I'm joined by Tarek Alaruri of FairMarkIT.com. We split our discussion and focus on price transparency in the procurement industry, especially around price transparency in negotiation. And then we switch gears and talk about tailspend. 20% of vendors produce 80% of the spend, so what should we focus on optimizing? What about the forgotten 80% of vendors that produce 20% of the spend? It was a super fun conversation.
Guest: Tarek Alaruri
Mark: Tarek, how are you?
Tarek: I'm good. It's official winter here in Boston. It snowed for the first time today. We're starting to see some flakes, so I'm excited. It's my favorite part about living here. There's four seasons, so you know time is actually progressing when you spend most of your day in an office.
Mark: Yeah, that's nice. At least you've got windows. Usually in Calgary where I'm from we don't get four seasons. It's beautiful in the summer and then it just turns to snow, which is terrible. We've got uncharacteristically warm weather today, though. It's like 10 degrees C. I think I'm gonna take advantage of it and go for a run later on, which is gonna be super, super nice.
Tarek: You should...
Mark: Go ahead.
Tarek: I was gonna say you should talk to my girlfriend. She has a tendency to ... We've been dating for six years, and then every year, always on the coldest day of the winter, she wants to take a vacation to somewhere in a more northern location. For instance, last year it was the coldest day in New England history and she wanted to go up to Portland, Maine, so she loves that kind of weather.
Mark: That sounds terrible.
Tarek: Terrible to me, but great to her, so ...
Mark: Yeah. Right on. Cool. Hey, maybe you could give us some background. Let's start off here about FairMarkIT. What is FairMarkIT? I mean, we've had a conversation collectively with Greg Tennyson, who as the listeners will know is the CPO at VSP Global. You guys have, looks like to me at least on the surface, you're really shaking up things when it comes to price transparency, price benchmarking. Walk us through what FairMarkIT does.
Tarek: Yeah, that's a good point. So, my co-founder Kevin and I, we come from an enterprise software background, and the thing that would baffle us is you'd see these big price swings between customers in the same vertical, and really what hit home was you'd have a manager, say in IT, that typically has a value-added re-seller of choice or a go-to software vendor, and if it meets a certain threshold, all they need is a one-time quote and it's end of the story. You'll have a PO later that day, and every company's different, whether it's 50,000 to 80,000, to some customers are even a million. Under a million dollars they'll have one quote, and the thing is the more we dove into this, it really blew our minds that there is that big of price discrepancies between organizations, and that's really how the idea of FairMarkIT came about.
So, a lot of companies follow an 80/20 rule, and we're diving headfirst in the space of procurement, and it's exciting because we live and breathe it every day, so all our conversations are about procurement, and I have the impression that we're the most excited people about tail spend management that have ever lived, or at least that we like to think of, but really, what it is is most companies that follow this 80/20 rule, 80% of their spend only makes up 20% of their budget, and typically those are those purchases under the threshold that aren't tracked, aren't competitively bid, and aren't analyzed. So, what FairMarkIT is is it's a fast platform that tracks, analyzes, and gets you in front of more vendors for those small-to-medium-sized purchases, and we do that as easy it is as calling that value-added reseller of choice or sending out an email or giving someone a phone call at Staples.
Mark: That's awesome. So, for the listeners who aren't familiar what tail spend is, tail spend is really the stuff that most procurement organizations forget about.
Mark: That's probably the best way to put it, I think. It's the high-volume stuff that's low-value. There's so much stuff going on that you really just don't have time to tackle it, either because you don't have the data to be able to dig deep into it or you just don't have the resources. You don't have the time resources because as much time as it takes to do big spend is the same amount of time as it takes to do small spend, and committing resources to small spend analysis just ... For a lot of CPOs, it's just not worth it. Would you say that's correct?
Tarek: Oh, 100%. It doesn't make sense, and what the industry has historically given us is catalogs. You have these large organizations globally that have better pricing because they buy more goods, and what we're seeing through our platform is that by getting a large company with buying power in front of more organizations in the bidding or competitive process you're able to lower the price, and we see that sweet spot at five. When you bring more than five vendors into a party, so to say, on the garbage or tail spend, you drive the price down by 70%.
Mark: Wow. That's huge.
Tarek: I've actually had someone refer to it as garbage spend before.
Mark: Yeah. I can definitely see why people would think that way. I mean, it's such a big deal because we don't get the transparency that we need on tail spend or IT purchases or whatever it may be. What does the lack transparency mean when it comes to negotiation? Does it inhibit negotiation? Does it makes negotiations worse? What's going on there?
