ask questions, align objectives and advocate solutions
• Approach the buying influencers to gain a competitive advantage
• Turn the NOs that block every decision into YES
• Manage the stages of a sale to improve forecasting
• Benefit from prospect tension during the decision making process
• Use simple and objective sales forecasting techniques to convince investors and avoid financial surprises
• Apply sales techniques to fund raising
• Close and ask for references

We have no choice if we want to have our ideas adopted. We need to observe what’s needed, create solutions, build a value proposition, persuade customers that we can solve their problems, and convince investors to give us the money that will take our ideas to market.

Nothing happens until somebody sells something!
________________________________________________________________
Modesto Casas, Founder and President of In Region Inc., has 32 years of revenue growth successes in Worldwide Markets. He has held Worldwide Executive Management responsibilities in 5 entrepreneurial companies in the United States and abroad. He has developed innovative companies in global markets and integrated several of them after mergers or acquisitions. He has formed strategic relationships with customers and partners to increase sales revenue and market penetration in Brazil, China, Europe, Eastern Europe, India, Japan, Korea, Russia, Singapore, Taiwan, Uruguay, and the United States.

He is the creator of Practical Solution Selling and Selling for Entrepreneurs, which he has applied while exercising Sales, Marketing, Operational and Executive responsibilities to help entrepreneurial companies beat their larger competitors. When he is not teaching others how to sell, Modesto helps founders and entrepreneurs from all over the world to overcome the complexities of their target markets, leverage their strengths and beat their larger competitors. He is multi-lingual and multi-cultural having lived in six countries.

Leave a Comment

5 Proven Actions to Increase Reseller Attention

July 9, 2016 at 14:55 · Filed under Global Sales Management, Increasing Value and Profits ·Tagged ,

Companies spend millions to understand what their customers want. Product designers and product marketing managers study the market and the competition to position, package and price their products. Once the products are placed in the field, it is up to the sales manager to motivate the channel to think about his/her product before anything else on the shelf or line card.

I often see excellent products that are very successfully sold by a vendor’s direct channel, but struggling with an indirect distribution channel; or the reseller’s important customers only buy after seeing a manufacturer’s Marketing Manager or Executive. These are both signs that the channel does not have enough information and they cannot credibly represent the product or answer objections.

The good sales manager must share good information with his indirect channel, provide distributors and resellers the same information as the salaried sales force and sales management. Prepare them to sell in the same way as the salaried people. Include them in sales training, product training and roll out events. Give them training and marketing support as if they were located at headquarters. Today’s technology facilitates this type of inclusion. Skype http://www.skype.com is a platform that can create a virtual office between the sales manager’s laptop computer and anyone in the channel. Chat, free calls and video conferencing are included.

Sales related information available to salaried sales people needs to be also available to the indirect channel. Needless to say that all reseller and distribution agreements must include protection against disclosure and your Intellectual Property protection must be up to date. There are very inexpensive ways to protect intellectual property while applying for a patent. One way is to secure a Provisional Patent to protect intellectual property without the large time and expense required for a full patent application. This type of protection gives a new product or technology one year of protection, which is significant time to test the marketability of the invention or intellectual property.

Keep the indirect channel up to date. Fly them to meetings, include them in corporate conference calls and company events. They will meet the corporate super stars and form relationships that will help them sell in the future and also enhance the communication with headquarters. Make them active participants in these events. The channel has up to date competitive information and they experience the regional trends long before they get to the main office. I recommend that channel players attending sales meetings present at least a general trend for the past 12 months, one win, one loss with the reasons for the outcome and what they learned from the experience. Then I ask them how they are going to change their business in the next 12 months. This information indicates the plans each of the channel partners, resellers or distributors and can set the priorities for changes in structure, positioning or support.

Use the web to share information globally. Price changes, promotions, new policies, customer wins, competitive tactics or strategic changes. A few words or newsletter from the President of the manufacturer to the channel from time to time is a very powerful message that they are a significant part of the company.

Give plenty of warning on changes that affect the channel’s business. This is the rule that I see violated most often. A manufacturer keeps bad news until the last possible moment. The more difficult the news, the more important it is to share early and honestly. If the manufacturer has a plan that can’t be sugar-coated for the channel, waiting is only going to make it worse. Present the bad news, the reasons, expected consequences and how the manufacturer and the channel will move forward together.

Most indirect sales channels that I have fixed for my clients suffered from lack of information and these are some of the programs that I institute immediately. I often find that channel partners do not share their feeling openly with the manufacturer. After all, most view their manufacturer as a client to please, but they all push what is easiest to sell.

