Ditching Hourly

Hello and welcome to Ditching Hourly. I'm Jonathan Stark. Today I'm going to answer a reader question. It was sent in by Theo Chupp, and Theo writes, Hey Jonathan, I have a question about offering options in a proposal. My team is in a situation where a potential customer has told us that we are the only company offering the kinds of service that will fit their need. The customer is a group of three guys who have an idea and they want to demo and sell it. They don't have a company formed yet, they don't have any engineers of their own, they just have capital. Since they come from an engineering background that doesn't deal with software, they don't have an understanding of how expensive custom-built software can be. For example, licensing fees alone for a piece of technology they're interested in would add $200,000 to our costs. Their vision involves far more bells and whistles than I believe are necessary given their goal, similar to the mom-and-pop pizza shop wanting a Domino's-level website situation you've talked about on your podcast. Since they want to use the product we build for marketing slash demos, they are interested in seeing more features than I believe are necessary to get the idea across. I want to write a proposal where I list their explicit ask as the highest level option, where the first option is an assessment of market viability and the second option is a working demo for them to use in sales meetings without crossing the boundary where the licensing fees are necessary. Is this a reasonable way to structure a proposal? Okay, so I have a couple of thoughts about this, but I'll tell you right up front I don't have a definitive answer, but here are some things that occur to me as I read this. The first thing is that I generally, as a rule of thumb, I generally use their explicit ask as the first option on a proposal so that when they receive the proposal they immediately see that and they say okay cool this is the thing that we think we want. Oh and what are these other additional possible things that we could do? You know options two and three would be additional possible things, expanded scope of involvement, bigger promise, that kind of thing. So putting the explicit ask at the top I think would be a little off-putting because as they're reading it they get out to option one and it's like we didn't ask for this, they get to option two they're like we didn't ask for this either, where's the thing we asked for? Then they get to option three and there it finally is. So I feel like that would be pretty annoying. I suppose you could flip-flop the order and say the highest level, start with the highest level option, hey here's what you're explicitly asked for but I don't believe that's what you actually need, it's a little bit patronizing, and here's some other things that are less, here are some other things that are less involvement from us but we believe that you should be doing first. So like I said it's kind of condescending I think. I totally get where you're coming from though but I feel like you should have had that conversation with them on the phone or in person. I don't know how you met with them but that is a conversation to have with them in real time. It's not the kind of thing you want to put in a proposal. Proposals are not great for sales, not great for making sales. Really best case scenario they are a confirmation of what was agreed to on the phone with some additional options that they might want to consider. So those would be options two and three. Another thing that occurs to me as I'm reading this is that the risk to the client in your option one two and three, so an assessment, a working demo, and the full bells and whistles version, the risk to them actually gets higher as you go up the options. So I understand that the cost to you as the provider gets higher and higher as you go along but it's just a strange inversion of what I'm used to seeing which is that the option one is the highest risk to the customer and option two would be less risk to the customer more risk for you the seller and option three would be the least risk for the for the buyer so your customer and the highest risk for you therefore justifying the higher fee. So really I think what's going on here is that the three different options that you're suggesting have different goals, different outcomes that get them you know different maybe a little bit less far down the playing field. I don't know the whole thing feels very weird to me. I feel like it should would better have been solved in a conversation first and say look you guys I think it would be crazy for you to take on...

