The Vendor Dating Game (Corporate Purchasing is Broken)
Matchmaking is big business. Even if we limit the market to online dating services in the United States, we’re looking at a market that generates roughly $2,000,000,000 per year. In a given year, over 90% of American singles use online dating services. For the vast majority of people, finding the right romantic partner is an incredibly important endeavor.
While actual in-person dates may still play the deciding role for assessing chemistry, moving the “partner discovery process” to an online system where potential suitors can be filtered by specific attributes has radically changed the way people find their matches. You like tall? Short? Athletic? Literary? Religious? Non-religious? Never before has it been so easy to target the person who — at least “on paper” — is right for you. And since the Internet has made it so easy to aggregate huge numbers of people, online daters don’t identify a single person, but rather a sizable cohort of individuals who meet a particular set of criteria. Then, and only then, does the dating begin.
We’re not talking about a single date here. No, we are talking about dating — a process that results in high highs, low lows, and amazing stories for your friends. (“OMG, his picture must have been ten years old!” “She kept texting her ex and then would laugh maniacally.”) The idea is to make sure that the person to whom you will commit is a good match for you. I mean, you’re not seriously going to stop looking after you meet the first person. So this begs the question, how many people should you meet? When is it time to settle down? Fortunately, some number of romantic mathematicians have invested time into solving this problem for us. The most common suggestion is that you shift your mindset to commitment after you’ve gone through 37% of the pool of potential mates. (If you want to actually see the math, take a look at “The Sultan’s Dowry Problem.”)
If you’re wondering why you’re reading about online dating in a piece by a b2b company, you are probably not alone. However, since you’ve stuck around this long, you are about to be rewarded. This is the part of the post where we’re really going to ratchet up the sexiness factor. We’re going to shift from searching for romantic partners to searching for the best vendors for your business. We’ll pause for a moment so you can catch your breath….
Vendor selection should be easier than dating. There are all sorts of places where you can find very detailed information about the vendor. It’s not considered inappropriate to contact the vendor’s other “conquests” to inquire about the experience. (In fact, most vendors will encourage you to do so; it’s corporate polyamory.) And you’re not penalized by a potential future vendor for “playing the field” while you move toward a decision. Given all of these opportunities to optimize the outcome of the vendor selection process, why is it that almost “50% of buyers choose the vendor that responds first?” We call this the “first touch problem.”
The problem can manifest itself repeatedly as businesses have vendors of all sorts, from landlords to office supply companies to cleaning services. IT spending, just one component of a business’s needs, represents $3.5 trillion (yes, that’s trillion with a “t”) globally. If it’s too hard to wrap your head around that number, let’s focus on something far smaller, corporate travel for US companies. Are you ready for it? That relatively small part of corporate spending is still a $300 billion market.
Let’s circle back to the question of why businesses are so receptive to the people who contact them first. The answer: it’s easy. If you’re an employee in a small or medium-sized business (SMB), you likely have a full plate with your day-to-day tasks. In many (most?) cases, there’s not going to be procurement department. There might not even be a formalized purchasing process. Your focus is solely on doing your job, and if you need something that’s going to help you do it — cloud hosting provider, plane ticket, rental car, hotel room, CRM system, or anything else — there is significant value in arriving at a decision quickly. Put simply, the most expedient decision might be the right decision when you include the costs of what could be painstaking deliberation. So if you can find something that checks the boxes well enough and get back to doing your job, it feels like a win. Imagine applying the same logic to dating. “Brown hair, college degree, and a non-smoker. I’m all done looking.” Sounds ridiculous, right?
Larger organizations are wise to this problem and have taken steps in an effort to address it. They will typically have a procurement process, which is designed in large part to make sure that vendor selection is well considered if not well orchestrated. In fact, they will often have a whole department devoted to purchasing. In some ways, this can be incredibly helpful. Jane from IT who needs cloud hosting can go to the procurement specialists and let them know what she requires. Ostensibly, Jane is now free to turn her attention back to her day-to-day responsibilities. However, unbeknownst to Jane, she may have made a Faustian bargain. The purchasing department is populated with people who are experts on purchasing and beholden to corporate policy. They are not necessarily experts in cloud hosting. In fact, Jane from IT — the very person who issued the purchase request — is the expert in cloud hosting.