Modesto Casas is the founder of In Region Inc., and creator of Practical Solution Selling. Modesto takes companies into global markets, coaches and trains executives and sales managers while installing best sales practices across the organization. In Region Inc., is dedicated to increasing worldwide revenues and Practical Solution Selling has been proven to achieve better sales results in all global markets.

Leave a Comment

5 Stages that Improve Sales Forecasting

July 2, 2016 at 20:44 · Filed under Global Sales Management, Increasing Value and Profits ·Tagged , , , ,

It can be difficult to forecast B2B sales, resulting in large variations between the closing expectations and actual sales. Each salesperson has a certain style, optimism, drive and risk aversion. Sales managers and executives are expected to judge these personal variations to project sales to Corporate with acceptable accuracy.

Forecasting can be subjective, resulting in unpredictability and surprises. Some forecasting systems try to improve accuracy by applying lengthy analysis and forms to fill out. These methods feel analytical, but in reality, the individual salesperson’s style and assessment affect the objectivity of the information. I prefer a system of stages, which enable Sales Management to understand how the sales campaign is progressing and what support the sales person needs. This method is based on 5 objective and clearly defined stages of a sale.

Stage 1- Prospecting: A potential customer with a general need for the product is identified. No specific or near term need has been found. The salesperson is sending marketing materials, email campaigns, and invitations to web-seminars and conferences.

Stage 2- Qualifying: Starts when a near term need is identified. The efforts now focus on understanding the prospect’s business and functional requirements. The salesperson is now calling or visiting the customer’s influencers to understand their goals and their needs.

Stage 3- Selling: Starts when the business and functional requirements are well understood. The salesperson is making presentations, arranging product demonstrations, providing product comparisons with detailed functional information, and competitive analysis. Often, a technical expert needs to be involved. The salesperson is engaged in competitive selling strategies and may require management assistance.

Stage 4- Negotiating: Starts when the proposed solution meets customer’s functional requirements. Pricing is being seriously discussed. The salesperson is creating proposals, presenting business models or responding to pricing requests. Management needs to provide pricing or margin approvals, assist in the negotiation, and be responsive with approvals.

Stage 5- Closing: Starts when negotiations are completed and the proposal moves to Purchasing for order placement. It ends when an official purchase order or proposal is signed without conditions. A Purchase Order must be in the salesperson’s possession before an order can be considered closed. The sales person needs to stay very aware of potential competitive turnarounds. Management needs to be ready to provide whatever support is necessary to defend in case of trouble.

The 5 stages remove subjectivity, because each stage begins with a specific condition and ends where the next stage begins. A sales person who is “Selling” (Stage 3) to a price sensitive customer may be negotiating price, but, for forecasting purposes the opportunity cannot move to “Negotiating” (Stage 4) until the “Selling” is completed and the proposed solution is accepted. Each stage also indicates to sales management what type of support is required in order to move to the next stage.

This forecasting methodology flows naturally with the sale, improves objectivity and facilitates support allocation. It frees selling time for the salesperson that only needs a few seconds to update forecasting.

Mo Casas is the founder of In Region Inc. In Region takes companies into global markets. From any stage of a company’s development, we accelerate revenue and manage growth. We identify the right opportunities, channels, partners and positioning to establish a global presence, develop strategic business relationships and prepare our clients for growth, merger or acquisition.

Comments (1)

Successful technology companies do 3 things very well

June 11, 2016 at 16:19 · Filed under Increasing Value and Profits, Sales Techniques ·Tagged ,

I come across a common problem with my clients who sell complex hardware or software products. Sales goes through lengthy evaluations, generating a lot of costly technical activity and, after weeks or months, lose the business to do nothing or to a competitor.

Most technology companies are founded, built and managed by technical managers, often giving technical knowledge a heavy weighting in the hiring process, including sales candidates. Technical product strength and differentiation are crucial, but I find that the successful companies do 3 things very well:

1.Align business objectives with the decision maker before starting the sales campaign.

2.Identify each of the buying influencers and agree on their problems.

3.Organize the selling approach and address all influencers’ business and personal needs.

The technical sales person can quickly get deep into features and benefits. This focus is embraced by the technical buyers and becomes the central objective of the sale. Lists of features, long evaluations and product comparisons fill their activity lists, while the business problems take a secondary place in the sales process. This leads to long evaluations, changing requirements and lost business, often as a last minute surprise.

