Mr. Galanti joined Kirkland, WA-based Costco Wholesale Corporation shortly after its founding in March 1984 as Vice President of Finance and later became Executive Vice President and Chief Financial Officer. Executive Conversation spoke with him about retail investment trends and the factors that influence capital investment decisions at Costco.

Q: With all of the vendors who are looking to meet with you and sell to Costco, what criteria do you use for granting appointments?

RG: I try to direct vendors to the right decision makers in my organization. Sometimes they’ll have already talked to the appropriate contact in our office and either their solution doesn’t address something we’re trying to change or we have competing offers. However, they often still want to talk to the CFO because they assume that’s where the decisions are made. I try to assure them that while I may give the final "yes" or "no," I rely on my organization and the fact that we have very good people managing these functions.

Q: What are some of the best ways for a vendor or service provider to get on your calendar?

RG: Call me old-fashioned, but a short email or letter explaining what service you offer and a request for a call might work best with me. I do try to at least read enough to forward it to the right people in my organization.
The other way to reach me is to base your offer on what’s of interest to me at the moment. A few years ago, for example, when Sarbanes-Oxley raised its ugly head, numerous software vendors approached us with solutions for managing the SOX process. Before that, Y2K concerns for large companies like ours around payroll, healthcare, etc., led me to spend more time meeting with IT providers and reading about solutions for those issues.

Q: Any other general tips you’d like to offer?

RG: Keep it simple. None of us has time to read through all the stuff we receive each week. It’s that 15 seconds to two minutes’ worth of information that comes through the door that has to set you apart. Sometimes I’ll receive a lengthy e-mail or large packet of materials, which seems to imply I’ll read through them myself and make an investment decision based on the sales collateral. That won’t happen. The trick is to successfully convey your message in 15 seconds, which hopefully leads to 15 minutes, which in turn hopefully leads to two hours.

Q: When a sales proposal interests you, but there’s work to be done to see if it clears a hurdle or hits a payback target, how would the sales professional best get your sponsorship to move the deal forward?

RG: Ultimately there are certain people in my department who I have a lot of interaction with and faith in and they may say we already do something similar or that while our technology is a year older it’s sufficient for the next couple of years without reinventing the wheel. It’s up to me to understand what the need is and what the costs associated are, but it’s up to the people I rely on to recommend whether or not we should implement a particular proposal or whether we should be looking at something else. Sometimes, even though the payback is pretty persuasive, a project simply isn’t a priority.

Q: As a former investment banker and now CFO of the largest warehouse club in the country, what metrics do you consider when you’re evaluating capital investments?

RG: At Costco, we’ve set a minimum 15% cash-on-cash return. In terms of evaluating IT projects, we base decisions on the type of payback we expect over two to three years. For example, a project like rewriting the membership system might take more than two years and 10,000 hours of IT programming, plus time in training the cashiers, etc. We also recognize we’re making the investment for a number of business reasons, like customer service and other things that aren’t as tangible as a true ROI.

Q: What types of IT solutions spark your interest?

RG: We see new technology as not only a money-saving issue, but also a customer service issue. For example, If we can help the customer checkout faster and more inexpensively, Costco is happy and the customer is happy. And the customer driving into the parking lot is happy because parking spaces are clearing faster.
Another technology issues on our radar is better leveraging member data. Our goal is to increase shopping frequency. For example, communicating to customers that last spring they purchased X number of dollars of lawn and garden items and notifying them that tulip bulbs are coming in. realizing, of course, that while they’re buying tulip bulbs they may very well pick up a rotisserie chicken and a couple sweaters.

Q: Where could technology lead Costco in the future?

RG: While it’s still a few years away, RFID [radio frequency identification] is talked about regularly. Imagine a customer exiting the warehouse through an archway where a scanner reads the items in their cart, calculates the balance due and perhaps checks it against the expected weight of those items. Without anyone having to take anything out of their cart, they’ve got a receipt and are on their way.

Q: What are some of the larger factors outside Costco’s control that you see impacting your industry today?

RG: Regulatory compliance. Over the last few years there’s been a tremendous increase in the amount of corporate governance and regulatory oversight issues. There is a new level of formality in reporting and increased costs associated with it.

