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"Research is a process where you can spend a lot of money and come up with zero. Isurus guides me quickly through the key decisions, helps me avoid the pitfalls, and makes sure I walk away with high-value implications."
-Vice President of Marketing, Enterprise Content Management System Provider
PE firms and corporate investors compete intensely for investments to expand their portfolio or augment their existing solutions. In the due diligence process, decision makers face the dual pressures of accuracy in a high-stakes decision, and the need to work very quickly. Unfortunately, the time-pressure of makes these decisions vulnerable to the cognitive biases.
The steady drumbeat of behavioral economics research in recent years highlights the prevalence of biased decisions, even among the professions we liken to Dr. Spock –the statisticians, economists, physicians, and computer programmers of the world. M&A decision makers — Corporate Development and Private Equity investors – are also at risk. The pressure and tight timelines for M&A due diligence exacerbate the potential for biased decisions.
Investment teams use experience and sector knowledge to evaluate acquisition targets and expedite the decision process. Experience and sector knowledge are generally assets; however, they also become liabilities. Research shows that a high degree of experience may lead to:
- Overconfidence bias: Experience causes the investment team to rely too much on what they think they already know, rather than carefully examining new data or the unique aspects of a particular deal.
- Confirmation bias: Rich knowledge of a sector leads decision-makers to pay more attention to data that confirms their pre-existing view of the world, and overlook data that doesn’t support it.
- Affect bias: Investors apply their experience to make an initial assessment of a prospective investment. If that initial assessment is positive – “I like this company”—new data is evaluated through that lens. When evaluating something we like, we minimize its risks/costs and exaggerate its benefits. When we dislike something, we do the opposite.
What can be done to mitigate against these and other decision biases in due diligence?
One answer is look to external partners: In addition to the requisite legal, technical, or analytical expertise, external partners provide an independent perspective. External partners are less vested in the decision and bring a different set of experiences than the core investment team. While external partners aren’t immune to bias, their bias will likely be different and leads to a more robust analysis.
How do external providers improve decision quality? Through Isurus’ work to support B2B software M&A due diligence, we’ve seen benefits from the following approaches in the context of primary market research:
1) Work from a pre-defined framework or analytical plan
The framework provides a checklist. It reduces the likelihood that important data are omitted from the analysis, and guards against too much weight placed on a particular element. Without a pre-defined framework, stakeholders may struggle to agree on which data are needed, or brainstorm an excessive set of questions that stray from the main objective. The framework can be modified for a particular market or scenario, when there is a strong rationale for doing so.
2) Listen to external partners’ point of view
Investment teams are skilled analysts. They dig into data, eager to form conclusions. In the case of primary market research results, the investment team should elicit more from their partner than just the data: Request their interpretation, conclusions and recommendations. External market research partners are less likely than the internal team to overlook data that contradicts a pre-existing opinion, or to weigh one piece of information too heavily in the analysis.
3) Encourage discussion of different interpretations of the data
When Isurus presents research findings, it is not uncommon that members within the investment team draw different conclusions from the same data point. Juxtaposing different interpretations often reveals useful nuances about market dynamics, growth potential, or considerations for the post-acquisition transition period. Research read-out sessions are particularly useful when the meeting is structured to encourage Q&A and discussion amongst the team.
For further reading on this topic, read “How Cognitive Bias Undermines Value Creation in Life Sciences M&A”
Nobel laureate Daniel Kahneman writes in Thinking, Fast and Slow that “Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing it. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true.” When confidence in a decision is abundant, it pays to confirm that data are at the root rather than emotion or bias.
The February 2019 issue, focused on B2B market research topics, includes our article “Overcoming Inertia: How to understand sporadic customer journeys in low involvement B2B categories” .
The Isurus team is honored that Quirk’s selected our article for the B2B issue in 2019, and made it the featured cover story. Quirk’s is an industry-leading publication, and provide valuable thought-leadership for insights professionals, as well as product marketers and marketing professionals seeking research expertise.
No solution is perfect. Even highly satisfied customers make compromises to use your product or service. Budget is the most obvious trade-off: your product competes against other priorities and needs for budget. Less obvious compromises include the work-arounds customers implement in order to use your product or achieve their desired outcome. For example, a customer uses an add-on reporting solution to compensate for inadequate analytics in its HR software. Or, they use a secondary distributor to acquire the product. Many customers accept—and may not even notice—these compromises until it’s brought to their attention by a competitor, new leadership, or another change in the business. At that point, the previously acceptable compromise can contribute to the loss of a seemingly “satisfied” customer.