Today’s technology customers have complex problems to solve, usually bringing a combination of business, technical experts and typical users together into a team of influencers who advise the decision maker in the investment decision. It is imperative for the sales person to identify the business problem, align business objectives with the ultimate decision maker, qualify the technical requirements and determine if his/her company has a solution. Only then, can a proposal be made to each of the influencers, before returning to the decision maker with a clear solution that fits their business and technical objectives.

No wonder salespeople are always so stressed!

 

Modesto Casas is the founder of In Region Inc., and creator of Practical Solution Selling.  Modesto takes companies into global markets while installing best sales practices.  In Region Inc., is dedicated to increasing worldwide revenues and Practical Solution Selling has been proven to achieve better sales results in all global markets.

Leave a Comment

3 Rights to Avoid Channel Expansion Wrongs

August 13, 2013 at 01:22 · Filed under Global Sales Management, Increasing Value and Profits ·Tagged , , , , , ,

Sales that need approvals from multiple people with different objectives and backgrounds complicate the selling process. Sales executives responsible for product lines that require this type of complex sale will sometimes remove the third party resellers from their channel options, moving instead to an employee to open the market. I have written about the benefits of using a reseller channel when opening a new market in another article “Globalizing Your B2B Sales Team is One Thing. Making Them Productive is Another” and will not revisit the reasons here. 

I often find that the productivity problems with the channel is choosing the right partner with the right people and providing the right support. Let’s focus here on how to start selling your complex products through an independent channel and how to make them productive quickly.

 

Right partner

Finding the right Representatives, Distributors or VARS (I will refer to all as Resellers) is half the battle. Identifying a Reseller selling similar products and calling on the same customers will help to leverage the reseller relationships, territories and sales practices to start selling your products quickly.

When establishing a channel for my clients, I prefer Resellers who have been in business for at least two years. They have worked out the initial kinks and are now beginning to focus on what works. Many resellers start by taking product lines from every vendor that will agree to a distribution contract. A vast majority of those vendors are disappointed, as it is not possible to focus on so many products for the complex sale. The two year survivors have figured out what works and are more apt to turn down a line that doesn’t fit their territories, capabilities or capacity to handle a product successfully.

Resellers who are selling adjacent product lines and are already working with customers who also have the need for your complex product are very good targets. I find these by asking existing customers to recommend sales people they know. It is helpful to create a functional flow diagram of what your customers need to get their job done. Plug your product in the flow and figure out who is selling similar products in that flow. Those Resellers are already accessing your prospects and your product line is more naturally presented in more situations.

 

Right people

Engaging a Reseller is no different than hiring a new employee. Would you hire someone without checking resumes (curriculum vitae)? Of course not, I am always mystified by Sales Executives who never ask to see the backgrounds of the people who will represent their products. 

Before signing a Reseller, require an assigned resource to start out the product line in their territory. Having reviewed a few resumes, you might suggest who should lead your initial sales. I don’t mean a full-time person, but a single point of contact that can be trained and nurtured to be productive quickly and become a local resource to the Reseller’s other sales people.

Get the details of the initial developmental plan. I focus more on this initial period, because Resellers will naturally add more resources as a product line becomes more successful, while most tend to be more conservative with resources during the initial slow sales period.

 

Right support

The initial assigned resources need to show good results quickly. The first 90 days of the relationship make all the difference in starting a successful relationship in the long term. You are measuring the Reseller’s results and the Reseller is measuring your product, sales information and support. Commit to your new Reseller.

Assign a single point of contact to support them. Training is only a start, participate in the first few customer presentations, create promotional programs, give them more time to sell by removing administration and other blocks that take their selling time.

I reduce the number of long sales meetings and reports, preferring to have the Channel Manager take over these administrative tasks until the business starts to build. Make your product line easy to sell. I prefer event-driven telephone discussions where the main topic is “what do you need to close more business” and ending with a brief situation review for the most important identified opportunities.

 

Your channel partner is focused on selling. In most cases they are working based on sales commissions only, and must sell the products that produce the most revenue in the least amount of time, and with the lowest cost. Making your line one of those easy-to-sell product lines is the key to success.

 

Reference reading

“Globalizing Your B2B Sales Team is One Thing. Making Them Productive is Another”

http://tinyurl.com/mprcq5j

Leave a Comment

If your customer is not telling you how to close the sale, try this

July 9, 2011 at 21:01 · Filed under Increasing Value and Profits, Sales Techniques ·Tagged ,

My friend Brett Clay reminded me via twitter the other day that it’s good to start the sales interview by asking customers what their goals are and what changes they need to make in order to achieve them.

