How Perspective makes Problems seem Smaller
A friend called me this week in a panic “I need your help, I really messed up.” She was in a panic over a business decision she had made and couldn’t see how she could come back from it.
My friend is completing her MBA at Florida State University and works part time at a dental office as an HR assistant, but there is no HR manager so she works a few days a week practically running their entire HR and several other projects. She was tasked with a special project to reduce the practice spend on their website maintenance. In her due diligence she got a few quotes from several vendors, who all told her not to call the incumbent vendor, because if they got wind they might be on their way out, they could shut down the site out of spite!
This was the first red flag to me as I heard her recount the story. A competitor telling the buyer not to talk to their incumbent vendor with fear tactics seems a little fishy. I don’t know the ecommerce space that well so it may have happened before where a web developer can hold your site ransom, but it seems unlikely to me, but was obviously a very effective fear tactic by their competition to an uneducated buyer.
She begins to collect all the information about their current site for the new vendor to start building a new site. The new vendor promises a monthly reduction from $2,000 a month with their current vendor to $600 a month with his site for a similar set of features. So far this seems like a great deal and my friend has good news to deliver her boss. She pays the new vendor for the first month and a set-up fee.
But the site isn’t ready to go live it turns out so they need to pay for both sites running in parallel for a month. She tries to ask for a refund from the new vendor and he says she can apply the $600 as a credit towards next month. Then she calls the incumbent vendor (for the first time) to cancel the service. Turns out they are super friendly and accommodating and find a way to reduce her spend from $2,000 to $750 and actually have been offering way more social media and marketing services to drive traffic to the site than she realized. So now what does she do?
The net effect is she saved the practice over 60%+ in their spend with either option, but she’s paying 2 vendors and has spent some money and a lot of time to get to this decision she doesn’t know how to justify. That’s when she called me in a panic.
After I heard her story I replayed the options to her:
1) Stay with your current vendor and experience savings of $15,000 per year.
2) Go with the new vendor and experience savings of $16,800 but absorb the one-time set up fees with a one-month credit and risk that you may be lacking some social media and marketing features you had with the incumbent.
Sounds like she did a great job with her task to me; for a part-time employee she basically found enough budget over the next couple years to bring on someone full-time to run HR when she graduates. There are some sunk costs experienced to get these options (paying both vendors for a month and set-up fees with the new vendor about $3,500 in total sunk costs) But now she is in a position to present these options and make a recommendation to the practice, and the sunk costs, while top of mind now, will seem insignificant as they gave her leverage to negotiate better with the incumbent.
Some lessons learned in this story:
Sometimes you will be on the selling side, sometimes on the buying side, when you are on the buying side, don’t underestimate the power of your leverage with the incumbent. She was too afraid to call the current vendor for fear they would hold her site ransom, when in reality she had the power all along. When you are on the selling side you know that acquiring a new customer is far more expensive than retaining an existing customer, so keeping them is incredibly valuable especially in a monthly recurring business.
You might argue she should have just called the incumbent from day one to ask for a lower payment. However, without knowing market value for the services she might have been satisfied to go down from $2,000 a month to $1,800 and called it a day. She had to make a small investment of time and a deposit with the new vendor to get educated about the market to better negotiate her rates with the incumbent and give herself fair and competitive options.
I think the biggest lesson here is things are never as big a deal as you make them out to be in your head. We are all reasonable, logical people who act with purpose; when we can explain that reasoning and spin it in a positive way you’ll make it out just fine. What my friend thought was a huge mistake (engaging a new vendor and spending some money on two products at the same time) turned out to make her come out of the situation as a hero. With a little perspective, problems always seem smaller, and she presented her options to the practice a few days after our talk and they were extremely well received, she even got a raise!