Customer compromises can be challenging to spot. Customers themselves become blind to them. After years of using the same product or approach it feels easy, or the customer simply starts to accept the limitations of the product or service. A good example is an enterprise software solution with a cumbersome user interface. Power users know the system so well, they don’t notice that it takes four steps to do something that should take two steps. Only when an alternative comes to their attention, or a change in management spawns a review of existing processes and tools, do they start to think there might be a better way.
To be clear, work-arounds and compromises are rarely the primary drivers of switching and purchase behavior. If your product and service provide enough value, customers make the trade-offs necessary to use your solution. However, when customers see less differentiation between vendors, factors outside of core functionality influence their decisions. If they believe the same outcome can be achieved with less effort, competing solutions become appealing.
So how do you determine what types of compromises your customers make to use your product? The specifics will vary based on sector and product/service category, but examples of the types of questions worth asking include:
- Do customers have to take extra steps to use your product or service? Do they have to order more than they need? Do they have to manually integrate or migrate data?
- Do customers have to accept a poor user interface, customer portal, ordering process, billing process, etc.?
- Are customers giving up secondary features or services they could get from a competitor?
- If you serve multiple functional areas, would individual functional needs be better met by an alternative solution?
- Do customers have to use another vendor to meet their needs across regions? Product specifications? Product mix?
- Do competitors provide access to resources, categories of expertise, an ecosystem, etc. that would be useful to customers?
You may not have a significant problem in any of these areas today; however, an analysis of the trade-offs your customers make will help you identify blind spots and potential weaknesses that a competitor may be able to exploit. It’s better that you see the weaknesses before they do. The analysis can also provide a holistic view of customer needs: customer satisfaction and VOC initiatives typically focus more narrowly on the specifics of the product or service.
Some of these questions are best explored with your customer advisory panel. Customers may not realize the extra steps or trade-offs they take, but you can recognize them as they describe or demonstrate their processes. Other questions may require a review of competitor products and services. Some questions may require more formal, structured market research with customers or prospects.
If you do find that customers make meaningful trade-offs, you can look for ways to address them directly or indirectly, e.g., if you don’t provide a service or product, you can explore partnerships or ways to provide the same benefit. This analysis can also be used to evaluate competitors and identify potential weaknesses to exploit. Can you address the work-arounds that your competitors’ customers make today?
The exploration and analysis of customer compromises can range from internal discussions, to exploring these topics in your VOC or NPS programs, to asking customers directly about them in a stand-alone research engagement. Regardless of the formality of the exercise, it will help to look at your customers’ needs, and how well you meet them, in a new light.
You’ve analyzed your brand strengths and weaknesses, conducted research to understand your brand equity relative to key competitors, identified open market positions, developed your brand strategy, and set tactical marketing plans into motion.
But what have you done to help the sales team embrace and operationalize your brand strategy? Have you helped them understand how it will make them more successful? Put more bluntly, have you told them what’s in it for them?
As many B2B marketers can attest to, the sales team doesn’t always embrace the marketing team’s brand strategy. One barrier is a degree of mistrust between sales and marketing. But much of the resistance stems from differences in the two teams’ motivations and KPIs. Marketing has the responsibility—and luxury—to think in terms of long-term strategies. Sales must meet its numbers today. The inherent tension between these two sets of objectives can send sales and marketing down different paths, weakening both.
Improving alignment on brand strategy across sales and marketing benefits any B2B firm but is especially valuable for organizations that have modest marketing operations, but extensive sales teams. In practical terms the sales reps are often the primary channel for a company’s brand strategy.
One way to improve the alignment and encourage the sales team to take ownership of your brand strategy is to treat them as your customer and sell them on the strategy. Effective brand strategies are built on understanding the needs of the end-customers and articulating, and positioning why:
- Your solution meets their needs better than their current vendor;
- It’s worth the pain-and-suffering of switching to your product/service;
- And, how your solution will improve their desired business outcomes
As a B2B marketer, if you can address these same questions for your sales team about your brand strategy you gain a much higher chance that Sales acts on the strategy – they will buy it.
Answering these questions requires more than just presenting the brand strategy in a slimmed-down strategy deck. It requires understanding how the sales team operates, their pain points, etc. To do this we recommend conducting internal research with three levels of your company’s sales organization: Sales leadership, sales managers and frontline sales reps.
Sales Leadership: Your sales leadership sets the tone and broad strategies for the sales force. This includes the type of sales approach used (Challenger, Sandler, etc.) which sets the framework for how sales reps interact with customers and prospects – how they identify prospects, the questions they ask, how they present your product’s benefits, etc. It is also important to understand how your sales leaders view the market, competitors and your competitive differentiation. If your brand strategy varies too much from how sales leaders view the world, they will struggle to trust your recommendations.
