In bad times, lower the risk for your customers

Just like everyone else, I am spending cycles thinking of the economy. Unlike many others, I don’t think the crisis is one size fits all and winners will emerge alongside the losers.

There is a lot of advice for entrepreneurs and much talk in the VC community but the talk is all focused on lowering costs and not on ways to impact the revenue side, which is as important to survive this downturn. Customers will not stop spending. It never happened and it will never happen. Customers will be simply looking to lower their risk at times like this. Who wants to invest 10M in a new ERP system, when things are uncertain?

In general, products and services can be categorized by their level of risk to the customer and by their strategic importance:

· High risk: products or services that choosing them may be beneficial to the entire organization but implementing them is risky. Risk can be a combination of high upfront cost, long implementation, change management (change in business processes to accommodate the new system), no turning back option etc. Business wide implementation of an ERP system is a great example of a high risk endeavor.

· Low risk: products or services that can be easily evaluated, inserted or removed by an organization. eFax will be a great example: you sign up, pay few dollars a month and if you don’t like it you simply stop using it and go back to the old fax machine.

· Strategic– products or services that once successfully implemented can create a competitive advantage to the organization.

· Tactic (non strategic)– Product or service that improves a business process or one department in a business but does not transform the company all together. Sales force automation products can be an example for such tactical product.

Risk/strategic importance matrix. Think of some examples of your own...
Risk/strategic importance matrix. Think of some examples of your own...

In good time, customers focused on strategic products, regardless of the risk level. My assumption is that in downturn, customers will focus on the risk side (choosing low risk over high risk) and pay less attention to the strategic side. Think of the 10M ERP implementation example: let’s assume that these investments will become less likely now. What we can’t assume is that the entire 10M will go away from the budget. The CIO in this example will say he agree to put the big ticket item off for now, but want to use the money for gradual improvements until budget can free up again. This is exactly the time of nimble SaaS or open source products with low entry barrier (monthly fee, quick implementation etc) that can be this temporary improvement until the rainbow shows up in the sky. Look at in 2002-2004: it demonstrated neck breaking growth since choosing Salesforce was a low risk decision compared to the market leader back then: Siebel system with its high implementation cost and expensive licenses.

So if you are in the low risk part of the quadrant you should be in good shape. If you are not, think of ways of reducing the risk for your customers like eliminating set up fees, pre pack implementation, monthly/annual fees instead of license sales, allowing adjustments of users during the year etc. The less risky your product or service will appear; the more likely it is to be bought, even today. Go talk to prospects and customers and ask them: they can come up with more specific ideas you can use to ease the pain of making a decision in uncertain times.

In bad times, lower the risk for your customers

5 thoughts on “In bad times, lower the risk for your customers

  1. Rami says:

    Gadi – Interesting, but incomplete. I think you are confusing up front costs and risks. A risk, especially for strategic projects, should be taking into account not only implementation cost, but more importantly cost of falling behind; e.g. being left with less efficient business practices, high manufacturing cost, etc. Your analysis works mostly for tactical projects, in your definition.

  2. Rami- my analysis is never complete… They don’t pay me enough for blogging… Seriously, the idea behind this post (that was written 6 months ago) is that at risky times, people tend to choose to lower risks. Risk to fail is one of them, but what is the best way to avoid failing? do nothing… This is what many SAP customers (and other ERP vendors) are doing today, hence the “soft” numbers. I am in touch with several “low risk” product companies and they report fine results despite the economy. IMHO, companies like SAP should focus on packaging products into small, digestible pieces until customers are ready to be bold again.
    Thanks for your comment!

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