Many companies have had long-standing relationships with their cloud vendors, and their experiences garner lessons to be learned. Regardless of how long they have been doing business together, the size of the organization or the size of the investments made, there are certain ways cloud vendors can help differentiate themselves as true strategic partners.
I recently facilitated a discussion with a panel of accomplished IT executives, along with UpperEdge CEO, Dave Blake. The executives were:
- Joe Caro, CIO, SVP, Post Holdings
- Michael Blinzler, CIO, Leggett & Platt
- Tim Brown, Director ERP, Rayonier Advanced Materials
- Jeff DeSandre, Chief Integration Officer, AmerCareRoyal
The group discussed balancing the pros and cons of the cloud, key elements of successful relationships with cloud vendors, and their thoughts on cloud negotiations (if you would prefer to watch the webcast, click here).
Before we get into the conversation, it is important to note the five things cloud vendors ultimately want from their customers:
- Land and Expand. The first goal is to get a foot in the door and sell you as much product as the vendor possibly can. After the initial sale, they want to expand as they move through your term.
- ACV Growth. Most cloud providers are publicly traded companies, so they need to grow the ACV, or the annual contract value. They want to make you a driver of revenue for them, which is a key indicator of success for the provider as well as their shareholders.
- New Product Adoption. When it comes to expanding, they also want new products adopted. They want to show that the money you’re spending on those subscriptions is going towards R&D. Part of new products are the products they acquire. For example, Salesforce bought Tableau and Mulesoft and they spent a significant amount on those companies. Salesforce looks to their customers as a way to expand their portfolios with these new products.
- Actual Use. A core key concept has always been urging base customers to use more of the products purchased. Ultimately, if you use all the features and functionality, you’re “stickier” — it’s harder for you to walk away and it is easier to keep out competition.
- Executive-Level Attention. In getting executive-level attention, the provider becomes a part of your vision and they are a part of your roadmap.
While cloud vendors look for these, there are certainly even more asks. Let’s get the perspectives of the executives these cloud vendors are selling to.
Adam Mansfield: When you adopted the cloud, there were decisions that went into that and expected benefits. If you think about top business and IT benefits that you were expecting, can you talk about what you actually received compared to what you had expected to receive?
Joe Caro: We’ve received a number of benefits from the cloud. Since our inception eight years ago, we’ve had a cloud-first strategy so we have seen a couple of generations of products come through. The main benefit that we’ve seen is that cloud allows us to focus on growth and the things that make a difference much more because it keeps us out of ‘keep the lights on’ types of activities. From a technology perspective, that has most enabled us to achieve a 6x revenue growth over an eight-year time period. Without cloud we would not have been able to do that.
Adam Mansfield: Tim, I know you’ve been focused on the cloud as well. Could you speak to any of the specific benefits you thought you were going to receive that perhaps you did not?
Tim Brown: We were coming out of years of neglect with respect to the IT systems and the applications in the company. We needed something to jumpstart us into a renewal process and quite frankly, we could not do that with internal resources. It would just take a long time to develop internal resources. So, it was more strategic and thoughtful to move out and use cloud-based technologies. First, they bring a lot of standardization. They also allow you to focus on driving business value and not worry about the techie end behind it. Also, the agility it gives you allows you to move much quicker using cloud-based technology. And you could still build out and scale up your internal on-premise solutions. And quite frankly, we were not even sure how to scale those out internally when we started, so we just outsourced that, if you will.
Adam Mansfield: You have these outcomes or benefits that you realized. It goes back to the ‘use’ comment that I mentioned. So obviously you are driving these benefits that you’re expecting to continue and probably ramp. What are your thoughts on lock-in, thinking about the fact that you’re somewhat now relying on it. How has lock-in been approached? Do you plan for it and how have you overcome that?
Michael Blinzler: I definitely believe that lock-in is part of the equation but if we approach it as a strategic relationship, the benefits outweigh the disadvantages. I think that it is very much a situation of deeper discernment and making sure we’re aligned with executives on both sides on at least two or three of the core cloud solutions that we deal with. I think it’s critical and I think that we very much need to take a longer-term total cost-of-ownership point of view, not get caught in the speed, necessarily, and some of the cost structures coming out of the gate. Look at that over a longer term and negotiate in that kind of way.
