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The Connected Enterprise

PODCAST

Vendavo Helps Businesses Achieve Profitable Outcomes with Optimized Pricing

Posted by Vision33 on Jun 23, 2021 12:00:00 PM

 

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Full Transcript

Carl Lewis: Welcome to the Connected Enterprise podcast. I’m Carl Lewis, your host from Vision 33, and my guest is Mitchell Lee from Vendavo. Welcome, Mitchell. Please tell us about yourself, your background, and Vendavo.

Mitchell Lee: Hi, Carl. Call me Mitch. My undergraduate degree was chemical engineering, so the beginning of my career was chemical industry jobs, including project and plant engineering at a venture capital startup company. Then I worked at BISF. They paid for me to go to school, and when I earned my MBA, I moved to the business production side. I was responsible for six products on three customers, and even with those small numbers, I found that pricing was one of the most difficult things I've ever done.

From BISF, I moved to a company called Orca. They’re the number one or number two largest mining services company in the world. “Mining services” is what you say at the airport when you don't want to say they make explosives. I was responsible for a half-a-billion-dollar business line for the North American business. It was a simple product line – one product wet or dry, so not too many SKUs to chase. I had about a dozen customers, but because it was a commodity, most of the product was a commodity-driven one. I changed prices all the time.

I had to write a defensive margin protecting contracts in terms of conditions, then execute against them with precision. I could do what I said I would do and try to retain some margin. I took that business line from a net negative $10 million loss a month to a $50 million positive per year in about three years. It involved breaking contracts, getting out of stuff, and renegotiating defensively, but that was the starting point of getting to net positive. That's where I fell in love with the need for improvement in commercial processes and pricing.

And that's when I started working with Vendavo as a customer. I brought in all the pricing software vendors and picked Vendavo as part of a larger project of reinstalling SAP globally for our company. And Vendavo was the only thing that wasn't on SAP paper that was it. Everything else that was purchased was SAP paper. I loved that so much I eventually joined Vendavo, and I call myself the profit evangelist. I also work on the sales and marketing side to ensure we get the message out for folks to understand this is very mature thinking and technology.

McKinsey created the pricing waterfall of how to manage your pricing. Thirty years ago, there was a pivotal article in the Harvard business review from McKinsey about how one to three percent of your revenue is laying on the table if you just start managing your pricing. And Vendavo has the pricing software to follow that methodology, make things actionable, give you the context for decisions, and drive results. 

I've been with Vendavo for six years, and I have fun helping people make bottom-line differences. The Vendavo software isn’t about cost savings or efficiency. Yes, it helps you do that, but it's more about raising the top line too. And all of that dropping to the bottom line as pure method.

Carl Lewis: It's amazing how some of the best ideas are still the ideas from when you and I were young.

Mitchell Lee: Thank you, Carl.

Carl Lewis: You help companies do pricing fast, so they don't have to do a study every time they want to quote a customer.

Mitchell Lee: Exactly.

Carl Lewis: What are up-and-coming technologies in your world? What’s happening with AI, machine learning, etc.?

Mitchell Lee: Many companies are hearing the terms ‘digitization’ and ‘digitalization.’ Digitization is getting their information available in the form of data so it can sit on machines. Digitalization is changing processes and making them digital, so they ingest and then reflect back out information as data. You don't do that to say, "Oh, now I have data." You do that to make decisions with the data.

This is where it’s crucial to have good processes, like IOT for ingesting more information from physical processes. And having enterprise data coming in from third parties, having more data, and handling it more cheaply. And now you can talk about things that are leverageable with AI, machine learning, and the like. Because it's not a study. It's not a project. It's a process you do all the time.

When I started at my previous company and had half the revenue in my business line, the other guys changed their price lists once a year. That was all they could manage because they had so many SKUs, and they didn't see the value in managing that because it was tough work. It required a lot of communication and coordination. Now there are digitized and digitalized processes with AI sitting on top to give you context for decisions. Now you can make that process agile. This is a great thing we learned in 2020: Agility isn’t just a buzzword. You need it to survive. If you can't pivot quickly relative to what's happening with your markets in your supply chain, you’ll be left by the side of the road.

Carl Lewis: I agree. And companies are doing what you said. I see it everywhere. What are the biggest challenges companies face in the digitalization process?

Mitchell Lee: Closing the loop. There’s more data coming in, many propeller heads, and smart people spending lots of time making observations. How do you turn that back into context for action for the people making decisions? What we talk about a lot with our customers – and we've made changes over the last few years to make acquisitions for some companies, in terms of some capabilities – is that that insight is worthless unless it’s in the hands of people who can use it in the moment. Especially with configure price quote (CPQ) programs.