Q: Are there other factors that come to mind from a macro-economic or multinational perspective?

RG: From a worldwide standpoint, certainly energy costs are a big issue. Trade-tariff issues are another, and we’re concerned about the trade deficit with China since, like any major company in America that sells goods, much of our inventory is produced overseas. Our ability to anticipate these issues and respond in a fiscally sound yet culturally sensitive way has been a huge part of our success and will continue to guide us in the future.

Presenting ROI to executives and business decision-makers can challenge sales professionals as much as any part of the job.

Why?

Common reasons we see are sellers:

• Mistakenly presenting Total Cost of Ownership (TCO) numbers – which don’t recognize the required investment; only cost reduction.
• Neglecting to take the customer‘s hurdle rate into consideration.
• Relying on an ROI tool, which, for most executives, offers little value.
• Struggling to use numbers when the projected ROI is too good to be true

Two required ingredients for ROI

Effectively quantifying value with business decision-makers requires you explain both the:

1. Investment (what the customer is buying)
2. Returns (revenue gains, cost reduction, increased margin, etc.).

Sounds simple enough, however ROI discussions often arise early in the sales cycle – when your analysis may lack sufficient depth to be convincing, or plug into your ROI tool. This is when assumptions and estimates come into play.

Steps for incorporating ROI into your sales process

Let’s use an example of a company that has expanded through acquisition, and is now operating with 8 data centers. You want to sell a consolidation solution.

1. Define scope.
   Your objective is to clearly convey the business change your solution enables. In other words, the specific ‘before and after’ investment difference you’re looking to quantify.

     
   Example:

   • Today, the customer operates with 8 disparate data centers, each running various hardware/software configurations requiring dedicated admin staff.
   • After investing, your solution consolidates the 8 data centers down to 3, all running on a common platform.
          
2. Specify investment.
   Include everything that requires your customer to spend money: your costs, other vendor/supplier costs, and the customer’s internal costs. 
       

   Can you really do this?

   Of course. You’re the one proposing the solution, you’re who defined the project scope, and you can determine the hardware/software/service requirements.

   Leverage your and your company’s prior experience in this step:

   Example 1:
   Customer: “How much of your consulting time is in the investment?”
   You: “On projects of similar size and scope, our experience has been it
   takes about 2-3 months of professional services to implement
   the solution.”

   Why does this work?
   Because the customer can easily contact your references to validate the estimate. Even better, it doesn’t rely on any consulting study or white paper which may not be believed anyway.

   Example 2:
   Customer: “What about my people’s time?”

   You: “We’ve found roughly a 1:1 ratio of your people’s time to our
   time. Our estimate was computed using an industry average
   fully burdened cost of $150k per person, per year.”
   Does this work?

   Again, yes. Early in the sales cycle, when you don’t yet have actual cost data, you can use assumptions such as average industry costs. The account may respond that they pay a higher or lower rate; however, you’re now engaged.

   The key when using assumptions are to ensure they’re reasonable, logical, defensible and reference-able. The customer may not agree with them, but they can follow how you got there.

3. Identify cost savings.
   Contrary to popular belief, it’s not the customer’s job to determine cost savings; it’s yours.
     
   

   How so?

   Think about it. Using approximations, based on a typical data center, could you estimate how much the customer currently spends on power, floor space, maintenance and people? Yes.

   Searching the Internet, could you identify the cost per square foot of space in the locations your customer’s data centers reside? Yes.

   Would you be exactly right? No. However, you can establish an order of magnitude for the customer’s current cost structure.

   Developing this ballpark figure creates a starting point for engagement. The customer may not agree with your numbers; however, it may result in their disclosing information that improves your estimate’s accuracy.

   This is why you disclose your assumptions and ensure they are reasonable, logical, defensible and reference-able. Enlist relationships within the account to validate or provide data, if possible.

Finally, since you are the one proposing the new data centers, surely you can project what it will cost to run them. You can then quantify the cost reduction from implementing your solution, which requires less people, space, utilities and maintenance.

Through developing this cost structure differential by using assumptions and estimates, you can quantify the “R” in the ROI.

Using assumptions and estimates to develop ROI is not a crime. Executives use them, and the biggest M&A deals are based on them.