Adam Mansfield: A minute ago we talked about these expected benefits and perhaps you don’t realize some of them. What are the expected benefits and what’s actually realized? When that doesn’t happen where you’ve done your business case planning, you talk to various business stakeholders and there’s an expected outcome. But perhaps it’s not met to some degree. How do you approach the vendor themselves but also the internal communication and how do you get to where you want to go?
Jeff DeSandre: I think the key is especially managing the scope when you look at the SKUs that you can buy from these vendors. With Microsoft, you could have everything but the kitchen sink thrown in, so I would say, don’t bite off more than you can chew. Take a crawl-walk-run approach. With our Microsoft journey, we’re going very slowly. We started out with just using Microsoft Teams for meetings and collaboration. Then we bolted on to have department-specific Teams sites. Then our next phases are our SharePoint intranet site and then our extranet site. We have a whole strategy around it and we’re making sure that we’re using the software just-in-time. When you’re buying the software you think, “Oh yeah, I definitely need that. I need all these security features and I need all the rest,” but the fact of the matter is, sometimes the business doesn’t have the bandwidth nor does IT.
Adam Mansfield: Part of this journey is of perpetual cloud. You lived in the world before cloud was really relied on as it is now right now. Talk a little bit about the differences, especially around lock-in and what to plan for. In the old world, you obviously needed to make a purchase and then you paid maintenance and support on that purchase. You had an implementation partner that plays a role in all of this. What are the differences, the experiences that you had back when perpetual is what you relied on — the on-premise, build-it-yourself and having your data centers, versus now that you’re in the cloud? What is better or worse?
Joe Caro: I’m going to go back to this theme and be somewhat of the contrarian. I think if you structure the right deal, we’ve actually experienced where lock-in is less of an issue. We have had a number of instances where we’ve swapped out from a provider in 2-3 years, where we would have never done that with on-premise software because you’d have impairment issues. The structuring of the contract is not transactional. It is built for the long-term. The other differences is we tend to do less integration between all of our different technologies so that we can avoid lock-in. We do integration where there is going to be some benefit, but not for the sake of integration.
Tim Brown — It’s an interesting topic and I think you could debate both sides of it. I always think of lock-in as if I’m locked into the relationship or the vendor or the product, and then I’m locked into the cost that surrounds that. I think we are all locked-in, whether it’s an on-prem solution or not an on-prem solution from a system’s perspective, so don’t kid yourselves. Once you’ve got it, a business that’s deriving its direction and using technology tools and their manufacturing processes within the business finds it hard to shift people away from products that they’re used to. You can do it, but the change management of moving 3,000-4,000 people off one tool onto another is big.
It is also from a pricing perspective. I’ve seen both where we’ve been able to reduce cost, but software maintenance was not reducible with the contract structures we had at that time. If you think of an SAP or an Oracle, you may have bought a certain amount when your company was in a period of time and you paid a certain amount at the time for software maintenance. Then your company’s transformed. You need less of the product and you’re still stuck at a payment where, with cloud, I might be locked in for 3-5 years, but you can renegotiate sizes if you get your deal structured right. You can renegotiate those sizes throughout the term and right-size or at least redistribute products for the area that you need. Maybe you don’t reduce your overall spend but you redistribute the dollars that you are spending to the things that bring more value to you.
Joe Caro: Tim made me think of a couple of extra things in terms of change that I think are significant. There has been a large shrinkage in the number of infrastructure personnel that we have on our team. We’ve shifted much more to an application mix, which is probably about two-thirds reduction to a half reduction in our overall infrastructure staffing. And then the role of those personnel changes as well, so rather than focused on availability, our infrastructure personnel are really focused on two things. One is security and the other is workforce productivity, so there is nothing that they do that does not come through one of those lenses. I think of the benefits that they are delivering are much greater because they are focusing on things that matter to our business as opposed to just keeping the systems up and running. That problem has moved to our SaaS providers.