For CPQ, we take the AI-driven context for making decisions with pricing guidance, levels, and approval levels. That way, the seller is armed when they're ready to engage with the customer. That information is available in the moment they're working with the customer or preparing a quote, so they can get an inquiry in the morning and give that customer a quote before lunch. Speed is tremendously valuable. The faster you can answer a customer, the more likely you are to get their business.

We see CPQ as a way to close that loop and give that context for decisions in front of the users productively and profitably so they can inputs, measurements, outputs, measurements, and then a feedback loop. If you’re not getting the outputs you desire, adjust your inputs accordingly. If you don't have that feedback loop, you're just looking out the rearview mirror to see whether you're staying in your lanes.

Carl Lewis: It's already happened, but you don't know about it.

Mitchell Lee: Exactly. It's too late.

Carl Lewis: Companies invest a lot in this digitalization process, whether they're moving to the cloud, acquiring certain pieces of information, or integrating data into one big master database. But the hardest question is: Then what?

Mitchell Lee: It's not just the technology. We’ll be the first to tell you the answer isn’t stacking more pieces of software on the salesperson's laptop. This takes people and process, training, change management, top-down leadership, and bottom line buy-in. But if you work all the edges, there's tremendous value on the table.

Carl Lewis: It's funny – the simplest process can make your data and systems haywire if it isn't good.

Mitchell Lee: You just do stupid things faster.

Carl Lewis: Exactly! A consultant told me about a company that was packing in their warehouse. They would bring the picked orders to a big square table where everybody worked, and everything was in the middle of the table for them to put in boxes. They had six or seven people working around that square table, all grabbing things out of the same central area. That's a grab bag, not an order processing system. Then they turned that square table into one long table, so nobody's things stayed in order along the way. And the process worked.

Mitchell Lee: Yes. If you had something to put in the box, you put it in the box. If you didn't, you let it go by for the next person.

Carl Lewis: The processes people implement are critical, and it requires input from many people, from leadership on down, to implement processes properly.

Mitchell Lee: Absolutely.

Carl Lewis: Mitch, what's the next technology that will transform business? What are tech heads talking about that isn’t ready for prime time yet?

Mitchell Lee: I’ll go back to AI. We work with big fortune 500 companies, global fortune 500 companies, and fortune 50 companies. Part of their budgeting process is earmarking tens – maybe hundreds – of millions of dollars for AI. They say, “We’ll spend money on AI,” and they get approved. That's great because there are a ton of things they can do with AI. But there's a practicality and pragmatic view of AI, machine learning, and similar technologies in the sense of one of the most defined processes we’re all familiar with: driving down the road. There are rules of the road, the lanes are painted, it’s highly mapped. But we aren’t ready to trust AI vehicles with automatic decision-making and interacting with other vehicles. Running a business is much more complicated than driving down an interstate.

We work with our customers to say, yes, AI is important, but from a pragmatic/practical sense, let's think about supervised AI. Throwing stuff at an AI black box, plugging in data inputs from third parties, market information, or your transactions, product, or customer information, and hoping something comes out on the other end is no good. You must be able to query that decision-making process, test the questions and answers, and adjust based on what the data is saying.

But say I'm introducing a new product line or setting up a new business in a new region that’s not reflected in that data model. I’ll have to create another tree, another branch for AI to drive. So, that's supervised AI. 

We talked about the term centaur, which is something [chess champion] Gary Kasparov defined when he was fighting [IBM super-computer] Deep Blue. After he lost, he said, "The best combination of technology and people who know what they're doing is the centaur idea in the sense of ‘let the machine do what it's good at. Let it calculate bunches of cycles, distill things down, and look for signals – but then serve information to a human with perspective to query, question, and decide.’" 

The horse part of the centaur is the computer, and the human brain is the business savvy of your average businessperson. They shouldn't have to be AI or computer specialists – they must be businesspeople who understand their market. That’s the pragmatic approach of AI.

There's a good test for folks we talk with. When they say, “I have earmarked money for AI.” I say, "Great. Let's make that successful. Go get some of that budget. That helps you justify the project you need to do. Let's make that successful. Let's not just make it a black box where it spits out things you can't explain. You don’t want to explain what happened as, “Well, I put it in this black box, and it gave me answers, and I followed it. So … we did it, but it didn't work out.” That's not a good place to be. That's not a career-advancing step.

Carl Lewis: I like the phrase ‘supervised AI.’ That's a comfortable feeling. We many not be ready for cars that drive themselves, but we are comfortable with supervising a car that can do some of those things.

Mitchell Lee: Yes.

Carl Lewis: That doesn't mean you want to sit in the back seat like that guy in the news.

