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It’s the end of the quarter, and I’m in my office, tied to myphone and email waiting for the last few outstanding deals to come in, same as at the end of every quarter. This is business as usual in virtually every company in my industry, enterprise software, and in countless other industries as well: many of the deals close at the last minute of the quarter or end of the year.
We all know the drill. Customers think they’re going to get the best price and terms by waiting until the last minute, when they have the vendor’s back to the wall.
There are good reasons for that, mainly that it very often works. As a vendor I’d be lying if I didn’t say that there is a strong incentive to lower prices to make the quarter, especially for a public company. Many companies do just that. But, does it have to be this way?
For enterprise software, the shift to the cloud and its subscription-based, recurring revenue business model lowers the stakes around the one big bang sale somewhat, but let’s be realistic: This business dynamic has been in place for a long time, and it is not going to change entirely or overnight. However, doing business this way presents some significant pitfalls for both customers and vendors, so it is worth considering the benefits of doing things differently.
The pitfalls of last minute deals
The first pitfall is potentially not having the resources to implement, or deliver the goods. With so many customers coming in at the same time, the vendor that closes all its deals at quarter end can be like a boa constrictor digesting a mongoose, with one big bulge slowly working its way down the tube.
The customer may not get delivery as fast as they could at another, less busy time, and the cost associated with slower time to value could eat into any incremental savings achieved through quarter-end brinksmanship.
The vendor that books most of its deals at quarter end as a matter of course is setting itself up for some real challenges around consistency of execution, as well as creating a culture where salespeople are less than engaged for the first part of the quarter, just sitting around waiting for showdown time at the corral.
The other, bigger pitfall to my mind is that doing deals this way sets up a transactional mindset between vendor and customer, instead of a partnership-oriented one. That’s OK if what you’re buying and selling is a commodity and the only consideration is price, but not so good if you’re contracting for anything that requires change management, broad-based implementation, or co-innovation.
By "transactional," I mean vendor versus customer,which is effectively what these 11th hour negotiations become. For any type of sale that requires ongoing partnership, the sales negotiation should be about finding the terms that each party can live with such that they can agree to go on a journey together that is mutually beneficial. But, all too often it devolves into zero sum game.
That doesn't prepare customers or vendors for what they have to do together after they sign. Because once the deal is done, they’re one team.
The customer is bringing certain resources and knowledge of their company's particular dynamics. The vendor is bringing the product or technology and known best practices across a wide variety of companies. The two teams now have to work together to get to a result that both want.
Negotiating in purely transactional terms doesn't prepare them for that. It’s like they’ve been breakdancing, each individual taking turns showing off their moves, each trying to top the other. Even the sequence and language of breakdancing is battle oriented, starting with “Top Rock”, standing moves that establish style, through floor work, power moves and freezes designed to display physical strength.
The trouble is once the deal is done, all of a sudden the music changes and these individuals have got to tango together. That means dancing in a close embrace, performing a complex series of spins, dips and complex figures. These two dances could not be more different.
Even though everyone knows the next tune is going to be a tango, the parties get locked into the momentum of breakdance-style negotiation, so there’s a tendency to keep breakdancing for as long as they can.
What often happens after the deal closes is the parties wind up trying to break dance their way through the tango. As soon as something goes wrong, they go back to posturing, finger-pointing, and back-and-forth displays of strength because that's what they know how to do. But that's not what this takes to do a partnership right. It takes focus together on a common goal.
The real issue: Lack of trust
The real issue with last minute deals is that it means there isn't real trust in the relationship. Customers will wait until the last minute because they think the vendor hasn’t yet given them their best price.
The sales person may have told them, “Hey, don’t wait until the last minute, or you might have to wait in line with everyone else who does that,” which may be true or may be a gambit to close the deal sooner. Without trust, the whole thing becomes a game of cat and mouse. It becomes purely transactional. Without trust, you cannot dance the tango.
If you’re a vendor and most of your deals are last minute, it would suggest you’ve got a lot of transactional, versus relationship-based selling going on. You need to work out some partner dance moves.
In almost any kind of selling, it’s all about building relationships. Vendors must become a trusted source of information, and move through to consultant, then problem-solver and ultimately, business partner. If you position yourself as a product company coming in to sell a commodity, you can expect a lot of posturing and grinding down on price. You can expect to have to break dance.
Prepare yourself to tango instead. Incentives for mid-quarter closes and number of logos added in the first month can help change the culture of last minute deals, but they only go so far. Ultimately, you have to hire people who are capable of creating the right culture. The best sales executives know how to do that; they realize that life is about relationships and not about transactions. That's the simplest way I can say it.
The best customers know it too.
Rob Bernsteyn is CEO of Coupa. This article previously appeared on Forbes.com.