Dave Blake: Joe, did you have to put in place retraining mechanisms to do that or were they already in that functional role, so it was more just adapting their focus?
Joe Caro: It is setting the expectation that they just naturally gravitated to over time. It was interesting. We had this ‘aha’ moment when we were going to cloud storage where the most technical person we have, all of a sudden got the idea, “Oh, my job just became a lot about user adoption.” Tim, you mentioned user adoption. Our technical person got that it was not about the technical aspects anymore. It was about how to get people to want to use the technology and to make it easy for them.
Tim Brown: In some cases, through time and attrition and change, we had some things like Joe, where our techies became more administrators and coordinators. The backend people that were hands-on went to the cloud and they became more architects, if you will, or understood what we were trying to do with the technology. That’s how they shifted. In some cases, we reduced staff on the technical side and increased our business acumen.
Jeff DeSandre: One thing I have noticed regarding the difference between on-prem and the cloud is that it is really critical to keep in mind that it is continuous innovation. These vendors are constantly innovating in the cloud. You can see the stuff that Microsoft brings out in new features and functionality on a weekly basis. One thing that we have been doing is really trying to get our business to own it and to really understand everything that the tool has to offer. One thing we’ve done really well is we have an hour a day where we have office hours for our Microsoft expert to answer any questions in the business.
It’s amazing just how much adoption we’ve been getting where it’s actually becoming them saying, “Hey, we want you to be able to configure this functionality. We want to learn how to use the recording features and use this for training content.” I do think a really important thing to keep in mind when you’re dealing with the cloud is the continuous innovation — not just letting it go to waste but getting that engagement of your business community to really drive that.
Tim Brown: That’s where that changes from the more infrastructural type of person you have to a more business person that understands it’s a piece of technology and asks how to drive value out of it.
Dave Blake: Can that also be a challenge? There’s so much innovation coming out at a fast pace. There’s a lot of people like me out there that don’t do that well with the technology that they have today, so is there a constant push and pull of that, and if so, how do you deal with that effectively in your companies?
Jeff DeSandre – It is behavioral here. I was just on a call yesterday with our executive team and I was talking with my CFO about our strategic goals for 2021. We have this spreadsheet that we’re using, and we have it on a Teams site. He asked where it was in his email and thought he didn’t get it. We said, “No, it’s on Teams.” He asked if we could email it. We said we could, but it’s on Teams! It is a little bit behavioral and my group has been good at pushing me on that because it took me till about two weeks ago to really be a lot less dependent on email. I was really proud because our CEO said, “I don’t think we’ll have another email clogging our inbox, so let’s just collaborate here.” I think it really comes from the executive level down. Obviously, with certain applications, there’s bigger implications for continuous innovation. There are change management process issues, but from that type of thing, I think it is kind of just continually pushing people to get outside of their comfort zone.
Dave Blake: Do you think cloud, longer-term, is the best direction overall relative to the pros and cons of cloud versus on-prem?
Michael Blinzler: I don’t know if it matters what we think because it’s what the market has done. But it is a good thing and I think that this idea of lock-in is real but the lock-in is deeper and that sometimes seems challenging. But as far as the breadth of applications, we no longer have to worry about what stack something is running on. If we are getting HCM and we’re competing there, we can compete regardless of the technology stack. I think long-term it’s unbelievably good, but it all goes back to controlling it. We all have to align with our strategic intents and let whatever our capability gaps are drive us. We cannot buy technology for the sake of technology, because the cloud definitely fills up our inboxes and the ‘what’s possible’ is what we have to be careful not to get caught in.
Joe Caro: I’d say, “Full speed ahead and the more the better.” We keep pushing for more cloud adoption and to get rid of any remnants of unproven technology with total elimination of software. As an example, we recently had one of our businesses retire Active Directory. We’re looking to get rid of as much stuff as we have to support as possible.
