The Advantages of the Incumbent Vendor
Leveraging Its Impact on Managing Competition, Renewals and Expansion Sales
(A Never Stop Learning! Article)
“Get their data, and their hearts and minds will follow”
Michael Cusumano, The Business of Software
Let’s explore some of the advantages enjoyed by being the incumbent vendor and how you can leverage this position for renewals and expansion sales, while holding your competition at bay. We’ll examine:
- Leveraging sunk costs, time and energy investment
- Change avoidance
- Risk avoidance
- Burn victims
- Social capital
- Users’ Groups
Vendor Selection – Sunk Costs, Time and Energy Investment
First, it is likely that a large amount of energy was expended by your customer in bringing your software aboard and implementing it successfully into production use. Very simply, this is work they really don’t want to do again, without a very compelling reason to change!
This can be compared to a trek where you and your customer climb a mountain together. After a great deal of preparation work and an exhausting ascent, you and your customer are now enjoying the view from the summit. Starting again at the bottom with another vendor is not a pleasant thought!
The climb probably included the following energy investment:
- Problem Recognition: At the beginning of your customer’s process, their first stage was realizing that they have a problem, followed by effort to define it accurately. Additionally, the owner of the problem may have struggled to convince others that it was important to solve, and to allocate budget and other resources to make it a real project. That took significant work and political capital as well.
- Solution Evaluation: The bigger the problem (and the more expensive the solution), the more thorough the evaluation process. Your customer may have had numerous discovery calls, demos, and other discussions with several vendors, including you. There may have been an RFP process, competitive bakeoffs or POCs executed with multiple people involved from the customer’s side. This could have consumed several people’s time over a period of months.
Here’s a partial list of the activities your customer may have completed:
- Formation of a buying committee
- Problem and timeline definition
- Researching solutions
- Internal “build vs. buy” discussions
- Managing “Group Dysfunction”
- Identification of possible vendors
- Initial discussions with SDRs or BDRs
- Initial demos
- Discovery conversations
- More demos
- Vendor elimination to a “short list”
- Data privacy and security reviews (often extensive)
- IT architecture reviews
- Reference checks and other social proof
- Vendor bakeoffs or POCs
- Building and presenting the business case
- Vendor selection (and communication with the losing vendors)
- License agreement terms negotiation
- Purchasing SOW and terms negotiation
- Price negotiation
- Raising the purchase order(s)
- Signing the license agreement
- Implementation discussions
- Each of these steps involved members of the buying committee, often plus other impacted departments, including Data Privacy, Security, Governance, IT, Purchasing, Legal, plus senior management, as well as users and users’ managers.
That was a big investment! And all of the above are now sunk costs that organizations don’t want to reincur.
That’s a lot of climbing with a large team, in our analogy. Perhaps it’s more like an expedition seeking to summit a major peak like Everest or Mount Khuiten. And while the expedition did reach the summit, consider how many people contributed substantial time and energy in planning and logistics, preparing gear, load-carrying, and camp setup and maintenance, not to mention repairs and rebuilding after a serious storm. This may be very similar to the internal processes and challenges involved in selecting a vendor!
Solution Implementation – More Sunk Costs, Time and Energy Investment
That was selection, now for implementation:
- Solution Onboarding: It is likely that you and your customer invested significantly in the process of implementation. It’s another, different expedition:
- Assembling the implementation team
- Implementation kickoff, strategy and planning meetings, and assignment of resources
- Pre-installation or implementation assessment
- Installation, as necessary
- Administrator training
- Customization meetings to determine and agree upon fields, configuration and profile parameters, dashboard layouts, processes, rules, approvals pathways, alert thresholds, etc.
- Data migration; data loading; QC
- Implementation of configuration, profiles, processes, rules, alerts, dashboards, etc.
- Interoperability testing with the customer’s existing software and communication with those vendors
- Pre-rollout QC
- User training
- Go Live and initial rollout
- Tuning and changes as needed
- Broader rollout
- Internal progress reviews and updates
- Old system shutdown and removal (and termination of license agreements with the old vendor, as necessary, by Legal, Purchasing, and Accounting)
- Periodic internal progress meetings
- Periodic meetings with your Customer Success/Account Management team
Again, there was a terrific investment in time, people and money to bring your solution aboard, similar to staging an expedition into the Himalayas. It was an enormous effort, including numerous side-trips, solving problems with supplies and provisions, unanticipated challenges, injuries and other difficulties. Most customers really don’t want to go through that effort again, particularly in the short term!