Bottom line: It’s OK to use assumptions, estimates and prior experiences so long as they are reasonable, logical, defensible and reference-able.

Agreed?

Leading. Scalable. Unique. Streamlined. And of course, optimized. Ever use these terms to a) sound businesslike, b) impress customers or, c) explain your solution?

If so, the good news is you are not alone. Of course, the bad news is also that you’re not alone.

Business decision-makers hear this messaging too often. It’s ineffective. It won’t advance your sales campaign. Here’s a challenge, and a few approaches, to start transitioning from using the typical sales professional’s useless jargon to more compelling executive conversation.

The Routine

Consider what routinely happens:

Sales professional starts: “Our XYZ product can help drive revenue”.

This statement lacks impact and worse, any recent college graduate without business experience can say it. Again and again, terms like “reduce costs” or “grow revenue” are thrown out as if that’s enough to convince.

When asked how so, sales professionals employ weapons of mass distraction like visibility, virtualize, streamline and optimize. These terms are not only overused, they’re meaningless.

Painting a Clearer Picture

To make the leap to clarity, first paint the picture of the customer’s current situation. In other words, how are they operating today? Do so as specifically as you can.

Most sales professionals cannot adequately, accurately or affirmatively describe what is happening within their account’s business. If you don’t know what the current situation looks like, you lack credibility when saying “we can improve it”.

Describe in simple, non-biased terms exactly how the current process works. Don’t purport to claim whether it’s good or bad; just state the facts and the decision-maker will reach their own conclusion. If you say it is poor, deficient, or ineffective, you may not be believed and you may even offend. Describe it so they can visualize it, and then believe it.

Next, paint the picture of how the customer will operate after your solution is in place. It doesn’t matter what your solution is, customers care about results. Because you earned credibility by demonstrating an understanding of their current situation, the customer is still listening when you describe what will be different.

Again, buyers are not impressed when you tell them their performance will be faster, more efficient or less expensive. Buyers value specifics describing the actual business change you can enable.

Examples

Let’s look at an example of a company that has grown through acquisition. As a result, they now have multiple data centers. You’re selling a consolidation solution.

Bad Example:

Alan, we can help improve the performance of your data centers. Your existing infrastructure is very costly, challenging to manage and inefficient. It uses old, outdated technology that requires expensive maintenance. You have experienced problems in keeping the data centers up and running. In addition, they are ineffective in meeting governmental regulations and protecting your data.

By implementing our server virtualization we will be able to streamline your operations and enhance the effectiveness of your data centers. By investing in our solution you will have state of the art, highly efficient data centers that deploy the latest security technology and which optimize server utilization. With this approach, data integrity is improved and your governmental compliance is better. In addition, we will reduce costs and improve the productivity of the data center operations.

What did that description tell the customer? Not much other than they’re mismanaged. Unfortunately, that is how many sales professionals come across to business decision-makers.

Good Example:

Alan, we can reduce costs approximately 7% per year through consolidating data centers. Currently, you have 8 data centers, each running a different mix of systems. Each requires dedicated, specially trained staff to maintain and monitor. Last year, you had two instances of data loss and four governmental reporting compliance penalties.

We can reduce your number of data centers from 8 to 3. As a result, you can free up people, eliminate space, reduce utilities and reduce maintenance costs. By standardizing on a single platform across those 3 centers, you will be able to prevent data loss and meet reporting requirements by reducing consolidation time from three weeks to five days. Finally, the projected ROI of 22% exceeds your hurdle rate.

What did that description tell the customer? A whole lot more in fewer words.

Why?

· You demonstrated a clear understanding of the current situation

· You specifically explained how your solution can enable business change (improvement)

· You quantified investment impact and provided an ROI parameter

Better yet, you did it without passing judgment on the customer’s operations.

Bottom line, illustrate and quantify the improvement from your solution: don’t just say “we can make it better”.

Where have you changed a customer’s business?

A sales leader at one of our clients recently expressed disappointment at all the excuses she hears on why her team doesn’t call higher in their accounts: “takes too much time,” “executives don’t want to talk to us,” “we just get referred down,” etc.

She then shared her suspicion of the real barrier: they’re intimidated.