Mitchell Lee: Yes. He probably doesn’t have a board to explain to when he breaks that Tesla or goes to jail.

Carl Lewis: Exactly. It may get worse for him. Mitch, I ask all my guests about communication. The pandemic has done things to all of us. We’re on Zoom, which has become the lifeblood of so many of us for hours a day. I think we're all ready for that to stop. But before COVID, how had communication changed in your professional life? What do you use today you didn't use years ago?

Mitchell Lee: That's a great question. We were in the same boat with moving from in-person meetings. We did phone calls but rarely did video calls. It was available; we just didn’t use it internally. We have Zoom sessions with customers, though. And I think that’s going to stick around.

Maybe just the first meeting or two, or when customers are spread out all over the world. We can save money by not flying folks from North America to Southeast Asia. That's attractive to our customers and us. It also helps us be more effective and efficient.

However, some things are more effective in person. We’ve had customers ask us to come on-site, which we did, observing social distancing, CDC recommendations, and their company rules for keeping everyone safe. They liked it. We liked it. We like to be in person as much as possible, but there will be a balance between that and Zoom.

Plus, we've gotten good at virtual stuff. And folks that control the purse strings might say, "That travel budget needs to be reduced by a third because I expect a third of your meetings to be virtual." I expect there to be pressure there. People have been happy with reduced travel costs, and it’s helped people through tough times.

Carl Lewis: And the reduced number of expense reports to process.

Mitchell Lee: I'm happy about that too! I haven't done an expense report in a long time. I'm not sure I remember how. What a great feeling.

Carl Lewis: It’s such a hassle.

Mitchell Lee: Exactly. For most folks, email is still a critical communication tool. Our customers are larger and more conservative, but virtual meetings are creeping in. But email will be here for a long time. People will still want to have important meetings in person, but there’s space for virtual connections while both parties are feeling each other out.

Carl Lewis: Especially for companies like yours and mine. When people engage with us, there are investments to be made. It's a great way to qualify – deciding if we want to make this investment and get to know one another before breaking into the travel budget. Then it’s, “Let's get together and talk this through. Let’s tour facilities.” All the things necessary at that point of an engagement. But the video stuff has been great. It’s made interviewing people much easier. I can interview people from all over the world in any time zone. It's brought new levels of efficiency.

Mitchell Lee: Yes.

Carl Lewis: In your company, are people eager to get back to the office?

Mitchell Lee: It's a mix.

Carl Lewis: There are people who want to go back and people who would prefer to be remote all the time?

Mitchell Lee: Yes. It’s a mix along the lines of what people do. Salespeople are energized by face-to-face interaction. That's a generalization, but they’re eager to get back in the field, not so much the office. But if office visits are part of that, they're fine.

Many people in the middle are happy to say, “Instead of all these Zoom meetings, let’s plan on a few days every month when the whole team meets in Denver and gets face time." Denver is our headquarters. That’s important time, much like the negotiation stuff you mentioned. When you get to the important stuff, it's more productive in person.

Zooms are efficient, but they're not necessarily effective. There are a lot of missing pieces. I like to say it's hard to have a hallway conversation on a break during a Zoom call. And those hallway conversations are where you bring somebody up to speed, or you get up to speed, or you advance the agenda in a way that isn't written down anywhere. You miss that with a Zoom call. That's why meeting in person, whether it's your team or customers, is tremendously effective, instead of just efficient.

Carl Lewis: I call those ad hoc conversations.

Mitchell Lee: Exactly.

Carl Lewis: They just happen. And somehow, brainstorming always occurs, and problems get solved. It's hard when you schedule every little thing. It becomes about the agenda. So that whole iron sharpens iron thing doesn't happen when we’re not together.

Mitchell Lee: Right.

Carl Lewis: We don’t understand how much we've missed it yet, and it'll be a few months before we realize what we gave up.

Mitchell Lee: I agree.

Carl Lewis: But some of us are more aware of it than others. And some of us are comfortable with a more monastic lifestyle.

Mitchell Lee: Absolutely. Many folks are perfectly happy to have most interactions in emails, Slack, or Teams, with an occasional Zoom check-in. Different people have different levels of comfort with being on camera.

Carl Lewis: Yeah.

Mitchell Lee: There are many scales there. But being in person takes a lot of those variations down. We're not so conscious of the light being on or performing or whatever. It's more natural to be personal. You get to read the person and the room and those things we learned unconsciously in kindergarten. No one learned Zoom in kindergarten.

Carl Lewis: Exactly. What do you think is most difficult for customers when they engage with technology companies?

Mitchell Lee: For us, it's the number of people involved in the process. By process, I mean pricing. Everybody in business knows how to price, right? They've been in business. They've been selling things. They're successful. They must've been pricing right.