Jane can choose cross her fingers and fully delegate the purchasing decision to the procurement team, which has two to three weeks to develop expertise in cloud hosting. They’ll use this newly acquired information to
- build an 80-question Request For Proposal (aka RFP)
- select 12 vendors to participate in the RFP process
- review the responses
- build a shortlist of 3 vendors
- enter into negotiations with the finalists
- sign a contract
It might be tempting to some companies to bring in domain experts to craft the RFP. In addition to adding a layer of cost, the time it takes to identify and engage the experiments can materially impact the outcome of the product. (I know what you’re thinking…. “Issue an RFP to find the domain experts!” Perhaps experts should be engaged to find the experts and so on, creating an infinite loop!) This is a time-consuming process that can take months from start to finish. In certain domains, the world can pass you by in that time.
The CTO of a Fortune 500 publishing company recently hired a consulting firm to come up with an Request for Proposal (RFP) to update their Drupal websites to 6.9. Unfortunately, the RFP took so long that before the firm finished it, Drupal released version 7.0, essentially rendering the whole RFP process somewhat moot. (You can read more here.)
Given the time, effort and cost it takes to prepare an RFP, procurement teams can forgo doing a lot of the research and simply enlist a likeable salesperson from a candidate vendor to provide an RFP to them. And what vendor, when asked to write the RFP to which they will be responding, will say “no?” The problem is that the playing field for the evaluation will no longer be level. In effect, by allowing a vendor to provide the RFP, we come back “first touch problem.” The vendor who provides the RFP clearly has stacked the deck in its favor and is most likely to get to the finish line, no small factor in why the first sales touch wins almost 50% of the time.
If Jane is uncomfortable keeping her fingers crossed for three months, she may elect to participate in the process. Given corporate policy, this might involve her writing the questions for the RFP, selecting the vendors, reviewing the responses, etc. If she is to bring her subject matter expertise to bear, why bother delegating the purchase process at all? She has to do a ton of work and probably wouldn’t get to enjoy the perks of hanging out with salespeople and their flush expense accounts earmarked for dining and entertainment.
We can assign blame to corporate process, but the process is totally understandable. Organizations want to enforce a policy that compels people to justify purchase decisions. It’s probably more appropriate to blame the RFP, a three-letter acronym that might be more appropriately renamed to the CYA. (If the “first touch” problem isn’t actually being mitigated by the RFP, doesn’t this really amount to a “Cover Your <Ahem>” operation?)
As poor a process as this is for buyers, it might be even worse for vendors who feel obliged to complete RFPs whenever they come in, despite knowing the odds are good that a competing vendor strategically placed the RFP in the purchaser’s hands. Questions vary from RFP to RFP and even when there are similarities, the nuanced differences often make copying-and-pasting a dangerous proposition. Invariably some of the questions seem to be unrelated to the product or services they provide; ad hoc teams of people are often tasked to respond to questions that run the gamut from product/service capabilities to historical financial data to support policies to HR guidelines. All of this time and effort is expended while the vendor expects to lose the deal, not on the relative merits of its offering, but because a competitor is sitting in the catbird seat.
Our goal is to fix this. We’re aware that corporate purchasing isn’t sexy (although some companies might be buying Lamborghinis, jet packs, and Dom Perignon in which case…well, sign us up!). But that doesn’t mean it should be this painful. In fact, we think that corporate purchasing should make you feel good. Good that you’ve chosen the right vendor. Good that the process to do so was easy. And good that the product/service that you’ve purchased helps your business. We want you to think of purchasing like a beach vacation — boring but great. Click here to join us!
Originally published at www.vendorful.com on August 4, 2016.