Here’s 3 pieces of business acumen for sales professionals to help feel as confident selling to a CFO as any other decision-maker.

Today, More Than Ever

As the client talked through the challenge of selling to executives, we agreed the necessity for such calls has never been greater. Today, approval from executives and business decision-makers is often required for even modest investments.

Not only are today’s sales professionals more likely to find customer executives involved in deals, they’re more likely to lose business if they’re unable to confidently call higher within accounts.

Reducing Intimidation

Preparation is the best way to gain confidence for any presentation. When selling to executives, it’s all about them, their business and their business performance.

Here are 3 best practices to ensure you’re prepared:

1. Know the executive’s prioritized business initiatives
   Arrive positioned to validate and prioritize customer initiatives, not ask the customer to tell you about their initiatives. Management Presentations, Earning Calls and other resources are widely available to expedite gaining customer insights.
             
2. Participate in quantifying the value of your solutions
   Too many salespeople mistakenly believe that computing a project’s projected ROI is something the customer alone must own. This type of hands-off ‘let the customer compute ROI’ is a flawed approach. Prepare by getting comfortable talking about the positive financial impact you can deliver. That’s what executives want to know.
        
3. Role play practice your executive conversation
   If you’re not comfortable with role playing, get over it. It’s the best way to simulate the scenarios that can derail any well-rehearsed presentation and foresee how to effectively respond when the dialogue digresses.
             

Business acumen and financial acumen are essential skills for sales organizations today. Target a key account executive and challenge yourself to engage that person within the next 30 days.

Let us know what you think.

You finally succeeded securing a meeting with a key customer executive. Now what? If you’re going to invest your time, and you’re asking the customer to do the same, then both of you better get a result.

Recognize that every executive engagement must have a clear objective. It does no good to have a meeting with an executive just so you can report you had one.

Your objective in any executive conversation should be to obtain that individual’s sponsorship and support to move your selling effort forward within the organization.

Does this exchange sound familiar?

You: “Based on what we’ve discussed, can I get your support?”

Customer Executive: “Sure!”

What did you really get? Very little.

The executive made no commitment, and there was no defined action coming out of the engagement. Executives are very good at getting rid of sales professionals, especially if they haven’t earned the support.

When you ask for executive sponsorship, ask for it in a way that is:

• Crystal clear
• Understandable by your audience
• Specifically actionable – what, when, how

Examples of asking for sponsorship the right way

Example 1:

“Alan, here’s what I propose. Next week, we’re meeting with a few of your key managers involved in this initiative. If it is OK with you, would you please attend the meeting for the first five minutes and say a few words.”

What happens if the executive shows up and say a few words?

What will the other managers think?

Is that sponsorship? Yes!

The beauty is that the sponsoring executive completely understands what you want:

1. What: Attend meeting with managers, say a few words
2. When: Next week
3. How long: 5 minutes

The executive can do it because they completely understand what you want.

Example 2:

“Alan, to move forward with this project, I’d like to meet with Toni Smith, your VP of Finance, to validate the assumptions supporting our preliminary ROI. I’ll indicate to Toni that we’ve spoken already and validate the numbers with her. I’ll then update you next week. Is that OK?”

What’s good here?

Again, you’ve let the executive know exactly what you want. Better still, all the executive has to do is to say “OK”. From that ask, you’ve gained sponsorship to Toni plus another meeting with the sponsoring executive next week.

To be sure, sponsorship must always be earned. Start by clearing defining your objective so you can ask for it. Otherwise, you may well get nothing.

Customer growth strategies vary by vertical market. Your sales strategy should do likewise.

Amid economic headwinds, companies have largely focused on moving costs out of their organization. Now, as customers refocus on growth, readying your team to align solutions with growth and innovation should be a key organizational priority.

Almost all companies are actively seeking to innovate again, but few do it well. Not surprisingly, executives cite the lack of a fact base and the level of uncertainty as key roadblocks. Consider:

• 84 percent of executives say innovation is extremely or very important to their companies’ growth strategy.
• 43 percent said the top challenges included choosing which ideas to move forward.1

Our Buyer’s Perspective Report on Vertical Market Opportunities offers insights and considerations for positioning your organization as a credible, industry-capable business partner.