Then you talk about documenting the process. Back in the day, you talked about process re-engineering. Sticky notes on brown butcher paper on the wall, and people would come by and say, “We do this here. No, we do it over here.” Getting that defined in something as innocuous, well-known, and standard operating procedure as pricing is surprisingly difficult because so many people are involved in pricing.

Many people we work with come to us excited about this. It’s great, it’s fantastic, I can identify all these benefits. There are case studies of companies in my vertical I can serve up to my board to say, “We should do this.” And they have a hard time politically navigating their organization relative to getting the right folks on board. What story do you tell them? What's the journey to making a decision?

It’s very convoluted, and the bigger the organization, the more convoluted it is – but the more important it is to know. And most of this is very structured. At BISF, I think they still run a matrix organization where geographies are one reporting structure, business units are another, and you have dotted line responsibilities, and it's all spelled out. What do you do for this person? What do you do for that person? And yet, decision-making authority, even when it's written down as detailed as possible, is still difficult. And that's for an organization whose DNA is on organization.

Many companies struggle with wanting to do something but not knowing how to decide or raise the initiative to a priority where people agree, and it gets funded. And how do the top folks get it across the bottom? You must get the folks using the processes on board too. They have to believe it will help them do their jobs better. Be more effective and productive. It's as much an emotional appeal as it is a logical appeal – you need to tell a story that makes them excited about the change. Because change is scary. Something attractive must be on the other side. You say, “You'll be more successful, more productive, and your career will progress because you can …” Then you get to the logic. You can point to the specifics for your organization because other organizations have done similar work in similar areas and knocked the top off their goals.

Carl Lewis: I've long believed that the business case isn’t just about ROI.

Mitchell Lee: You need it, but it's a lot more than that. Yes.

Carl Lewis: I can see, in large organizations especially, how complex that could be. The number of stakeholders in pricing, and all the inputs and the value, are tremendous. But even in a small organization, there's a level of complexity. There may be fewer people, but they're still hard to find and get on board.

Mitchell Lee: Absolutely. The areas of agreement are difficult to navigate, even in the smallest of organizations. Does sales own the ability to price? Sometimes the answer is yes, with no qualifications. That person better be across everything the person who’s responsible for the P&L understands. And that's why pricing decisions must start at the top level, the P&L ownership, whether that's a GM, CFO, CEO, COO, etc. That person has the span of control to say, "Yes, I have a throat to choke over here on costs. I have a throat to choke over here in terms of distribution logistics. And I have a throat to choke over here with sales." And pricing is connected to all those things because you need to have the right price for the right product for the right customer at the right time.

Carl Lewis: Very much so. Mitch, what technology has Vendavo adopted for its own processes?

Mitchell Lee: For clarity, the span we work with is what we call ‘commercial excellence.’ In some areas, that's a well-understood term, but it can encompass many things even then. We like to talk about it in terms of, “There's a gap between your CRM on one side and your ERP on the other side.” If folks don't think about it, if the P&L owner doesn't think about it, they assume they have a CRM, sales happen, then it's in the ERP, then they execute against it.

We span that gap by getting from leads and engagements when a customer wants to buy something. What's the right product they want? We use guided selling and our CPQ, converse with them, and ask questions. Even new salespeople can act with the authority, confidence, and experience of a well-seasoned salesperson because they're asking the same questions that were learned. Having that connected to that pricing context – the context for, “Is this profitable pricing or do we need to override the approval structures because there’s something strategic about it that isn't built into the information?” So, as for technology we’ve brought into our business, in late 2019, we started using our own software in the technology field. They call it eating your own dog food.

Carl Lewis: Yes.

Mitchell Lee: We started using our CPQ for our salespeople to sell – among other things – our CPQ. How we developed this is how we deliver accurate pricing for our salespeople to engage with our customers in the moment. It’s been a tremendous value. We can do all the control and management administrative things in there. We keep updated prices in there. Salespeople never have to worry – they’re not emailing spreadsheets around or calling the CFO at 4:30 on Friday afternoon to ask, "Is that the latest price or … ?" Those things go away. The term sheets and other things salespeople need to present a full quote are managed there so they can make a quick turn on that quoting process. For us, using our own software is probably the most significant technology we've applied. We use the AI in it; we use it to make sure we get the right price, the right product, at the right time, for the right customer.

Carl Lewis: Sounds like a good thing. Mitch, thanks so much for joining me. It’s been great to talk and get your perspective on these things.

Mitchell Lee: Thanks very much for having me today, Carl.

Carl Lewis: You're welcome. And to everyone else, we'll see you again on the Connected Enterprise podcast. Until then, stay connected.



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