Jeff DeSandre: Same here. We are working really hard to go 100% cloud. I will say the one thing that we have really had to focus on which is important is the health of our ISPs. We had to make sure that we had ample bandwidth and we had redundancy in each one of our sites including internationally. But we are moving full steam ahead on the cloud and I agreed it doesn’t matter what we think. It is just what our businesses expect. I also learned that we used to try to build a lot of security in-house and when you look at the SD-LAN market now and you see where security and SD-LAN are converging into one, we’re even looking to actually move as much of our security into the cloud, as well.
Adam Mansfield: ‘Successful relationships’ often seems like a warm and fuzzy kind of phrase, but quite honestly, the contract, the technology, and everything we’ve been talking about is paramount. The relationship you have with these vendors is critical. If you think about what the secret sauce to achieving a successful relationship is, what does that look like?
Tim Brown: It is about a partnership and not about a transaction. I think that is really where you have to focus. There are ways to get there and there are ways that you do not get there. Some providers are more transactional-based and some are more strategic-based, so a lot of it depends on that. It does not mean that the transactional-based vendors aren’t as strategic. It really could be very strategic to you but very transactional for them.
I think how it has worked out with one of our bigger vendors. We sat with them and laid out a five-year plan as to what we’re trying to do from a business perspective. We showed where they can fit into that and how they would fit and how much we were actually going to use them or not use them. Then we have a regular cadence of adjusting over time. it seems to be a pretty nice little sweet spot. They have been extraordinarily flexible and helpful in helping us to achieve where we want to be. And then we have others that are not so much, so it becomes more transactional. You have to focus on the process around the negotiations so really make sure it’s understood upfront that you’re a partner and try to pick a vendor that would work like that.
Adam Mansfield: What do transactional relationships mean to you? Some of these cloud vendors might not lend themselves to the bigger vision. Maybe it is not as critical of an application as your hosting providers. What is the tilt to go from a tactical relationship to a true partnership? What are you looking for from your cloud vendors and what defines that?
Jeff DeSandre: Partnerships are about relationships. They are about people. I can give you an example I had with Salesforce, where we had a great partnership. We co-innovated. We built out an entire contract solution on their tool where they co-partnered with us, but my relationship was with our account exec and his VP. What I found was that unless we were continually co-innovating or I was continually attending all of their dinners and speaking, it had the tendency to slip back to being transactional. What I would say is you have got to have that relationship at the account level and when you have an account change, keep working on that with the new person. But more importantly, do not forget that you’re dealing sometimes with a tactical company and they’re going to be pulling out a contract, so it is always a balance, and I never take it for granted.
Michael Blinzler: Our experience is that we have one cloud provider that’s very strategic and to make that work we definitely had to align it with our business executives and what the company is trying to achieve. The cloud provider was interested, paid attention, and continues to be part of that journey, so it’s somewhat like what Jeff is suggesting. If you can find a way to have something to contribute and you can help them to become better, then I think that’s key to the most strategic relationships. What we see is we have one or two that are very strategic and then we have others. No disrespect to them, but that’s more of us being good citizens and not overthinking our place and being able to take more or less of the off-the-shelf and plug-it-in in a good appropriate way. We have a two-pronged strategy: the very strategic or more of a take-it-off-the-shelf and integrate only where there’s good business needs to do so.
Joe Caro: How we approach this is we set the expectations up front. We have a list of what we want but we also talk about our story and let them know, “Here’s why you want to do busy with Post Holdings.” A big part of that is we really appeal to the land-and-expand tenet since we are all about growth. We tell the growth story of how we have grown our usage of various other SaaS solutions over time and when we talk about not 10 or 20% growth, but when we talk about 2X, 3X, or 6X growth on usage of some of these solutions over a 3-5 year period, it becomes a very appealing story. Part of that is we want to get our toe in the water to try this solution and then expand, so we want a free trial, which is one of our expectations. We want to make sure it is going to work and meet our needs and then we want to be able to blow it out quickly.
