Rational economic theory concludes that bringing more perceived value to a customer is always a smart business move. Yet I am constantly intrigued by what behavioural science guru, Rory Sutherland, refers to the “psycho-logic” in creating marketing alchemy. Are we creating greater bloat and excessive functionality and if so, does the customer actually value it and does the opportunity cost jusify it? Most proposition design and finance conversations, never stop and ask those challenging questions.

A business services client calls me today to debate the value of extending a service offering in a collaboration with an external partner because it “increases our perceived relevance to our ideal customers and prospects, and intermediaries while mitigating our competitive threat from an upstart digital insurgent”. It feels the “safe thing to do”.

Yet ringing in my head are Rory’s wise words about “affordance”* and the Akio Morita example where the Sony Walkman genius turned down the opportunity to add a recording device. The simple belief that the scarcity and value of the product, and its’ subsequent fame, lay in reducing its’ functionality and simplicity. Rory goes onto explain how Google became a slimmed down Yahoo without the silly adverts, and Twitter restricted the size of tweets, as other examples.

What could you cut from your own products, services and relationships? In doing so, how does that create greater marketing clarity amongst the pool of your ideal customers? How does it mitigate the costs of manufacturing, distributiing and delivering your customer experience? How does it impact faster and larger adoption, at scale? How does it remove regulatory risks and compliance costs? How does it re-position you, as the authority, in your field? How does it allow you to allocate capital and talent better? Innovate more frequently and effectively? Implement your profitable growth strategy with reduced risk and increased reward?

*Alchemy by Rory Sutherland (WH Allen, 2019). Skip to Chapter 2.8 “Psycho-Logical Design: Less Is Sometimes More”. Buy five copies and give to every rational colleague or friend to provoke them. Guaranteed to find irrational answers to rational problems in your firm and its’ clients organisations, no one ever considered before. Better still make an appointment at https://www.madfestlondon.com/masters/ I have no financial interest here other than your own future success.

Are you intent on allowing your ideal prospective buyer or partner to buy your transformational value and improve their immediate future (sales, profit, repute, brand power)?

or

Are you intent on selling/pitching your product or service assertively and getting their money to improve your future?

There are two entirely different mindsets, primacy of self-interests and buying decision frameworks (client outcomes vs features and benefits).

Two different levels of patience: reaching conceptual agreement with a buyer versus trying to make a quick buck.

Two different level of focus and commitment: the long-term relationship versus the quick transaction.

With two entirely different remuneration models: the former, fair and equitable value-based fees or commission mutually-agreed for the desired improvement (uncapped) and the latter, unit economics (capped) for a commodity purchase.

A great many people, who have only worked in commodity purchase sectors (life insurance sales, pensions, care services or car recovery services), know nothing but commodity sales and commodity conversations. They cannot escape old habits. The concept of value-based remuneration is seen as slow, and overly complex.

However there is a good reason, the commodity sales person has to make a sale fast, work from huge marketing lists, and experience huge rejection to make their volume numbers. It is their modus operandi. It is a daily grind and highly labour intensive. Their businesses can only sustainably scale with large volumes of sales personnel, smart technology and available capital.

If that is your idea of building or working within a fun business, go-ahead but don’t think it is the only route to a rewarding life.

In the absence of large marketing lists (north of 10,000 names), a great many entrepreneurial businesses are reliant on alliances with larger firms, who have huge distribution to profitably scale. The art of an alliance where both parties are required to close the sale, assemble the methodolgy and deliver the value to the end-user (customer or client), is that it is accepted by both parties unequivocally as a “win-win” scenario and you have corporate “buy-in” (commitment) from those with fiduciary responsibility (Heads of P+L etc.).

That means

1. the business outcomes to be accomplished are clear and unambigous
2. as are the measures of success, and
3. the tangible (increased sales, increased profit, reduced attrition) and intangible (increased security, stronger repute, enhanced safety) value created by the collaboration, and
4. the investment from both parties (time, money, energy and resource).

You then have “conceptual agreement”, which can be quickly summarised in a proposal with a 80%+ prospect of an acceptance, and an agreed commencement time and date.

The art of building alliances is a language and process skill. It can be taught yet a great many even seasoned past CEOs of national and global companies, and frontline sales and business development individuals tasked with originating and closing alliances are poorly educated.