This exact thing that you are suggesting, you have no experience with this, you have an idea, it just seems like something that if you were in good conscience, you almost shouldn't propose it if you think these other things are that important. Okay, another big thing here is that in a couple of places in the email, Theo says, I believe, in parentheses, I believe that there are more features than they need to get the idea across, and I think there's another spot too, but it doesn't really matter what you believe. If the customer believes that they want to... The customer can tell you to do something that you think is dumb, something that is not going to be in their best interest, something that you're the adult in the room when it comes to software development, and they're making a classic blunder, which I agree, it does seem from your description like they are making a classic blunder. So your options really are to attempt to open their eyes to that, or you could just refuse to bid on the work if they refuse to open their eyes to that, because you just know that it's going to blow up in their face. But it seems a little bit of a stretch for you to give them a quote for who knows what, a million dollars, when you are reasonably confident that it is going to be a complete waste of money. It's kind of hard to justify sending a proposal in that situation. I wouldn't send a proposal to someone unless I was reasonably confident that I could successfully achieve the desired outcome. So the last thing I'll say about this is, in that conversation with them, it sounds like they talked a lot about bells and whistles, features that they believed that this software product needed to have. A strategy or a tactic that I would often use in a situation like that is to get really clear on exactly what they're trying to achieve with this build. Can this be broken into phases? Are there initial smaller projects that we could do first? Again, this would kind of drive them to the options that you want to provide, but it sounds like you didn't talk to them about it first. So if it were me and I was in a situation like this and someone was asking me for this super-duper fancy all-the-bells-and-whistles software product, I would say, okay, I get it. I see where you're going. You've got a long-term vision for that, and that's your vision. You see this thing. That's the vision for the piece of software. They can just sort of picture this amazing piece of software. What's the vision for your business? Who are the customers for this piece of software? How many of them do you need to make this a successful business? What does a home run look like? What does a success look like here? What are the steps that we need to make along that timeline to get to that success? Maybe we don't do it in one giant leap. Maybe we take a couple of steps first. Maybe the first step is to do some market viability assessment. You give us an idea of who your most desirable customers are, your ideal buyers, and we actually validate this concept with them to give us the confidence to move forward with a demo, which would be the second thing. So let's say the next goal, once we determine that there is some kind of interest, there might be some kind of traction for this, we have an idea of what our ideal buyer is essentially hiring this software to solve for them, then you could go forward with making some prototypes, clickable prototypes, maybe basic demos, and with the goal perhaps being to raise a round of funding or to land a beta customer, someone who's going to pay in advance to be the first user of the software, something like that. So pulling them to define some intermediate goals on the way to this sort of long-term vision for the all-seeing, all-dancing software project that is in their heads. So Theo's final question is, is this a reasonable way to structure a proposal? It's not unreasonable, certainly, to offer three options of increasing price, but it feels really awkward to me. It feels a little bit cart before the horse. It feels backwards. It feels upside down. So what I would do, if possible, I don't know if this is possible, but perhaps Theo could reach back out to the client and say, listen, I'm working on a proposal for you. I'm really thinking this through. I want to just have a quick follow-up call with you guys, probably take about 15 minutes, and talk about long-term goals versus near-term goals versus intermediary goals that might be somewhere in between, maybe raising a round of funding, that sort of thing, and see if we can come up with perhaps some smaller, less risky steps to take, because I've got to tell you guys, I'm coming up with some seven-figure fees for this project as described.

and a very high degree of what looks like a high degree of risk to me. So not super comfortable taking it on without some sort of groundwork but ultimately you get to decide what level of risk you're comfortable with. So anyway I'd like to jump on a call and kind of square that away with you guys before I present the final proposal to you. All right so hopefully that helps Theo, hopefully that helps you dear listener. And that is it for this episode of Ditching Hourly. Hope you join me next time. If you'd like to learn more about how to ditch hourly billing, please go to valuepricingbootcamp.com to sign up for my free email course. Again, that URL is valuepricingbootcamp.com. Thanks. Hey, Jonathan again. Do you have questions about how to improve your business? Things like value pricing your work instead of billing for your time, or positioning yourself as the go-to person in your space, or maybe productizing your services so you never have to have another awkward sales call or spend hours writing another custom proposal? Book a one-on-one coaching call with me and get answers to these questions and others in the time it takes you to get ready for work in the morning. Best of all, you're covered by my 100% satisfaction guarantee. If at the end of the call you don't feel like it was worth it, just say the word and I'll refund your purchase in full. To book your one-on-one coaching call, go to jonathanstark.com slash call, C-A-L-L. That URL again is jonathanstark.com slash call. Hope to see you there.