Tarek: So, I can only speak to the sales background, and that includes purchasing technologies for sales or having sat on one side of the table on the selling side, and for me, the lack of transparency is kind of frustrating. You get into a value sale, especially if you're selling software, because nobody buys large enterprise purchases if it doesn't provide the organization value, and what happens is sometimes it goes on for two weeks, maybe even longer, with negotiation back and forth because you guys can't just arrive on the proper price, and sometimes both parties walk. So, not only does it waste cycles, but it also wastes energy and time, which I think is the most valuable commodity, especially for someone in the procurement spot because they're trying to juggle many hats throughout the day.
Mark: Yeah. I find that the lack of price transparency is probably one of the most frustrating things in the world for a procurement person because it's so difficult to determine value, especially if you're dealing with a salesperson that can't speak to the ROI that their product or their service provides to your organization. Right? The only default then is for that procurement person to determine that value by price and sort of what's included in that, and it's frustrating to know ... Without knowing what the buildup of that price is, it's frustrating to know how they come to a certain number or a certain increase.
You and I were chatting once about the price of hammers and how one year it was X price and the next year it was X plus 10%, and how did they even arrive to that? How do I know that that's a legitimate increase, or should I even be paying that? I find that it really damages relationships almost, but there's not a lot aside from, I guess, going on a site like FairMarkIT, there's not a lot that procurement people can do to determine that unless they want to spend the time going through the grossly huge amount of data to determine metal index pricing and how much of the percentage of the asset is made up of a certain metal type. I mean, for the tail spend stuff that analysis just isn't worth it.
Tarek: Yeah, and why should they? If I'm gonna go buy a car, I'm not gonna single source what the cost of the window is and then put that in my negotiation, so from a business aspect I definitely doesn't make sense.
Mark: Totally. Totally. So, now that we can see that there's at least something that we can use to create that price transparency, how do you think price transparency changes the negotiation and changes the discussion?
Tarek: Yeah. So, I think that the best thing about price transparency is if you're able to roll something in or out, and what I mean by that is if both parties can identify immediately off the bat that this is something they want to proceed with, and you see more and more software companies are starting to go to that model, especially here in Boston. Two great companies I can think of are Drift and HubSpot. They're doing an awesome job of what you see is what you get. There's no negotiation. You go to a website, that's the price, and for me, that's awesome because it helps us understand, especially as a small company, how do we afford this product.
Yeah, it provides value at a certain level, but can we afford it? Fortunately, we're a customer of both those technologies, and I think part of the reason is because we're able to understand when we can actually put that into our budget, and I can only imagine how much more difficult that gets as your company fails. In the industry we're working with, we have the pleasure of talking to people like Greg Tennyson who manage million-dollar and billion-dollar budgets, and on the scale of ... I've never seen that much money in my life, and these negotiations they're having to broker, it plays a huge part in when they can afford that product for their team, and as a result, sometimes it actually hinders the business because they're not able to accelerate their growth, due to a lack of acquisition.
Mark: Yeah. I hear you. That's a big impediment to a lot of businesses. So, let's switch gears a little bit. I want to discuss what, and this may be a bit of a left-field question, but what are some unique negotiation challenges that you guys as a company have faced? I mean, we don't deal with ... I don't have a lot of startups on this call usually, and I think it would be super unique for someone to listen to this and go, "Man, I'm going through that same problem right now with my startup." What are some of the negotiation challenges that you guys face?
Tarek: So, the number one negotiation challenge is how you can justify the price to the business. From a startup aspect, the number one question you'll always get from investors is what's your pricing model, and everybody has a different opinion on how you should price a product. One of the things, we were fortunate enough to work with MBTA, our first customer. That's the Mass Bay Transit Authority, so the subway system here in Boston, so everything from the buses to the Green Line, Red Line, everything from in between. We were able to prove out and justify what the percent of savings is with that organization, and then how that plays into our price point.
We're really transparent on what our price is. We charge $12.00 per transaction, and what we're able to prove with the MBTA is in a very conservative amount we're saving them 1.2 million dollars, but we expect that to do about five or seven X by the end of the year, but we wanted to ... Our first large enterprise customer, we wanted to be very conservative on what we can promise savings for and then how we're able to prove that, and that's the hardest part is how do you price something that delivers the customer value from a business perspective.