Sales Managers: Your sales managers can help you understand the specifics of your company’s sales process: What’s presented in the first call, how much does the prospect usually know about your product/service, when is collateral provided, at what point are different stakeholders involved in the conversation, how much interaction do reps have with clients (literally number of calls, length of calls, number of emails), etc.
Frontline Sales Reps: If you want frontline sales reps to embrace the brand strategy you need to understand their needs, fears and challenges. Their income and job security depend on their ability to sell. Being human, this makes it hard for them to switch from an approach they feel is working, even if a new approach is better in theory.
Once you understand your sales team’s perspectives, processes, needs and challenges you will be in a better position to articulate how your brand strategy plays a role in every stage of the sales process from identifying the prospects mostly likely to buy to upselling customers. In addition, you will better understand how to incorporate the brand strategy into the sales process in a way that minimizes the amount of disruption to the sales team.
The outcomes of the process are typically shared with the sales team in multiple formats, including an overall strategic plan for the sales leadership that demonstrates how the brand strategy fits with their sales protocols and process, refinements to sales playbooks and training documents, and workshops and training sessions with sales managers and frontline reps. The more open and collaborative these sessions are, the more likely the sales reps are to embrace and own the brand strategy.
Isurus partners with onPurpose Growth to help B2B marketers work through this process and build the linkage between brand strategy and on the ground sales. While, we bring expertise, experience and resources to the process, B2B marketers can handle the process internally by following the steps outlined above and improve the chances that their sales function buys what marketing is selling.
“The best thing about doing this is that I got to have coffee with my Dad in the barn every morning until he passed. Now I have that cup of coffee with my son and will as long as he stays involved.”
This statement paints a clear and vibrant picture of a small business owner’s emotional drivers. It surfaced in a series of qualitative in-depth interviews and encapsulates an emotional theme that ran through the interviews. It speaks to one of this audience’s core values and influences even their most rational decisions. B2B marketers hunger for these types of insights as they look for ways to bring a human element to their messaging and positioning.
The resonance of the theme and its usefulness for developing customer personas and journeys stems from the methodology that uncovered it – qualitative in-depth interviews. B2B marketers and their agency partners often face resistance from internal stakeholders who doubt the value of insights that aren’t expressed as a statistical projection of the market. But in-depth interviews provide the time and format that enable an individual to make the journey from superficial reactions to overly rational answers, and finally to what it means to them personally. As a full disclosure, it’s not always as clear or powerful as connecting with a father who has passed on but relative to surveys, big data and social listening – it gets you closer to the human side of the B2B buyer.
This is not a criticism of surveys, VOC programs, and other more quantitative methodologies. We routinely use those approaches because they provide robust insights needed for branding, market sizing, pricing, and bundling strategies. But when you want to understand the human side of a B2B buyer, qualitative in-depth interviews are one of the best tools in the research tool box.
But having a tool in your tool box isn’t enough. You need to use the tool correctly. The most common mistake B2B marketers make when using qualitative in-depth interviews is to treat it like a survey and create a list of 50 specific questions. You also cannot simply ask, “How does xyz make you feel? How does it connect to you as a person?”.
So, what should you ask?
Qualitative research structured on the following guidelines are more likely to yield insights about the personal and emotional drivers in business decisions.
Limit the number of topics and questions: Three to four topic areas with a few broad questions within each is a good place to start. This gives the interviewer flexibility and time to probe, follow-up on unexpected insights that arise, and gives the respondent time to linger over their answers.
Focus on their needs and challenges: B2B marketers, or their stakeholders, often want to focus the questions on their product and service – “How do you abc? What challenges do you encounter when doing this specific task?” This doesn’t mean you cannot ask specific questions; just be careful not to turn your conversation into a survey.
Change the question frame: Ask questions that make them take an outside view of themselves: How they think their colleagues view them, what they hope their colleagues will say about them after they retire.
Use projective exercises: Picture sorts, word associations, and other exercises help respondents articulate emotional or personal dynamics that shape their business decisions. And remember, the insight is not which picture they select, but why they selected the picture they did.
Let them talk: Some of the best insights come at the end of a section when the respondent says, “One more thing.” It might be the last thing they say, but often the best articulation of what they’d been circling around in their previous responses. If you force-march the respondent to get through a long list of questions, these insights don’t have a chance to surface.
These guidelines can be scary for those unfamiliar with qualitative research. For some B2B marketers and stakeholders it can be easier to justify the investment in research (time and dollars) if they see a long list of discrete questions they will get answers to. And in truth, not every human-focused in-depth interview provides grand insights. But you must be willing to take the duds to get the gems.
This highlights the importance of gaining consensus on the overall objective of the research and what its outputs and uses will be. In some cases, the best approach will be to explore specific needs and challenges around a list of product attributes. But if you want to want to understand the human side of a B2B audience, let them talk.