Fifteen Thousand Pounds – The Cost to Dig Your Own Hole

“Fifteen thousand pounds”

 

That’s the point I knew the client had lost the deal.  And with the deal, the long term viability of the company.

 

One of the most fundamental tenets of a successful growth company is ‘making yourself easy to do business with’.  I think sheer greed got in the way here, or perhaps a total misreading of the strategic situation.  It was explained to me post-meeting: that development work would be costly, so something would need to be charged to the client.

 

Rewind.

 

I’d started working with the client two or three years earlier.  They were selling services, charging an annual subscription fee on a headcount basis, into the people management space.  Human resources has plenty of critics (/administrators), so I will not repeat them here – but to make matters worse, the client was disorganised and emotional, but worst of all it learned slowly and was subscale.

 

I cannot even remember quite how they got into the situation, but one of the major UK water companies was brought round to the idea of doing a pilot of the service.    They certainly needed it – the management systems ‘human resources’ had in place were poorly implemented, and the Head of People knew it.  The client’s service offered the opportunity to solve the problem, and in order to get well embedded (knowing such a service would always go to public tender), it was manoeuvred into a three month limited-headcount pilot.
Remember I said the client was slow learning?  It must have been obvious to the water company throughout the pilot that the client was learning on the job.  This is not necessarily a bad thing – learning together, which certainly needed to happen, can build bonds between a company and its customers.  Quite why I was directing the learning was never clear – but I knew someone had to grip the situation, because the opportunity was too important.

 

Remember I said the client was subscale?  Getting the water company on-board probably would have trebled the ‘people under management’, which was the key metric for this particular client.  The investment in the technology and outsourced relationships needed to deliver the service was a leveraged investment – and they were short of break even.  Trebling the numbers, almost at any price point, would have been enough to put the company into that happy space where bills were covered, cash was being generated, and everyone would be able to sit down and think about what to do long-term now the company was ‘washing its face’.

 

Pilot was completed, a big thumbs up for the concept from the water company, and then to public tender.  Everyone knew three people would be pitching at the final round, and despite the obvious learning going on during the pilot, as an ‘incumbent’ (in the loosest possible use of the term), one would expect to be at that pitch.  And the client was.

 

Now as I said before, it didn’t matter what the price point was (within reason) – all that mattered was trebling the number of people under management.  So basically, unless the water company decided to totally reframe the tender at the last month, all the client needed to do was ease into pole position (with a three month head start) and they were good to go on a three year contract.  On to thinking about the business and how to develop it now faces were being washed…..

 

Water company: “So one of your competitors, being open with you, is offering us a set of metrics over and above those which you are currently providing.  Can you produce the same set of metrics?”

 

The data set was identical – same information going into the database, so:

 

Client: “Of course, not a problem …. But, er…… there will be a cost – that’s out of scope.”

 

(hold on, we prepared for this meeting – I don’t remember any additional costs being discussed)

 

Water company: “Oh …. right …. Er, how much?”

 

Client: “Er …… er ….. fifteen thousand pounds”

 

Talk about dropping the ball.  This was a knock on by the wing, once it had run round the opposition’s tardy back line, and was clear through for a try.

 

I was asked to speak to the water company’s procurement people to get feedback, once the client had received notification that the pilot was over and the tender was lost.  Apparently, and of course unsurprisingly, the water company hadn’t wanted to switch the client out – too much effort – but fifteen thousand pounds was not in the budget, and the other company was levying no extra charge.

 

I was on the team that put that company into administration a couple of years later.

 

The fifteen thousand?  That would have been made in margin in year two; the client CEO, for whatever reason, justified the unilateral action to themselves at the time and came out with it.  The company never ceased to be subscale.

 

The moral of this story?  Focus on what’s important (your company’s key metric); don’t get greedy; be easy to do business with.

When should I start commercialisation?

The lean approach to software creation has brought market testing much earlier in the life cycle of a product.  Its aim is to try to find market acceptance as soon as possible so that companies minimise the risk of building products that turn out to be not sufficiently compelling.

How does this translate for non-software technology products?

If a product is based on new IP, it’s likely to have quite a long period before a first trial version is market ready. So how early should you start your commercialisation?

There is a concern that ramping up commercialisation efforts too far in advance of production readiness could lead to a loss of any momentum that has been built with potential customers and go-to-market partners. There is a temptation to think that it is better to put your head down and focus on getting to a production-ready model.

However, it’s important to remember that engaging the market serves a number of purposes:

  • There are often multiple parties that will be involved in the sales, implementation, operation and maintenance of a technology. Engaging with them is essential to understand what is required for each of them to adopt the technology. This will be central to the go-to-market strategy

 

  • Working with these parties will give a clearer sense of where the orders for the product will come from in the first 12 to 24 months post-launch. This is a period where sales velocity must be built. Only when they are prepared to shape up distribution or sales deals will it become clear that there is product-market fit. Confirming in advance where the actual orders are likely to come from will help mitigate commercial risk for investors and support valuation

 

  • Understanding why and how these parties will engage and buy is key to structuring a go-to-market strategy and sales process

 

  • In the process of verifying the needs of the market, it is quite possible that information will emerge that will result in changes to the product development path.

 

If market engagement is left too late, this information may not be uncovered. The cost of this in terms of lost time and missing targets will be considerable.