For us, being able to prove that and have our customer feel positive enough to release videos and tell the world about it, that's something that as a startup you really want because the more successful your customers are, the more they'll evangelize you, the more success you see. So, our introduction and why I'm on the podcast is due to an advocate of ours, Greg Tennyson, who's one of the movers and shakers and probably the best person to know in the procurement industry, and I'm fortunate enough to have met you through him, and his evangelizing of our platform is helping us succeed as a company, so I would say that is the best thing to relate that back to pricing is the more you can have a customer happy about the ROI or the investment that they make in your technology, the better the pricing is.
Mark: Yeah. It's 100% about value. Yeah, I totally agree with you. I did a show with a guy named Anthony Iannarino. He's a sales coach based out of the states, and we had a very in-depth conversation about cost versus value versus price, and do they mean the same thing, do they not mean the same thing, and people often get those things confused, and if you can get someone to focus on value versus the price that you're charging for that value, then the price almost becomes negligible, I find, because if you can deliver an ROI that far exceeds whatever you're charging, then at the end of the day it becomes a no-brainer, but I find it's very rare to meet anyone who can actually communicate that value to the point where it makes sense to the purchasing person who's buying the actual product or the service. Right?
I think being able to communicate that is something that a lot of people need to focus more on, especially on the sales side, and then on the procurement side I think someone being able to be willing to do the math and say, "This is the ROI if we do this project," it becomes a lot more palatable for leadership to take on and do the project.
Tarek: Yeah, and it's tough. It's easier, I think, to justify in the procurement space, because I can name probably 20 products off the top of my head that I find value in, and I can justify the spend. Everything from grapes at like $4.99 a pound, I think that's a great investment, to an app I downloaded called Clear, which is essentially a list where you can just swipe and it's $4.99, same price, and I think both of those immediately return their value after a month of using them.
Mark: Yeah. Yeah. Right on. Okay. I mean, being a startup, we've spoken about what unique negotiation challenges you had. You must have had some failures along the way as well. I'm sure my listeners would love to be informed of some of those as well.
Tarek: Oh, yeah. So, the first one that comes to mind is ... So, Kevin, my co-founder, and I, we have a sales background, so we're not technical. So, part of this as first-time founders is really learning how to build a product, and really, the way you build a product, and we're seeing firsthand, is you have to find out what your customer wants, which it sounds a lot easier than it is. So, as we first started FairMarkIT, we had an idea of what kind of product we wanted, and so we actually went to, I would say, one of the top five banking institutions in the world, and we're discussing our product and really tried to close for a sale upon delivery of product, and doing that firsthand and seeing it backfire almost to the point where we were laughed out of the office is funny to look back on, but you learn from experiences like that, and you learn firsthand that, hey, I need to work with the customers to determine this is a product that other people want to buy than just what you think people want to buy.
Mark: Totally. Wise, wise advice.
Tarek: Well, you hear it all the time. I listen to podcasts from Tim Ferriss, Reid Hoffman. They have quite a few out there, and they always talk about making a customer-centric product, and you can hear that time and time again, but until you actually live it firsthand, it's different.
Mark: Totally. Totally. I hear you. You guys have been very fortunate, in my mind, in that you've been able to access a ton of information and a ton of different people who are leaders in the procurement space and the negotiation space in general, and so you've gotten visibility to a lot of things that a lot of people haven't had the good fortune to be able to see, and that's given you some sort of vision into the future. Where do you think the procurement industry is headed, and what does the future look like?
Tarek: So, I think procurement plays a very important role semi-sourcing in organizations, and you see it firsthand. The more closely organizations from finance to IT to direct purchasing works with their procurement and sourcing teams, the smoother the organization runs, and what we're seeing is more of an integration between those departments and more of a seat at the table for procurement and sourcing, but depending on the organization it can be an important function or your executive team could see it as not an important function. So, I guess the bigger the role it plays, those organizations seem to have more success, at least from what I'm seeing.
I also think that one of the hugest problems, at least of tail spend, is that it's garbage spend, essentially, when you think about it, so being able to automate and put intelligence around that and actually bring technology into that where it's an automated process and you can simply say, "Is this a good price, yes or no?" that's really what we're looking to help companies accomplish, but also where I think the industry's going, and you can see more and more companies that are extremely successful. Scout RFP does an awesome job of doing that for their platform, and I think as the industry progresses, procurement's gonna become easier and easier, and there's less boxes to check.
Mark: Right. I hear you. The amount of automation that can be done or should be done on tail spend I think is a huge opportunity, because it's just so ignored. Right? I mean, because you ignore it you get that 10% increase or that three percent or five percent increase every year and you're like, yeah, whatever. It's small spend. I don't care. Pay the increase. So, these categories, these small tail spend categories get ignored for the longest time, for years, generations in some cases, and with a lot of companies, and for the first time when people get an actual view of what a good price is for something that they've accepted price increases for for the last 20 years, it can be a little bit humbling and a little bit shocking.
