12 Methods for Researching Vendors

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Researching vendors can be extremely beneficial or a big waste of time and money. A key to success in selecting the right vendor for your business is determining which research methods to use and to what extent. The diagram included in this post lists common research methods that can help you differentiate your list of prospective vendors.

Fire the Lawyers

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A lawyer's job in a negotiation is to advise on risk and the law. Lawyers are not typically the decision-makers in a negotiation. The worst-case scenario for a lawyer is that they fail to uncover every possible risk that may become an issue in the future. For this reason, lawyers will often fight to the end to create the perfect contract with zero risk for their client/employer. This is where I use the phrase "Fire the Lawyers". I don't mean this literally but there comes a time in every negotiation when you cross the threshold and have only small, inconsequential terms left to resolve. This is the time to take the negotiations out of the lawyer's hands ("Fire the Lawyers") and escalate the remaining terms to the decision-makers. It's an art to determine when you have reached this point in a negotiation. One sign is when the lawyers begin arguing over a single word. While a single word can change the term significantly, it is also an indicator that 95% of the contract is completed and you are now down to the small stuff. The decision-makers can often resolve these small issues quickly when it means completing the deal. Next time you see your negotiation starting to drag on endlessly and shift to fighting over the small stuff, "Fire the Lawyers" and drive the contract to completion.

Relationship Investment or a Bribe?

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If a sales team treats a potential buyer to dinner, is this considered investing in relationship building or is it a bribe? Some buyers say it’s unethical to allow a vendor to pay for a meal as it may be construed as buying favor (a bribe). I think taking a hard line on this limits the opportunity to build relationships with prospective vendors. A better approach is to define a clear policy of reciprocation from the beginning with all vendors. For example, if your team will be visiting a prospective vendor’s site, allow them to treat your team to dinner only if they agree to you treating their team to dinner when they visit your location. If each vendor has this opportunity, they gain no advantage or favor. By doing this, you will create an opportunity to build a relationships that will help you evaluate the people in each company. More importantly, I have found from experience that these relationships will grow and become the foundation for success later in the relationship. When things get rough, you need to be able to pick up the phone and call someone for help in resolving the situation. It sure helps if you have met that person and spent some time getting to know them. Bottom line: Promote reciprocal investment in relationship building to ensure you don’t cross an ethical line.

Dealing with Vendor Bias

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One of the primary goals in managing a vendor selection is to objectify what is ultimately a subjective decision on which vendor is best for your business and situation. Often, your decision-makers are already have a bias towards one of the vendors. How can you address this?

• Add the most biased people to the vendor selection team and challenge them to trust the research process. My experience is that they often change their mind.
• Utilize a Scoring Matrix to objectify the decision by breaking the overall decision down into many smaller decisions. Use vendor research to score the vendors.
• Document all research results to justify the Scoring Matrix scores and support the selection team’s recommendation to the decision-makers.
• If you are leading the process, don't participate in the scoring so you can objectively facilitate a fair process.

Bottom Line: When managing a vendor selection, confront vendor bias head-on to ensure an objective decision-making process produces the best vendor for your company’s specific situation.

Objectifying a Vendor Selection Decision

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Your job in leading a vendor selection is to objectify the decision as much as possible. How do you objectify what is ultimately a subjective decision in the end? I have found the best approach to be breaking the big decision down into many small decisions with a scoring matrix:

• Define 3-6 categories to evaluate vendors (ex: Functionality, Technology, Partnership, and Costs)
• Divide 100 points (100% of your decision) between these categories based on priority
• Define 3-8 sub-categories under each category
• Divide the major category’s points up between these sub-categories

The scoring matrix will help align vendor scoring with your priorities. Each point represents the percentage of the decision. Organize your research efforts around answering questions that will help you score the matrix.

The completed scoring matrix should tell you which categories the vendors are strong in and which vendor is closest to your priorities (remember, the points were allocated based on your priorities). While the decision-makers will not always select the vendor with the highest score, at least they will be making an educated decision.

Negotiating Leverage

I’m convinced that leverage is the most significant factor in determining the outcome of a negotiation. Mastering leverage is an art. The negotiator who understands leverage, can identify it accurately, and can use it to their advantage will often beat the more skilled and experienced negotiator. Your goal as a negotiator is to know the reality of who has the leverage and then create the perception in the mind of your opponent that you have all the leverage. One way to do this is to explore the factors that determine leverage in a negotiation. I have identified 15 factors that play a role in determining who has the leverage advantage in a negotiation.

1. Time: who has a greater incentive to complete the deal rapidly?
2. Competition: competition can be one of the most effective ways to generate leverage in a negotiation.
3. Marketability: who is more marketable as a customer, supplier, or partner?
4. Opportunity: who has more to gain in the long-term if the deal is completed?
5. Investment: who has more invested in completing the deal?
6. Environment: home field advantage?
7. Information: how much do you know about your opponent and how much do you control what they know about you?
8. Need: who needs the deal more?
9. Importance: how important is the deal to your opponent and their company?
10. Pressure: how much pressure is your opponent getting from their management to complete the deal and how can you help to increase that pressure?
11. Composure: who is more composed emotionally and who is controlling the agenda in the negotiation?
12. Precedence: what negotiating precedence has been set in past negotiations with your opponent and what precedents are you setting for future negotiations?
13. Emotions: how are fear, greed, and pride part of the negotiation?
14. Limitation: what are the true limitations and perceived limitations for each term in the negotiation?
15. Policy: what policies does your opponent have to operate within and how can you use policies to your advantage?

Determining who has the leverage in a negotiation (by considering each of these 15 factors) will put you in a better position to strategize ways to generate leverage and perception of leverage. To learn more about these 15 factors that determine leverage in a negotiation, check out my white paper on the topic: Negotiating Leverage: 15 Factors that Determine Positional Advantage (pdf)

Street Negotiating in China

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It’s 6am and we’re checking out of our hotel in Xi’an, China. My friend Nathan, who speaks Chinese, asks the hotel clerk how much it should cost for a cab to the airport. She says 120CNY. Outside, there's only one cab available. Here's the exchange - Driver: 100CNY, Nathan: 80CNY, Driver: 90CNY, Nathan: 85CNY, Driver begs and Nathan agrees to 90CNY. 90CNY feels like success based on the hotel clerk's information. Was this a good deal? It depends on your frame of reference. Nathan set his target based on the hotel clerk’s info. But business in China is based on relationships. Most likely, the hotel has a relationship with the drivers in front of their hotel. Having the hotel clerk say 120CNY is a good price sets their customer up to think they negotiated a good deal when the driver starts at 100CNY and then gives up a little more. If Nathan had a local contact, a quick call might have defined a good deal as 75CNY. Nathan would then counter the driver’s initial price of 100CNY with 50CNY and settle at 70-80CNY. What was the difference between these two scenarios? Information. Whether negotiating million dollar business deals or cab fares, information is key to negotiating a competitive deal. Not only is information important, the source of that information must be trustworthy.