Book review: The Real Deal - technology deal making in the 2020's
- The pitfalls of contract negotiation and how to avoid them is a timely reminder of what to look for in deals.
Brian Sommer has published a short 65 page book on the topic of technology negotiations in the 2020's. You can find it on Amazon in paperback or the Kindle version. In our opinion it is a must read for those who are investing in new technology along with those who are negotiating their subscription contracts, upgrades and maintenance contracts.
First up, this book is not a 'how to' type of read, nor does it provide a methodology for negotiating a deal. Rather, it sets out many of the common pitfalls that companies fall into when looking at contracts, discusses the more egregious behaviors that tech vendors use and discusses ways to handle those oftimes tricky deals.
The book talks in depth about the practice Sommer has dubbed as 'wallet fracking' which he summarises as:
Instead of sand, water and pressure, technology vendors use a trilogy of litigation, auditing and unfavorable contract terms that put pressure on their own customers. Specifically, vendors are:
- Launching excessively frequent and ambiguous usage audits
- Producing unfavorable audit results that can ‘disappear’ with more spending
- Demanding new document or document line-item pricing on top of subscription fees
- Requiring long-time maintenance paying customers with perpetual product licenses to re-buy the solutions. What was all that maintenance money going for if not to improve the solutions?
Customers are often surprised by the magnitude of these cost demands and the extent that vendors will go to get into their corporate bank account.
We see this too. Wallet fracking turns up in many guises, a topic the book discusses.
The book introduces the reader to tactics that can be usefully deployed in any negotiation.
One of the more valuable concepts put forward is that of rehearsing a negotiation. Rehearsals are a frequent feature of in-person presentations used by vendors in advance of presenting to the customer. In vendor speak they're called 'orals,' where the presenters are put through their paces, anticipating questions the customer might have and answers the vendor needs to prepare.
On the flip side, the buyer rehearsal anticipates the objections and red line areas a vendor will put in the way of getting a deal done on anything other than their terms.
The book also suggests how to assemble the right negotiating team, who should (and who should not) be on that team, the roles each play etc.
Very often, customers go into a deal without a clear view of what they expect. Here, the book examines the duPoint ROI model as a way of understanding value drivers and how they fit into the deal you are trying to achieve. Unsurprisingly, the book urges negotiators to focus on outcome value and not be distracted by TCO discussions.
Coming from the services world, Sommer also talks about services contracts and how they need to be constructed. After all, a deal is not just about software acquisition and usage.
One of the more pertinent pieces of advice offered covers what I call 'vendor bias.' This often occurs when a long term supplier is unduly favored over fresh providers. Readers in this camp will likely find Sommer's analysis of this problem uncomfortable but that should not be the case. Rather, we'd encourage readers to introspect the extent to which an incumbent trades on their entitlement rather than the value they continue to provide.
Inevitably, the book summarises what a bad deal looks like. Some, if not all of this will be familiar:
Bad deals often result from confused, overly complicated and opaque contracts. Deals with numerous embedded URLs often fit this profile.
Likewise, deals that leave many common business situations undocumented will often become bad deals in the future. Given the frequency that businesses get acquired, sold, merged or divested, buyers need agreements that cover situations like these.
Deals that can deepen a customer’s degree of lock-in with the vendor are particularly painful. Deals that penalize your firm for using a third-party for application maintenance, restrict you to only one hyperscaler hosting environment, or, generally raise prices the more you concentrate purchases with this vendor are rarely good deals.
You'll have to buy the book to discover what a good deal looks like.
I've provided opinion above but overall I found this book to be an excellent reminder of what we should all be looking for in a technology deal. In a note to the author, I quipped the book needs a fresh sub-title: 'the hitchhikers guide to wallet fracking,' in part because the book goes into detail about the many dubious practices that sharp sales people deploy to grab more of your wallet.
The book can be skimmed in less than 90 minutes but you'll need to spend much more time absorbing the lessons in order to get into good negotiating shape.
Oh - and a suggestion from me - make sure there are copies of the book liberally distributed around the negotiation table for use when the occasion inevitably arises.