I agree, in fact I have been doing this for years using what I have named the Now-Need Continuum. Let’s look at how that works…

I take a blank sheet of paper and trace three columns. The left is the NOW, the right is the NEED and we’ll come back to the center column later. On a customer interview, I use the Now-Need Continuum to organize my notes as we discuss the current situation and what needs to change.

Under NOW I write the customer’s comments about the current situation. Anytime a goal or desired change comes up in the discussion, it goes in the NEED column.

Example:

NOW Column:

1. People are using unqualified parts to build products (problem)

2. Spending too much time with reports and meetings

NEED Column:

1. Way to manage what they use

2. Reduce the reporting burden to focus on product design

As the interview progresses and we start talking about what needs to change and actions to be taken, the center column comes into play. I call it the HOW column. In the HOW column I write how we go from Now to Need. This center column becomes our mutual agreement on how to change the current situation to reach the goals.

HOW Column:

1. Evaluate “VIP Lane” for automated quality management (matches NEED 1.)

2. Test “VIP Lane” automatic reporte features for upper management (matches NEED 2.)

I make sure that each NEED has at least one corresponding HOW. I review the HOWs and the NEEDs with the customer to get agreement on the steps that we will take. I close the interview.

I now have a customer approved plan to close the business. Together, we will put the customer on the road to her objectives. Better yet, you just became a consultative salesperson by not pushing a solution until you understood the problem, the objectives and how to make them a reality.

I have used this method for selling consumer products, home improvement sales, consulting services, multi-million dollar technology licensing, and for general problem resolution. It works!

As a bonus, the Now-Need Continuum works for other life situations. I have used it in staff meetings and even at home to plan summer vacations.

Try the Now-Need continuum soon and let me know how it works for you.

Notes:
You can follow Brett Clay on Twitter at @SellingChange
VIP Lane is a real intellectual property quality management product from Satin Technologies http://www.satin-tech.com.

Leave a Comment

Are you missing the opportunity to go global? These tips will signal if you are ready

March 6, 2011 at 16:08 · Filed under Global Sales Management, Increasing Value and Profits ·Tagged , , ,

Expanding business overseas is important, but if you are a small business, going global before you are ready can be suicidal. Here are some signals that can help you decide you if you are ready to go global.

Have you been successful at home?

Local success is a prerequisite to going global. Foreign buyers may not know your company and will look at your previous success and local references. It is difficult enough to adapt success to new geographies, languages and cultures.

Knowing what works at home and adapting it to new markets is the best approach. Going to a new market without strong success in your own backyard is usually a bad idea.

Are you being approached by local representatives who want to sell your product in their markets?

This could be a sign that there is demand for your product in new foreign markets. You will notice local firms asking questions about your product, visiting your website or requesting information. The local experts may have uncovered trends or market changes that will open up new opportunities for you.

Follow up each request. What is causing them to contact you now? How are they currently dealing with the need that your product solves? Is there competition in the market? Are they willing to make an investment with you in the form of a minimum order, dedicated resources, marketing funds or equity in your company?

Do you know the market that you’re trying to get into?

The Central Intelligence Agency keeps an excellent global reference database where you can learn about local economy, population, the gross national product and other important factors for new market, https://www.cia.gov/library/publications/the-world-factbook/index.html.

I like to take baby-steps with my own clients who are going into new markets. Meeting a few potential customers, visiting competitive store fronts and meeting with potential partners before making any commitments or decisions to enter a new market have all worked well for me.

Can you support your products in far-away regions?

Going global requires a plan, careful timing, focus and capital. Phasing in each target market based on opportunity and accessibility is a good way to implement your global plan. Clear objectives and proper budgeting for trips, marketing programs, reseller support is a good first step.

Easily forgotten are sales materials and messaging, which need to be adapted for new markets. Staff to support your resellers is imperative. It always seems less work than it actually is when you get engaged, especially when you consider time zone differences.

Depending on the complexity of your product, you may need one or several people to staff and manage your global expansion. I advocate local representatives on the ground, because initial costs are low and local knowledge is high. Connecting them to your corporate objectives, training them and supporting them as you do your home region sales team is a must.

Are you ready?

Leave a Comment

Having Problems with Your Business E.S.P? These Three Things Will Help

January 23, 2011 at 17:55 · Filed under Increasing Value and Profits, Sales Techniques ·Tagged , ,

In order to succeed in business you need E.S.P. These steps will unlock the keys to reading the customer’s mind and closing a lot more business. They work for any type of sale.

What’s the magic?