I mean, I'm not surprised to know that when you guys work with companies you're getting price decreases of up to 70%, and for someone to be able to access that would be a huge advantage to them on something that they haven't looked at for a very long time. Now, the interesting thing that I find is that you've created this platform to be able to allow price benchmarking, price transparency, better data analytics, and a lot of that has led to better negotiations for a lot of people because now they have access to the information that they never had access to before. What are some unique negotiation tips that you think people need to take note of now that you've sort of been through this process?
Tarek: Yeah. So, having been on both sides, I always think it's tougher on a direct purchase for a unique software, but when you're looking for things ... My dad always told me growing up that you need two parties in a timeline in a negotiation, and that will always accelerate your deal. What we see through our platform is the more and more parties you bring to the ... I guess the more and more people you bring to the party, sorry, it's been a long day, the lower the price goes, and what I think is that a lot of companies get in the place where they feel comfortable with one or two sales reps, and I think it hurts them in the long run, and I think the more people you can meet that might help you with a product or service, and I think a really good example is what we're helping companies do, is focus on veteran businesses, disadvantaged businesses, and small business, and getting them in front of large organizations.
For a lot of listeners out there who have massive purchasing budgets, a lot of those companies will bend over backwards to work with those organizations, but a lot of times they're forgotten, and I think there's a big small business push. There's even Small Business Day now, but a lot of companies are starting for the first time, and it might not be in technology. It could be in logistics or it could be in ... They could make hammers, and every company has to start somewhere, so I think the more changes companies like that get, I think the better price you'll get and the better level of service you'll get, because if you're a company and you're working with the MBTA, for instance, here and you have five employees and you make hammers, you might be a little bit more expensive than a global hammer re-seller, but you can rest assured that if that hammer ever breaks, you'll have a new one at your desk by the day's end.
Mark: Yeah. I totally agree with you. So, being in more of a competitive environment, understanding that there are a lot more opportunities out there and not limiting yourself to one or two providers I think is gonna be a huge way to move forward in terms of negotiations. I 100% agree with you.
Tarek: Yeah. My last tip, too, would be as a sales rep, the number one thing I hated was when a prospect would always go dark, and by dark that means you don't hear from them for a day or two, and you have absolutely no idea what's going on. That tends to flush out the lowest price. I can tell you firsthand, and probably a ton of fingernails I've bitten off in the process.
Mark: It's the power of silence, man.
Tarek: It works.
Mark: It totally works. Makes people anxious, makes people uncomfortable, forces people back on their heels, and a lot of people are uncomfortable making people uncomfortable, and I think you bring up a really great point. If there's one piece of advice that I try to lead in the courses that I teach and in some of my podcasts, it's get comfortable being uncomfortable in negotiations. If you can force yourself into more uncomfortable situations simply by either staying quiet or asking really difficult questions and just waiting, then you're bound to get concessions. My success rate would probably be 70 to 80% on just keeping quiet after a question, because it's uncomfortable. No one likes silence. You're forced to fill the void, right?
So, when someone goes dark on the other end and you're a sales guy, for example, like using your example, you're gonna call them up and go, "Hey. So, just checking in, making sure everything's okay. And by the way, we've got this great special on ..." and all of a sudden the price drops. Right? No, you're 100% correct. The power of silence is huge. Speaking of philosophy and the power of silence, and I won't wax too poetic here, what is your philosophy on negotiation? Do you believe in a win-win philosophy, a win-lose philosophy, winner takes all? What do you believe is the right way to approach dividing the pie when it comes to negotiation?
Tarek: Yeah. So, very early in my career, I believed it's definitely in your benefit to win, but the more I've developed my career, I've noticed that you're not winning if your customer is not successful. If both parties aren't successful, you might get the short-term deal, but you're not getting a happy customer and you're not developing a relationship there, and the most important thing is for both parties to be successful, and if you fiscally can't do it from a sale side, then it might not be advantageous for you to push that deal, and as a sales rep's perspective, you should have a big enough pipeline where you have another opportunity waiting there.
Mark: Yeah, cultivation of alternatives. You need to be a farmer at all times, always cultivating alternatives.
Tarek: It's easier said than done, though.
Mark: I will preach to that. That's 100% correct. I know what you mean.
Tarek: Especially when you read all the sales books. If it was only that easy, everybody would be a millionaire, so it's possible, but I guess that's what makes it fun.