But some of the other things we are looking for going back to the lock-in conversation is that we want price predictability and price certainty. We are not only focused on the right economics on Day One, but what the right economics going forward over a 5-10-year time period are. Another thing that we want is the ability to scale up and scale down and have the right economics to be able to do that. I think that is really how we approach it. We never really use the word, “partnership,” but that’s really how we approach it to make sure that it’s clearly a ‘win-win’ and we are very clear on the expectations up front so that as the negotiations go forward over weeks at a time, there are not surprises coming up.
Michael Blinzler: Joe, I love what your point is there. You’ve got to market yourself.
Dave Blake: Can you provide a point of view on whether there is any correlation between the cloud supplier relationships that you deem strategic with what type of interaction or access you’ve provided them to your business? There are different approaches that companies take. Some are less restrictive and others are giving you the time and the opportunity to really understand your challenges. Then it is up to them to come back and present how their solution can best fit what your challenges or outcomes need to be.
Michael Blinzler: My experience is to give absolute access to the business, but it’s one of these things where all of the conversations have to be unified, on their side and our side. Getting that alignment and that access is absolutely critical. Part of the way that we have achieved that, and UpperEdge has helped us with it, is through some of the negotiations. We find a few questions, but not too many, but certain things that we want and if we ask for those things, then it gets us escalated to a higher level in their organizations. We are asking for something that is interesting, intriguing, and beneficial, but it’s bigger than some of the people that could sign off on it. Those are the people that might be working with us as the first line of account representation.
Adam Mansfield: Think about setting the rules of engagement at the outset, as an example, the way you have to have unified communication. What happens when the vendor is trying to circumvent the process that you laid out for them? Maybe they’re trying to go direct to a business lead or maybe you’ve assigned people with which you want them to be interacting and eventually they can get to you, but they want to circumvent it and go right to you. How would you address those tactics when they’re deployed?
Jeff DeSandre: What I’ve learned over the years is that the business doesn’t want to work directly with vendors just to be uncooperative with IT. The business is trying to do their jobs and they are desperate to be better at it and to be more automated and more efficient. That is the only reason they even entertain a phone call or a conversation from the vendor. The way I’ve structured it is our business analysis and business relationship are part of our Project Management Office, but they’re aligned with each business function and each one of my peers on the leadership team. These departments use these resources as they see fit. They do not ask our permission.
When these people go direct, we have that rapport and it comes immediately back to our business analysis or our business relationship manager. In other words, I think that it’s critical that the business is aligned with IT because otherwise, no matter how much control you put in, there’s going to be kinks in the armor and these vendors are going to find ways around it. I really do think it’s important that the business doesn’t feel that IT is suppressing them in any way. I like them in the driver’s seat, to be quite honest, and we are here helping enable them and steer them and guide them. We manage it that way.
Tim Brown: It’s a three-pronged approach policy especially when you’re all over the world. You have got people who come into the organization through different channels, whether it’s coming in through Europe or Canada or the United States. What we’ve done is pretty much aligned our messages from the CEO all the way through the organization. It’s built up in Teams to align the message and we put governance structures around that.
We set forth a strategy or plan for the organization on how we want to grow, the technologies to support that, and there are people from different departments, whether it’s HR, IT, Accounting, Finance, etc., that are sitting on these governance committees that are part of all of those discussions. So, when you have people coming in through the side, they all filter in through this governance process. Then we have a discussion about it to see what opportunities and challenges these things might present us and then we address them. You can’t stop it. It’s going to happen. You just have to have a process with people in place for the relationships to deal with it.
Joe Caro: I would say we do several things. The first is we have this dual vendor, sometimes three or four vendor, negotiation approach and so it is not that we don’t get married until we’ve signed the prenup. It’s really like we don’t want to fall in love until we’re ready — until we have agreed on the prenup and we’re far down the path before we’ve narrowed in on which of the technology solutions is of most interest. They favorably continue the selling process well into the negotiations. Second, we have very good alignment with individuals across each function and so they have become pretty good at not negotiating against ourselves. Part of that is we are not afraid to walk if we need to. That gets into the third point, where we tell vendors that they are not just competing with other providers, they’re competing with us not spending any money at all. It is about not just getting a better deal than everyone else. It is about getting a deal that really works for us and a deal where we’re willing to spend money.
