The Friday Four: Why your customers can’t buy from you – Risk aversion, Loss Aversion & the Tech Buyer

By Scott Sambucci | March 25, 2016

This has been a primary topic of reading and research for me lately, and the answers are scary… Really scary… Gulp.

Which brings us to Installment #8 of The Friday Four.

1 – “Your sales prospects think you’re a ticking time bomb, and what to do about it….” [FREE WEBINAR]

I’ve organized a few of my research findings into a webinar presentation. If you’re a startup selling to larger companies, it’s absolutely an event you need to attend.

Register here: https://attendee.gotowebinar.com/register/7161053634454565122

I’ll go through the reasons why it’s critical to consider your customer’s perceived risk, key principles driving purchasing decisions, and actions you can take right away to address the “risk” problem.

2 – The Role & Influence of the Technology Decision Maker

Check out this report/infographic from IDG Enterprise. Really, really good stuff in this report. For example:

“The CTO/IT architect/engineer is showing greater involvement in the IT purchase process, except in determining the business need and approve/authorize.”

The “Tech Buyer” is there to say no, but not yes, meaning that they often recommend to the business team what to do in a situation, and can certainly put a stop to any decisions that invoke security or reliability concerns. But… the Technical Buyer can’t say “yes” to a deal. They hold a ton of power in your sales efforts.

How are you addressing the Tech Buyer? Do you know who the Tech Buyer is in your sales opportunities? Do you know what’s driving their recommendations to the business team?

If not, you’ve got a darn good reason to join next week’s webinar. Register here: https://attendee.gotowebinar.com/register/7161053634454565122

3 – Risk Aversion

Individuals and organizations can be risk averse, risk neutral, or risk loving. Most of us are risk averse, referring to the natural tendency to avoid risky situations in most cases. Risk aversion is why we buy insurance.

The greater the risk’s payout, the less utility is realized by the individual or organization. Think of utility as “usefulness.” What this means is that by taking more risk, there is typically a decreasing rate of return.

While the potential outcome could be greater by taking more risk, the experienced usefulness (“utility”) decreases as the outcome gain increases. In business, this explains why organizations rarely go for the “home run” outcome unless in a distressed state where the downside risk is already mitigated by a deficient current state.

Your job as in selling, especially as a startup, is to identity where your customerthinks you are risky vs where you actually are risky. This is why customers ask you for case studies and references. They want proof to show you’ve delivered on your product’s promise.

Now… what if you don’t have a case study or reference?

Did I mention I’m hosing a webinar next week to cover this?

Register here: https://attendee.gotowebinar.com/register/7161053634454565122

4 – Loss Aversion

Loss aversion is the preference to avoid a loss rather than make a gain.

Daniel Kahneman and Amos Tversky developed this concept as part of their work on “Prospect Theory.” (Kahneman won the Nobel Prize for Economics in 2002 despite never taking an Economics class. Tversky would likely have joined him but he passed away before the award was made, and the Nobel committee does not award posthumously.)

In loss aversion, individuals tend to act irrationally by taking larger gambles to avoid loss than they do to realize gains. This means that status quo in most cases is more acceptable to companies, and change is only instigated when there is critical business issue that may result in a clear loss. If your product or service is designed to make life better for your customers, this is a weaker influence than a product that mitigates a pending loss.

You often here of salespeople “selling fear.” This is loss aversion in action. The salesperson is identifying a potential business loss and selling a service that will prevent the loss from occurring.

Consider if how you can position your product as a “pain alleviator” as opposed to a “gain creator.” (Steve Blank has written considerably on this.) Even in cases where you’re a “gain creator,” can you position the “gain creation” in a competitive way – “You need to grab that market share we’ll help you get because your competitor will if you don’t…”

Alrighty. That does it for Installment #8 of The Friday Four.

And in case you missed it, here’s the registration link one more time…https://attendee.gotowebinar.com/register/7161053634454565122

Hoppy weekend! (hehehehe)