Leveraging This Investment
Once your solution is in production use, the appetite for your customer to repeat these experiences is typically very low. Reinforce and leverage this! During renewal and expansion discussions, remind your customer that all of these steps are already done (and don’t have to be duplicated, as would be the case for a new vendor).
You customer doesn’t have to climb that mountain again; they don’t have to face freezing winds and oxygen deprivation (in the form of excruciating presentations, demos, and other vendor activities). They can enjoy the rewards of that journey without reexperiencing the pain!
Furthermore, any competitor that tries to displace you hasn’t even defined a plan for their proposed expedition, as far as your customer is concerned. You are in a competitively advantageous position.
However, here are very important assumptions for the above to remain true:
- Your customer achieved their Value Realization Events, and is tracking well on the path to full ROI or has already achieved it (see page 110 in the paperback version of Doing Discovery for more on Value Realization Events).
- You have regular meetings with your customer via your account management and/or customer success teams, so you are aware of any issues your customer is facing with your product or implementation (and have concrete plans to address them).
- You regularly discuss product roadmaps with your customer to head off competitors’ “new and improved” offerings and capabilities. Your objective is to stay “ahead” of the competition, with respect to functionality, or to minimize any perceived negative functionality gap between your offering and competitors’.
Roadmap discussions are also opportunities to bind your customer more closely to you, by giving them more “weight” in the feature/function definition, prioritization, timing, and implementation processes. Interactions with colleague companies at users’ group meetings help reinforce this.
In our expedition analogy, this last item is similar to discussing future excursions, encouraging your customer to participate in decisions about desired destinations, routing, daily travel distances, food and beverage choices, and sleeping arrangements. They enjoy a growing amount of ownership in the process and the results.
Change? No Thank You…!
Fundamentally, most people don’t want to change.
Let me say that again: Generally speaking, people don’t want to change. Even if they don’t like their current state, they will preferentially stay with their current situation rather than take on the tasks above.
They would rather stay with “the hell that they know” rather than seek a solution. Oh, they’ll whine about their current condition; they’ll talk for hours about how much they don’t like it. But if the problem isn’t big enough or the solution isn’t sufficiently compelling, then most people will stay with what they have.
Want proof? In the world of software sales, one of the biggest “competitors” is No Decision, where the customer chooses to do nothing. On average, 43% of all forecasted opportunities end up as No Decision outcomes. (See this Forrester study and this article for more data.) Fascinatingly, some of the people who are most resistant to change are… wait for it… salespeople!
Why do No Decision results happen so frequently? Because making a business decision on major software selection is expensive, as described above, and it involves substantial risk as I’ll outline next.
There is risk associated with anything new. As consumers, we tend to repeat purchasing from vendors who deliver sufficiently on their goods, expected capabilities and associated promises. Why take the risk of trying another vendor?
It is only when we have a bad experience that we consider changing (and many people still won’t change – it’s the hell that they know!).
A similar situation exists in business with software purchases. If you have had a good experience with one vendor, you’ll preferentially return to that vendor for other offerings or more licenses (upsell and expansion), because the perceived risk is lower. This is true even if a competitor’s offering appears to be “better”.
Example? For a period of about 1000 years (plus or minus a few), there was a famous expression, “No one ever got fired for buying IBM…” It is much less risky to stay with the current, well-characterized vendor and their products than to move to a new, unknown provider.
Why would you engage a new, untested expedition company when you know and are comfortable with how your current guide-company performs? Why take the risk?
As the incumbent vendor, you can take advantage of this risk by calling it out, when appropriate. If your customer begins to explore alternative vendors, gently (but firmly) remind them that you are a known quantity, whereas other vendors represent significant, unquantified risks!
Burn Victims – Fear and Loathing of Risk Unrewarded
There is great risk in change, often accompanied by fear and loathing. And for good reason!
Have you ever seen a software implementation effort fail? Have you ever met a customer who was unable to gain the desired value from the “solution” they purchased? Have you ever encountered someone who had to roll back to a previous state?
People in business who have suffered these fates are known as “burn victims”. They may be angry about being burned, and they will be hard to convince to pursue the same or a similar route again! (You can find more details on working with burn victims starting on page 298 in the paperback version of Doing Discovery.)
This would be like paying for and participating in intense preparation for a major expedition only to find that the guide-company failed to provide proper provisions, requiring you to turn back without even glimpsing the summit! All that time and energy invested – for nothing.
Opportunity cost is also an issue. A customer who decides to change from their current state will consume the resources described previously, including time, people, money, and political capital. What else could they have used those resources for, instead? Perhaps a more profitable expedition could have been launched in its place.