Mark: Yeah. It's tough and it takes discipline. I think one of the important things that people need to realize is you don't just read a book and then all of a sudden you've got all the knowledge that you can execute on. Having the knowledge is one thing. Executing on it is another. So, if you can form the discipline, form the good habits, form the structure and build it into your schedule, because a lot of us are really busy. I know you guys are startup guys, right? I mean, you have no time during the day, so the only time to get anything done is to put it in your schedule and to make it a priority, and if you're not making it a priority, it's just not gonna get done.
So, for a lot of people listening, I think it's really important for people to take away that you can't do great sales, you can't do great procurement, you cannot do great negotiation unless you're gonna dedicate yourself to the discipline of improving those skills, and the only way to dedicate yourself to the discipline of improving those skills is to actually use those skills, because if you default to something that you've always done, you're always gonna get the same results, so you've gotta start building that skillset into your daily work schedule and actually scheduling time to use it. Practice it, role play it, because without that information being used, it stays information and never turns into action.
Tarek: Oh, yeah.
Mark: You're 100% correct.
Tarek: I'm actually reading a great book about that right now. It's called Peak from Anders Ericsson and Robert Pool. I think Ericsson is a PhD professor from Florida State. Essentially, they've built on the research of Malcolm Gladwell's book where he argues that 10,000 hours makes perfect. They somewhat deviate on that and they say that's kind of true, but unless you're using deliberate practice where you actually identify a goal and you have someone coaching you through it and getting feedback, you're not really bettering yourself. You're just somewhat spinning the tires. I think that really hits home, and it's hard to do in a professional setting because there's a million things on your plate and it's hard to find a professional coach, but it's little things. You brought up silence, right? I'm a pretty Chatty Cathy, so the more I can be silent in negotiation, the better I've seen it go, so the more I can really work that into my daily routine, it's something I try to focus on and put sticky notes all over my desk for, so ...
Mark: Right on. That's a good way to remember skills as well, write them down, put them up where you see them. Good points. Okay, cool. Well, listen. I've really enjoyed the discussion that we've had today. I think we've covered some big ground in terms of what's available, and when I first heard of FairMarkIT, it sort of blew my mind in terms of, oh, you can do that? So, for me it's kind of a big deal, being a procurement guy by sort of trade, knowing that there are companies out there that are working forgotten areas like tail spend and doing price benchmarking and price analytics, price transparency work on that to make it more of a value add for procurement departments and CPOs to be able to tackle that, because if it's not worth it to them they're just not gonna do it, so the fact that there's actually people working on that is kind of a big deal for procurement, in my opinion. To that effect, if people want to find out more about FairMarkIT and find out more about you and what you and Kevin are doing, where can they find you?
Tarek: So, you can follow our Twitter, @FairMarkIT, our name, and that's F-A-I-R-M-A-R-K-I-T, and you can go to our website, fairmarkit.com, or you can email us at sales@fairmarkit. We love conversations with anyone in procurement, whether you're actively working at a company or you're retired. We're really trying to build a product that solves the problem of tail spend and helps organizations manage, track, and then benchmark that internally and externally to tell if you're getting a good price. We'd love it if we could just put a box around it and you knew you were getting the best price at the best time. That's our end goal, so ...
Mark: Awesome. Well, listen. Thank you-
Tarek: And we really appreciate it ... Yeah. I appreciate you having me on today, and if ... We'd love to do this again at some point if you ever want to have us back on the show.
Mark: Yeah, absolutely. I'd love to. I think there's ... We've scraped the surface of a couple of really big topics here today that I think we could really dive deep into and get pretty technical on, and I would actually love to do that, so thank you so much for sparing up the time to be able to be on the show. I really appreciate it. I think people are gonna get a lot of value out of this conversation, and tell Kevin I say thank you, and I'm sorry that he wasn't able to make it. I know that he was super busy as well. Next time he has to be on. That'll be my requirement for the next call that we have, but yeah. Listen. It was awesome to have you on, and if I don't speak to you soon, have a great weekend.
Tarek: Yeah, you too. Thank you so much.
Mark: All right. Thanks so much, and for the listeners, if you're listening in to this and you're thinking, man, I would love to find out more about these guys and what they're doing and find out about some of the stuff that we were talking about or the book that Tarek mentioned, I'll be linking out to everything in the show notes as always, so you'll be able to access them without trying to type while you're listening, so no worries there. Thank you again to all the listeners for joining us on the negotiations.ninja podcast. Listen again soon for the next episode, and have a great day.
FREE UPDATES BY EMAIL