When an offshore IT services provider enters a new market, it’s (relatively) unknown in that geography. Many companies in this situation eschew end users and try to drive their go to market strategy by partnering with local IT companies. Ideal partner candidates are boutique shops and systems integrators that are well known in the target market.
The offshore company’s typical pitch goes like this:
“You don’t have offshore facilities, so you might be saying no to projects that involve offshoring. By partnering with us, you can access our offshore delivery capacity. This will help you win such projects and grow your revenues and profits”.
This approach rarely works, as the following examples illustrate.
EXAMPLE-1:
An Indian IT services company was partly owned by a British IT services giant. When the Indian company entered the UK market, it pitched its offshore delivery model to the global giant as a source of new revenues. Despite the strong relationship at the corporate office level, there was hardly any traction on the ground. Probably because the the British giant’s operating level teams lacked a compelling reason to risk offshore delivery when their existing onsite delivery model was working fine.
EXAMPLE-2:
An Indian IT services company was acquired by a leading American ERP company. The Indian company created a large practice for providing offshore implementation services for the ERP major’s products. It then pitched lower cost / higher profit as the value proposition for partnering with the ERP major.
Under the belief that “if you build, they will come”, it expected its parent company to automatically funnel implementation projects to it.
Didn’t happen. The leadership of the ERP major told the Indian company that it didn’t get involved in choosing implementation partners, and asked the sales and marketing leaders of the Indian company to go and pitch their implementation services to its individual Relationship Managers handling various customer relationships. These RMs had no compelling reason to stray away from their existing implementation partners, which included not only their inhouse consulting SBU but external partners with whom they’d been working for years.
In the first example, the value proposition is, gain more revenues.
In the second example, it’s gain more profits.
Given that the partnerships didn’t take off in either case, the messaging around gain did not work.
Let’s look at the opposite messaging around loss.
According to the Loss Aversion Principle in consumer behavior theory, people choose to avoid loss than to make an equivalent gain. It’s better to not lose $5 than to gain $5. Some studies have suggested that losses are psychologically twice to thrice as powerful as gains. Put slightly differently,
- People will protect what they have more vigorously than they will seek to acquire something new
- People will make twice as much effort to avoid a loss as to make a gain
- Losses loom three times larger than gains.
In the specific context of partnerships, the Loss Aversion Principle suggests the following approach:
Go directly to the end market and win a few deals from existing customers of desired partners.
The Indian IT services company in the first example used this approach when its overtures were rebuffed by the British IT services giant. It stopped pursuing the British company and went directly to its largest customer in the UK. After a few months of intense efforts, it managed to win a deal for offshore development from the end customer. The British company now became scared of losing existing revenues and couldn’t wait to sign up for the offshore delivery model proposed by the Indian company.
This is not an isolated example.
Nice illustration of how sales leaders can use -VE language to achieve +VE outcome. #LossAversion pic.twitter.com/5cmMTj0R7e
— GTM360 (@GTM360) June 2, 2017
In How a Lighting Entrepreneur Had His ‘Light Bulb’ Moment, FORTUNE illustrates a classic case of leveraging the Loss Aversion Principle to strike partnerships. This article describes how Cole Zucker built a $150 million business out of nothing in commercial LED lighting. I encourage you to read the full article but given below is a tl;dr version:
When the CEO of Green Creative was new in the LED business, he tried to tie up with lighting distributors with the value proposition of giving them more products to sell and thereby increase their revenues. But these distributors already had their own existing products and customers, so they didn’t find any compelling reason to partner with Cole Zucker.
Zucker changed his tack: He started selling his LED lighting products directly to end users.
“By the end of the first year I had made $300,000 selling door-to-door. Lighting distributors who had rejected us earlier started hearing about me and said if I stopped selling directly to their customers, they’d take our products. That’s when I knew we had broken through.”, says Zucker.
When Cole Zucker started selling directly to their existing customers, lighting distributors were shaken up. They began to fear loss of their existing customers and revenues. This motivated them much more strongly than the lure of gain in sales pitched by Zucker. Therefore, they rushed to strike a partnership with Zucker’s company.
Moral of Story: While forging partnerships in new markets, the offer of empowering your principals rarely works but the threat of ennervating them often does. Courtesy: Loss Aversion Principle.
The key to making this approach work is to dislodge the principal from its perch as incumbent vendor at one or two accounts.
This is a very aggressive approach and, while it’s not easy, we have enabled a few IT services vendors to use this approach to successfully enter new markets. Our GTM strategy in these instances comprised the following ingredients:
- Marketing to make headway in a crowded market. Our Marketable Item can help in this pursuit
- Tremendous tenacity and perseverance of sales teams. Every successful sales team has these attributes anyway, so it’s only a question of channelizing them in the right direction
- Relationship management skills to smoothen feathers that get ruffled when the new kid on the block takes the existing Goliath head on in select accounts.
Should you wish to explore partnership-driven GTM to enter new markets, please feel free to contact us for more details.
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