This is also painful for customers who go through the entire evaluation process only to decide to do nothing (the No Decision outcome). Very expensive! (“We spent months preparing for the expedition, but then called it off at the last minute…”)
Accordingly, customers who were previously burn victims (with other vendors) who are now enjoying success with you will be predisposed to buy more from you than risk pursuing another vendor. You can leverage this experience in your renewal and expansion discussions, and in fending off competitors’ advances.
Social capital is another area of advantage for the incumbent vendor. As the entrenched vendor, you have undoubtedly established and grown relationships with important customer players, including champions, management, key users, system admins, etc., as well as built relationships with Purchasing, Legal, Accounting, IT, Data Privacy, Security, and other departments.
You’ve developed good working relationships. Vendor and customer teams have established comfortable processes for communication and interaction that are now familiar to both parties. Your implementation team and your customer’s team have shared and overcome the challenges they faced, together, and your customer success folks have developed rapport with key users and managers.
This is valuable social capital that you’ve established, in contrast with your competition who would have to develop these assets separately. And while the competition’s salespeople might be known by your customer, they have not earned the trust and credibility that you have generated through a successful implementation process and resulting realization of value.
You are the proven vendor! Reinforce this when competitors loom and when you discuss renewals, expansion, and other sales opportunities.
When you have successfully completed a difficult, but satisfying mountain climb with one expedition company, wouldn’t you prefer to work with that same organization when contemplating a new adventure? They know your food tastes, your preferences, your stamina level, your allergies; they’ve laughed at your jokes and listened in appreciation to your travel stories. It’s a comfortable relationship!
Users’ Groups Are Competitive Weapons
Users’ Groups are like biological organisms: They want to grow and succeed. Each new customer who joins an active users’ community makes that community stronger and increases its collective knowledge. This is another set of important relationships and social capital!
Customers talk with other customers, sharing success stories and solutions, as well as roadmap preferences and new functionality requests. There is great comfort and safety in a community, along with a feeling of greater leverage with the vendor when the group as a whole agrees on a position.
In addition to user-user interactions, Users’ Group meetings also represent opportunities for you as a vendor to establish and develop deeper relationships with your customers. Customers expect to meet with sales and presales people during their buying processes, and with customer success folks during implementation, rollout, and beyond. However, Users’ Group meetings provide opportunities for additional vendor teams and players to connect with customers, potentially including management, developers, product and marketing players, customer support, and other teams. These relationships increase your social capital “bank account,” generating more reasons to resist change.
I encourage early-stage companies to establish Users’ Groups as early as possible, even when there are only a dozen customers. And if you are a more mature vendor without a Users’ Group, you should start one right away, and encourage every existing and new customer to join!
In our expedition analogy, this would be like the vendor hosting regular post-expedition gatherings, with the clients sharing their experiences and stories with one another. Participants will not only reinforce their positive experiences (as well as push the vendor for improvements), but they’ll learn about new, intriguing destinations, often selling one another on these opportunities much more effectively than the vendor can. That’s very powerful reference selling…!
The incumbent vendor enjoys huge advantages that should be leveraged when exploring renewals, expansion, upselling, and in defense against competitors. Remind your customer of the investment they made in evaluating offerings prior to the sale. Recall the substantial effort now realized in implementation. Review the relationships – the social capital – developed, now in place and operating smoothly. Recall the pain of change and the associated risks.
Build on this foundation to secure renewals, drive expansion sales, and when introducing new products and solutions. It is much easier for the incumbent vendor with a successful track record within a customer to introduce and pursue these possibilities vs starting from zero.
Presenting your mutual history in a timeline, as a slide or whiteboard exercise, can be a very effective way to gently (but firmly!) recall this information and reinforce your relationship. It is also a great way to bring your customers’ new players up to speed with the activities completed to-date.
Competitors without comparable history suffer from severe disadvantages, which are the inverse of the incumbent’s strengths. A customer’s positive personal experiences with the incumbent builds an imposing barrier against vendors with no first-hand proof of success.
When your competition talks about how much better their offering is than yours and introduces new, tempting capabilities, reinforce the investment your customer has already made, the value they are receiving, and the objectives they have achieved. Emphasize your customer’s emotional desire to avoid change, the comfort and safety of the status quo, and the avoidance of unnecessary risk.
With a successful implementation in production use and the customer enjoying the value gained, the incumbent vendor is perfectly positioned to secure renewals, drive expansion, and acquire additional business. And regarding our expedition, what is your next desired destination?
Hmmmm – one additional thought: How many of you would now like to see a follow-on article on “Battling and Overcoming the Incumbent Vendor”?
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