Michael Blinzler: I would add that we have helped ourselves by establishing competencies and capabilities that are recognized within the company. I think you have got to win your way. We also use cybersecurity and the emphasis and focus on that to help make sure that IT is engaged.
Adam Mansfield: You have your relationship or your interactions with the account rep and each one of you has elevated beyond the account rep, but it is usually in the sales tower. Talk to me a little bit about the importance of also interacting with the product sides of these cloud vendors, the people that own the product to innovate.
Jeff DeSandre: When you look at the legacy players, the SAP’s and the Oracle’s of the world, they’re hard at work taking their decades-long on-prem solution and making it cloud-centric. Sometimes the projects are not all the way there yet and there’s functionality missing. I had an experience on the demand planning side where we used an Oracle planning solution. Honestly, in absence of partnering with product development and really getting to that level where you can sit at the table with the person that controls the roadmap, I would say that it would not even have met our business needs. Sometimes I think that you have to insist to work at that level, especially if you’re not dealing with a native cloud solution.
I’ve learned that even though it demos great, when you get into the nitty-gritty and down to the individuals, the devil is in the details. I think it’s critical to work your way in with product management and I can tell you it’s not easy sometimes to get to that level within an Oracle. It really does take the help of your sales contacts to really get you to the right level on the product development side.
Michael Blinzler: I absolutely agree with Jeff, but I think getting there is one thing, but we’ve got to ready our organizations and our teams within IT. I’ll also go out to the business so that once we win our ways into those relationships and to some of these product owners, as they get some of their key lieutenants allocated and paying attention to us. We ultimately want that sustainable, so we’ve got to be clear that it is all about our people and our processes and what we are able to bring to bear, so that we do bring something back in values to those product owners.
Adam Mansfield: Regarding cloud negotiations, if you had to summarize it, what is the most critical component relative to being successful in those negotiations?
Tim Brown: I think following a process and establishing a plan for the process is most important. Stick to it and have half the patience and the wherewithal to go through those trials, troubles, and tribulations that you are going to have to go through when you get into deep negotiations. You are going to have lots of back and forth but stick to the plan.
Jeff DeSandre: I would say that when I do these — and you learn this from doing it – it is important to be counseled by people like UpperEdge. First, I’m not worrying about just getting the best deal now. I’m worried about three years from now or two years from now at the time of renewal. You want to always be thinking about renewal. It is great to be getting what you want for the time being but what is it going to look like 2-3 years from now when you really have drastically less negotiating ability? They know that you are knee-deep into their tools. You have to go with the end in mind.
Also consider that it is all about price protection and trying to have the ability to lock-in in three-year increments. Only allow them to do one CPI adjustment at contract renewal. The third thing that is critically important, which is where UpperEdge comes into play, is benchmark data. I think the better educated you are about what deals have been going down, and what other deals they are seeing from these software vendors, is hugely important. To be armed with that data to be able to go from a position of strength when you are negotiating, and understanding really just how low the price can go, and how much you really can get, or what they’ve done before, makes benchmarking key for us.
Joe Caro: I guess what I would add to that and to build on what Jeff said, to me it’s all about having the right contracts. It is not being transactional. It is something built for the long-term, which is about price certainty, but whereas we’re looking at 3-year deals or longer-term deals, we structure everything as a series of one-term deals. We are very adamant about not doing anything longer than one year because we do want the ability to switch out as circumstances change. We also want a defined exit plan upfront and we build that plan and the terms into the agreements so that we can exit. The other thing is going back to a free trial. The ability to try something upfront to make sure that it is going to work and minimize surprises. All of that goes into getting the right rate contract.
Dave Blake: You have all been doing this for quite some time and you have a lot of experience. You’re certainly not negotiating or playing a role in every negotiation but definitely the most strategic ones. Over time, what has been your perspective on the value of relationship development during a negotiation? What is your stock in that and whether or not you feel that contributes to successful outcomes?