E-xploring what the prospect wants and needs,
S-howing how you can help to get it and
P-roposing how you get paid to do it

Exploring what a prospective customer wants is the most important element in the equation

Ask questions and listen without offering solutions. Engage in a dialog and help the prospect clarify what they need. Once a prospect knows that you are sincerely trying to help, they will naturally guide you to the right proposal. The biggest challenge is that salespeople from retail to the highest ticket items are trained to present. Most are eager to present features, benefits and advantages. Fight it!

Start presenting before you know what is important to the prospect and you are seen as pushy. It affects credibility because you have not earned the right to make a recommendation. You can tell if you are doing this, because resistance walls go up and serial objections creep in. The prospect is trying to say: I don’t trust you yet.

Ask questions about the prospects’ problems, wants and needs to understand what is on his mind. This is the basis for all that follows and the key to success.

Motto: Ask, don’t tell.
Role Model: Stephen Covey: “Seek first to understand and then to be understood”

Show how you can help

Now you can present staying focused on the prospect’s problem. Don’t use a standard sales pitch. One size does not fit all.

Present your solution to his specific needs in four sections. Why four? Because almost everyone can remember only three points and I will show you what to do with the fourth point a little later.

Categorize the prospect’s needs into three sections. Revisit each of them and your proposed solutions. Answer objections as they come up. Ask for agreement that you are solving each concern as you present it.

Motto: Focus on what the prospect wants.
Role Model: Frank Bettger: “The secret of selling is to find out what the other fellow wants and help him get it”

Propose how you get paid and connect the dots

Your proposal is the fourth point of your presentation. It ties the prospect’s stated problems, your solutions and adds your compensation. Make it easy for the prospect to connect your success and his.

Complicated business propositions introduce tension. Tension breeds indecision. Strive for a simple flow chart or check-list that shows how you solve each concern, how you are paid and when. Remember how much we all hate fine print. Be easy to buy from.

Don’t forget to ask for the order!

Motto: K.I.S.S. (Keep It Simple…)
Role Model: Winston Churchill: “All great things are simple, and many can be expressed in single words…”

When you understand the prospects business and functional needs and you have his agreement on how to solve them, your proposal is easy to create and sales are easier to close.

Leave a Comment

The Contingent Purchase Order can play an important role in the sales negotiation

December 14, 2010 at 19:19 · Filed under Increasing Value and Profits, Sales Techniques ·Tagged , ,

A prospect may need a product to be modified in order to use it, or may not be sure that a service can be delivered to spec and on time. Instead of extending a competitive sales cycle, it is better to put the Contingent Purchase Order in play.

The Contingent PO guarantees that if certain items are delivered, an invoice will be paid. It lays out a clear set of objectives to be met and focuses the buyer and the seller on solutions and deliverables.

Why would you want one?

The prospect’s uncertainty is often a reason for sales cycle delays. The Contingent PO can stop a long sales cycle. The vendor’s commitment to deliver to defined objectives in order to be paid can reduce the prospects’ anxiety when purchasing a new product or dealing with a new vendor. A Contingent PO stops the competitive sales cycle for the competition.

A prospect who requires modifications to a product is an excellent candidate for the Contingent PO. Setting down clear deliverables helps to define the problem and focuses both sides on solving it. Securing a commitment that the buyer will buy if the seller delivers to their needs reduces the risk for the seller when committing resources and for the buyer in case the seller’s efforts don’t yield the expected results.

A well written Contingent PO can be used to confirm the prospect’s commitment and verify the budget availability. It gives the seller good visibility of the purchasing process and access to the people who control the budget, before additional resources are used to deliver services or modifications.

Writing a good Contingent Purchase Order is important

A Contingent PO is not a hand-shake agreement. It is an actual purchase order. Like any other order, it is a buying document stating product, price, payment terms and delivery dates. It is different in that it includes a list of conditions to be met before payment can take place.

It is important to begin by discussing the contingencies between seller and buyer, then writing them down for the full agreement of both sides. Keep in mind that well written contingencies must be clearly written to enable both sides to check-off completion without question.

Anyone familiar with SMART goals can write a good set of contingencies for a purchase order. Each contingency must by specific, measurable, achievable, relevant and time bound. A very good refresher on writing SMART objectives can be found in George Ambler’s blog on the subject http://www.thepracticeofleadership.net/2006/10/15/10-steps-to-setting-smart-objectives/

The Contingent PO gets a bad rap with some who see it as business that is not properly closed. When it is the only way to convince a prospect that you can meet his objectives, it can be an excellent way to accelerate the sales cycle. A Contingent PO will focus the prospect on your solution, block the competitor’s opportunity and verify that you can have the sale if you deliver.

Leave a Comment

Older Posts »
%d bloggers like this: