I always liked speaking in abbreviations. When I was a rookie, it was a great way to show off. It let co-workers know I’d learned the ropes. And if they fired me, I could always get a job at Langley. Alphabet soup was the language of inside knowledge.
Today texting and tweeting have taken abbreviations to a whole new level.
The other day, I came across a marketing organization that had managed to squeeze its entire set of processes and procedures into a single tweet. They even had room for punctuation:
“No PD INV w/o EVE. A TCO is RQD for all PMs. No ADVT of ROI w/o PA of the CMO.”
Abbreviations help with some jobs.
There are different methodologies for quantifying and communicating customer value including ROI, TCO and EVE. If you are careful in how you use them, they all get to the same answer.
But sometimes it’s a good idea to swear off the use of acronyms and jargon and get back to first principles. Customer-centric principles. Without speaking in code.
For B2B differentiated products and services, there are three critical questions:
• How is your product better?
• How much better is it?
• What is that worth to your customer?
A business struggling with the first two questions is almost certainly a struggling business. Successful B2B companies start with differentiated product. They communicate product differentiation effectively. But the best B2B companies address the third question as well. They quantify their differentiation value by doing their customer’s math.
Key Elements of Successful Customer Math
The best value propositions emerge from four simple principles:
1. Cash flow and profitability are key. A value proposition must address two questions measured in terms important to shareholders and the C-suite. What impact will choosing this product have on cash flow? What impact will it have on profitability? Cash and accounting are the common denominator for a customer’s business. Even if operating people care about non-financial metrics and messages, all effective value messages must be translatable into cash and profitability. Cash and profitability improvements are the common language that supports your sponsor in getting approval inside your customer’s organization.
2. Identify all possible sources of value. Focus on your customer’s business in a broad way. Too many B2B value propositions are built through the narrow lense of how a product reduces obvious operating costs. Saving labor, reducing maintenance and other operating efficiencies may be the clearest and simplest value messages to quantify. They often resonate best with operating teams. But differentiated products often have the potential to increase a customer’s revenue or reduce a customer’s risk. C-level executives care about revenue and risk. And they may be the ones making the decision of whether to spend money or not. Even if your sponsor is drawn to value messages based on cost reduction, both you and your sponsor need to be armed and dangerous in persuading their C-suite. Demonstrating how your product increases a customer’s revenue or reduces their risk of litigation or risk of regulatory action adds quantitatively to product value and adds impact to value messages.
3. Make sure your numbers relate to relevant decisions. Conversations with your sponsor are often about the choice between new, competing products. That requires a direct value comparison between your product and the competing product(s). Clear points of differentiation and their resulting economic impacts help position you for any beauty parade. But behind the scenes, don’t forget that your sponsor often needs to justify spending any money at all. Even if there is prior budget approval, businesses can hit speed bumps and spending can come to a screeching halt. The decision to make any purchase at all requires a direct value comparison between your product and the status quo, i.e. the way your customer does things today. This is a different comparison and a different value proposition. Preparing for both conversations and comparisons is necessary. Clarity about how a value proposition relates to customer’s decision is essential.
4. Be clear and specific about unit of measure. This sounds like nerdy guidance, but it is critical to providing meaningful numbers. Consistent, quantified value propositions are all expressed in terms of some unit of measure. Measuring the impact of a product that improves efficiency may be easiest if quantified per unit of output. Measuring an impact on revenues may be simplest if quantified per year. If you have been specific about units, it is easy to translate quantified value into terms that resonate best with different audiences. The operating manager may want to understand value per unit output. The C-suite will always want to understand value in dollars or euro per annum. The key to translating value propositions to the terms that matter for different stakeholders is that units of measure be clearly defined.
Principles are great, but not all approaches are equal in application, so I would add two recommended practices that help build effective value propositions:
• Quantify value early and then iterate. In value propositions, the perfect can be the enemy of the good. Waiting for unimpeachable data means waiting for revenue. The best companies quantify value early. Then they iterate and test. They refine data estimates and they improve their sources. They refine how they calculate value. They refine how they communicate value. Without having an hypothesis there is nothing to test. Data approximations may or may not be plausible. Preliminary value messages may or may not resonate. The fastest way to improve data quality and message quality is to build v1 quickly, agile style. Checking to see what works using v1 improves v2 and v3.
• Never stop simplifying. Simplicity and clarity are the keys to effective communication. Having rigorous, in-depth analysis is a good way to build the foundations of a value story. Some customers ultimately dig in and do diligence at a level where delivering in-depth analysis pays off. But the picture needs to begin more simply to get that conversation to happen. And the picture needs to end simpler for your sponsor to get organizational sign-off. Two or three significant value messages have more impact than fifteen small ones with the same total. Highlighting a few key assumptions gets a customer talking about their specifics faster than crawling through a long list of assumptions. Talking about assumptions that are irrelevant to your customer’s decision increases the likelihood that an unimportant tangential conversation derails your credibility and effectiveness. A fanatical devotion to simplification is the best way to make a value message powerful and keep a value conversation on track.
These principles and practices help digest the alphabet soup of value. First they provide a reference standard to assess the quality and practicality of any form of analysis. Second, they provide a common core to make answers consistent across different methods. EVE, ROI and TCO all have their advocates and practitioners, but what matters is that the method used delivers the most powerful math the way the customer will understand it.
In previous and forthcoming blogs, I have and will be making further comparisons of the benefits and challenges of various methods. But, with or without alphabet soup, all comparisons relate to first principles and best practices of the math that ultimately matters to the customer.
Organizations seeking to make customer math central almost always start with spreadsheets. But dueling spreadsheets can cause confusion. Different approaches. Different methods. Spreadsheets don’t provide a common framework. They don’t build fluency in a common language understandable by the customer.
To make customer math work for your organization, you need a scalable platform with the following:
• Standard clear methods
• Easy to follow
• Easy to use
• Easy to avoid mistakes
• Easy to change units of measure to translate effectively for different stakeholders
• Consistent graphics and messages that others can understand and use
• Customized but QA’ed materials to leave behind
A scalable cloud platform drives effective, tailored customer conversations that quantify differentiation and improve value capture.
About Peyton Marshall
Peyton Marshall is CEO of LeveragePoint. Previously, he served as CFO and Acting CEO at PanacosPharmaceuticals, Inc., CFO of EPIX Pharmaceuticals, Inc. and as CFO of The Medicines Company through their initial public offering and the commercial launch of Angiomax®. Previously, he was an investment banker in London at Union Bank of Switzerland, and at Goldman Sachs where he was head of European product development. He has served on the faculty in the Economics Department at Vanderbilt University. Dr. Marshall holds an AB in Economics from Davidson College and a PhD in Economics from the Massachusetts Institute of Technology.