Michael Blinzler: It goes back through these negotiations and determining the right questions or the right asks. It gets us positioned in a better way and is absolutely critical. It is also knowing what not to ask. There are a lot of times that Adam and others have said, “Well, you can ask but if you start going there, that’s not going to work for you.” That’s very helpful, too.
Jeff DeSandre: I think going back to what Joe said earlier about marketing yourself is important because you are also marketing your company to the vendor. I think the key to the relationship that I find is when you get an account exec and you get to know their VP really well and then they’re actually fighting for you, they actually are feeling the excitement. Maybe you are doing two acquisitions a year and they are actually going to bat for you. I think that is really important in the relationship — feeling like they have some vested interest to make it a success. They want you to be referenceable and they want you to be successful. I think that always is where I have gotten the best deals.
Michael Blinzler: I double down on that because it has got to be aligned strategically within your business and your contracts have to be something that’s meaningful to your business. There are good people inside these companies, and they want to help you. In the contract negotiations, though, a lot of times you think about the physical hardware, the cloud itself and the technology. I think what has been most meaningful for us is on the people side, the consulting side. The transparency around resources both on what they have to bring to bear to get some of these things implemented, but also what we have to bring to bear, is something that UpperEdge has helped us with. We have to think ahead and look ahead from the human aspects, which has been so critical.
Joe Caro: Everyone always wants to use our brand name upfront, but we only do that after everything is working and it is proven. It is back to the win-win. We are more than happy to be a reference name for our technology suppliers, but it is for the ones that have really delivered value and there’s a proven solution. Secondly, and we have only done this in a few cases for our longest lasting suppliers, we try and understand how the salespeople are compensated. There have been times when we’ve taken small risks in order to make sure that their commissions were maximized or we do something where there might be a short-term risk for us, but longer-term it’s unlikely to cost us money.
Dave Blake: When I certainly think of negotiations and we talked about market intelligence, deal data, and deal benchmarks, anyone can provide you with the parameters that you should get in a deal as far as long-term price protections, etc., but you’re all solidifying that to be successful in achieving that appropriate deal construct, with all those benchmarks and market intelligence, it’s highly dependent on what you put into the negotiation, the stagecraft, and the sequencing.
Before wrapping this up, it’s important to address the fact that there’s a foundational cloud subscription agreement that has to be properly structured. This agreement is the contractual document that the customer has to live with and eventually renew. In order for it to be properly structured, there are a few key points that must be adequately addressed:
- Appropriate Upfront Discounting. The key word here is what is “appropriate?” What should you be paying today or before pen goes to paper? Just because the cloud vendor tells you it is a “great deal” and a special discount that they fought hard to achieve for you, it doesn’t always mean it truly was the best they could have done.
- Discounted Pricing for Future Products. You are offering them a vision with access to see your roadmap. For example, “We are not ready to adopt X, Y and Z products. Maybe I can do X and maybe Y but not Z yet. But here is what I’d like to get from you. I would like to understand what that pricing will look like when we are ready to pull the trigger and adopt the next new product. Do not tell me we’ll enter into good base negotiations at that time. We want to know now what that’s going to look like.”
- Meaningful Volume Discounting. We talked a lot about growth. Obviously, all of you want to grow, and that’s a good thing. Ask your vendor partner what they are going to do for you ahead of the time when you grow, relative to the cost profile. Whether it is a platform-as-a-service or a software-as-a-service, you are going to grow.
- Robust Swap Rights. The world from when you signed up is going to change. It is inevitable. Look at what we are living through right now. You may not need products or have an ability to roll them out, so ask your vendor partner what they can do to allow you to swap products.
- Proper Renewal Price Protections. If you do not have protections in place, ultimately you have not effectively put together a contract that’s worth what you think it is. On the first day after you go pen to paper, these vendors are already thinking about what they can do to force the behaviors they want. Expanding products? Maybe they won’t hit you with a 25% price increase. That type of gamesmanship is very important. Get the best price but make sure it is a long-term price.