Vertical Campaigns

Sharing your firm’s experience working on growth initiatives creates value and a compelling reason to engage accounts. Executive and business decision makers want to partner with suppliers and technology firms to quicken time to market and reduce risk.

Successful sales organizations are creating demand by working with accounts to generate ideas, select the right ideas, and jointly develop business cases supporting your solution’s ability to drive innovation.  For example, selling to retail customers? Use these industry-specific metrics.

In contrast, to quantify your value with Financial Services customers a completely different set of metrics come into play.

Plan your Next Executive Conversation

Vertical selling strategies in today’s market have gone from business specialty to absolute necessity. Incorporate these best practices to change the conversation:

• Gain industry insights.
  External factors such as regulatory issues or interest rates, as well as industry-specific business metrics, apply to all accounts within a vertical. Learning this information offers one of the quickest paths to build CXO relevancy.
      
• Keep current.
  Industries continually evolve. Stale knowledge is one of the most common breakdowns we see when working with account teams. Invest today. Invest regularly.
       
• Socialize innovation.
  Ideas live under every scalp in your organization, not just managements’. Actively seek to convert ideas to revenue. Energize everyone to come forth. Offer rewards.  Bestow recognition.
      

It’s always easier to cut costs, than grow revenue.

But cost cutting belies sound growth. And it can’t continue forever.

Consult our Buyer’s Perspective Report on Vertical Market Opportunities and let us know what questions you have in formulating your vertical market selling strategies.

1 Source: McKinsey & Company 2010 Innovation and Commercialization Survey.

Struggle to find time to keep current on all of your accounts?  Missed a quarterly analyst call and can’t find a recording?  No worries!  This website provides free, actionable insights and information for over 1,500 public companies’ earnings call transcripts, including the S&P 500.  Plus, the site includes edited articles from top blogs and investment newsletters.

Of course, the site being referenced is Seeking Alpha. While the site primarily targets an investor audience, it also provides timely, well organized, searchable information to aid your sales campaigns.  Better still, all of the content is tagged making it simply to subscribe by stock ticker symbol, sector or theme.

With all of this information spelled out for you, it becomes very time effective to execute the three steps for keeping your sales strategies current. Remember, any change in your account’s business performance or an unexpected market shift may signal a new selling opportunity.

For example, in the site’s Transcript Center, from a recent Deere & Co. Q4 Earnings Call, in response to an one of the analyst’s questions,  Marie Ziegler, Vice President and Treasurer of Deere, clarified the company’s operating margin targets.  Historically, she said, they’ve run at a 12% operating margin on average over time, and a peak margin of about 14.5%.  The takeaway?  Positioning your value as being able to help the company achieve 14%+ operating margins demonstrates you understand the business.

In summary, if you have larger, publicly traded accounts in your portfolio, consider including Seeking Alpha in your customer insight process.

I wanted to share with you an article by Martha Heller that I found both informative as well as insightful.   Heller writes about the traditional CIO role and some of the issues they have traditionally faced, the problems of transitioning from one regime to another, when bad technology meets good people, etc.  What takes this from a run of the mill article on the woes of CIOs are the insights into CIO strategy which occurs in the second half of the article.

Enabling is Failing!

I was particularly impressed with a quote from Scott McKay CIO from Genworth Financial who discusses the differences between being an enabler of business processes to a driver.  At first glance enabling business processes does not seem like a bad goal for IT.  What Scott as well as most CXOs know is that enabling a process gets none of the glory for success and is first in line for the responsibility for failure.    The idea of being an “enabler” like in a 12 step program is not one that is going to get you a lot of rewards.  Enabling is Failing!

View Video

For even more insights on the changing role of CIOs, take a look at this recording of one of the webinars from our Buyer’s Side Perspective series, Selling to Today’s CIOs.

Enabling processes in a company are a function of either supporting or coordinating another group’s goal or business process.  As a support role it is of course critical to getting the task done, after all we all need support in one way or another to accomplish our responsibilities.  The problem with being pigeon holed into this role is that it is seen more as a cost function than one of business value.  As a result the phrases “how much is this going to cost my budget” or “what’s the best way we can do this at the lowest price” becomes the guideline for the “enabler”.   Not only is the value stripped from the IT group but the ability to control their expenditures is moved to the original business group that is driving the process.