Here is three amongst common failings:

1. They default to pitching or selling their product or service, often by force of personality, and often on unprofitable terms (positioned as a commodity sale) that hamstrings the profitable growth of the business thereafter such is their desperation for the sale.
2. They routinely lose control of the discussion, relationship and the results early-on sometimes patting themselves on the back when leaving a meeting with the request to provide a proposal. Little do they know that is a polite signal to wave goodbye by the other party, not a signal of greater intent.
3. They rush through or simply overlook building agreement on the value of the alliance pre-proposal such that the only thing that is clear, is what each partner is being asked to invest. When the value is opaque or translucent, the prospects of closing a successful alliance slump in my experience to 5-10%.
4. Your approach necessitates asking a huge pool of to dance and accepting a mountain of rejection and time loss. Why subject yourself to that ordeal unless you know no better?

The key ingredients: A reminder! Shared values, trusting relationship with a peer, willingness to enter and develop conceptual agreement, an ability to summarise it succinctly and quickly in a letter of agreement or proposal (with options and alternative investments), acceptance by both parties, and effective and efficient implementation (on the promises made), and seeking expansion opportunities during the alliance. Nothing more.

A great many high-growth businesses have a “marketing-finance function tension” with strategic alliances that if not addressed robustly by a risk-taking founder or CEO, can dramatically impact incremental profitable growth.

You see the “market need” and the combination of “competencies” and “passion” to address it, at scale, only a strategic alliance can uniquely provide your business. Particularly with distribution, technology, manufacturing or brand credibility.

Marketing tends to place the self-interests of a prospective strategic alliance partner first, and ask “what compelling proposition can we put in front of the alliance partner that is demonstrably in their self-interest to accept?”

The Finance function defaults to the opposite, asking “what’s in it for us with close to zero risk first and then, what can we put in front of the potential alliance partner?”

Think of this as the difference between “success” and “perfection” in strategic alliances.

The variable rarely asked by the Finance function is “timing”.

Invariably when the market need has exective attention in a potential large strategic partner, and the requisite mid-level manager skills and volition to engage with an entrepreneurial high-growth business partner, it is not of the latter’s ideal timing. That means “risk” perceptively shifts to the smaller partner.

You now have two very different replenishing pools of risk-taking targets for strategic alliances.

A tiny handful of “perfect alliances” if you are fortunate with the Finance function approach and a larger realistic pool of “success alliances” from which to convert interest into closed business. Think of the Astra-Zeneca covid vaccine partnerships with Oxford University, Uber and Spotify, and Amazon and Whole Foods. The commonality, is none of these strategic alliances were perfect risk-taking options and timing for the smaller, entrepreneurial organisations.

If you are satisfied that you are looking at an “ideal” strategic alliance with meaningful enterprise value creation potential, you can always make the timing “right”. Time is merely a value-creation priority matter. Nothing more.

Wednesday night in London, original thinker and the master of irrational thinking, Rory Sutherland, challenged the audience to consider the power of “diagnistic momentum”. The hardwired framework through which those with power, control and influence insist all risk-taking decisions are ultiamtely made.

The cardioligist whose heart health determinations must follow through their rigid health diagnostic framework and the politicains who insist every valid policy must pass through their economic and legal diagnostic framework.

Biases are embedded, and alternative ideas and opinions ejected (don’t fit the rational decision-making framework).

It leads to a narrow set of alternatives and close to zero opportunities for “alchemy”, the title of Rory’s bestseller. Decisions and benahvioural changes promplted by irrational logic which are often more effective than the rational answer, in the real world. Why? Humans don’t act on rational decisions in many instances.

Is your organisation or your competitiors beholden to diagnostic momentum? As an entrepreneur, does that create hidden opportunity? When everyone views value-creation through the typical banker lens and metrics, is there an opportunity to think and act differently in an exisitng and new market? If so, why?

If every competitor is obsessed with AI-driven revenue and cost synergies and data centre capex, can you find hidden value in doubling your investing in superior human intelligence?

If you run a chain of UK funeral homes with a sector under deep regulatory scrutiny, might there be hidden value in having your best people design better fulfillment processes, communication practices and identification procedures not to impress the regulator but to give customers and their families greater meaning, smarter risk management and powerful reassurance that you have their self-interests at the top of your agenda? The human before the technology.

THE ENTREPRENEUR’S BUSINESS PLAN SPRINT

Summer Offer (available for all inbound inquiries to 31st August): In 90 days we create a complete, professional business proposal with guidance to advisers and/or investors. This will include your marketing platform, competitive analysis, presentation, and so on. I’ve had dozens of business plans result from prior Business Plan Sprints. I provide group and individual feedback based on regular assignments and we meet via Zoom. Fee: £3,999 (USD/EUR equivalent) plus taxes. Finally write, get that business plan in front of your ideal partners including investors, and convert interest into closed commitments fast. Write to me to apply: james@elliceconsulting.com  I am beginning on 1^st September the next cohort and I already have interest from people in Europe, US and Asia. All sessions are also recorded.