What You Should be Asking

The question you need to ask yourself personally is when you work with IT or the CIO which process do you lead with or support.  If you talk about TCO or your ability to deliver an SLA or even talk about being a one stop shop you are supporting the CIO to FAIL.  And if they don’t want to fail then where does that leave you and your ideas.

The question you need to ask is ‘What can I do to help the CIO/IT group to succeed?  What value add do you bring that they can bring to their business units?  How can you help them to lead and be one of the drivers of the business?  Once you have figured that out you now have a reason to engage in CIO executive conversation.

If you don’t know how just ask us.  After all we are a company made up of CXOs.  Your thoughts?

Interested in free resources?  Then check out Great Sales Give, a new site that colleague and best selling author Jill Konrath launched to share her expertise with those who need it, but may not have budget available. Each month, she’s giving away one of her audio programs, ebooks, etc. and conducting other drawings for free goodies too. 

There’s just a couple more days left in October where this month she’s giving away an excellent audio on Value Propositions where you’ll discover:

• Why the traditional ways of talking about your company’s offering don’t work anymore.
• The key components of strong value propositions.
• How to find the true value propositions of your company’s product or service.
• How to translate your offering into the language of a corporate decision maker.
• How to evaluate the effectiveness of your value proposition from a buyer’s perspective.
• Multiple ways to leverage your value proposition to get your foot-in-the-door of big companies.

 If you or your colleagues are looking for fresh, practical sales strategies and information to improve results, we recommend taking a look Jill’s work.

Money is tight and budgets are strapped, whether you’re talking about the euro, yen or dollar.  Anyone selling to government entities today knows it’s a problem. As a result, many officials are turning to the private sector for help.

Now’s the time to capitalize on this increasing trend toward public-private partnerships (PPPs). Structure your proposals around these three critical PPP success factors:

1. Allocation of risks
2. Identification, allocation and limitations on rewards
3. Need for public accountability

After you accept the realities of doing business with government entities, you can start exploring the opportunities. If past efforts in the public-private arena have been less than stellar, note that circumstances are shifting.

The time is ripe to deliver heightened value to public sector accounts.

Example of why that’s the case in the United States:

The government’s  Government Accountability Office (GAO) and other fiscal oversight entities such as the Congressional Budget Office have declared federal fiscal policy to be "unsustainable" long-term. The reasons cited? Fundamental structural imbalances shaped largely by demographics, health care costs and the rising federal deficit.

It’s a similar story with many other countries at regional and local levels, where officials face shrinking federal funding while trying to accommodate increasing public requirements.

Add aging infrastructures and declining revenue sources such as property taxes, and state and local officials – are looking seriously at alternatives – like their federal counterparts.

That’s where you come in.

A new reality

Given disturbing fiscal forecasts, the question is: How will public entities afford what citizens expect in the 21st century?

Clearly, enhanced PPPs will be part of the solution – this excerpt from the U.S. Department of Transportation, Federal Highway Administration offers insight:

"Expanding the private sector role allows the public agencies to tap private sector technical, management and financial resources in new ways to achieve certain public agency objectives such as greater cost and schedule certainty, supplementing in-house staff, innovative technology applications, specialized expertise or access to private capital. The private sector can expand its business opportunities in return for assuming the new or expanded responsibilities and risks."

Factors for success

As you contemplate a PPP, consider risk, accountability and the other PPP success factors noted above to determine what you can reasonably accept and how you can deliver the most value for your government customer.

Remember that your government customers have different needs than CEOs. The government isn’t interested in profit margins. Rather, it needs to provide the needed service or finish the project at an acceptable cost.

The ideal solution accomplishes that goal while providing you with an acceptable rate of return for any risk you assume.

Visualize the finish line

A unique challenge of public-private partnerships is the transparency required. These projects require accountability to the public, which ultimately pays the bill. The public needs to see that its money is spent wisely.

Because of this challenge, some government agencies may try to prescribe exactly how the work will be done. Instead, have them define "end states." Allow them to specify the results they need and introduce efficiencies to achieve those results.

Due to those budget constraints noted above, you may need to help your government partners find funding for your project through PPPs. Since competition for capital is fierce, the sales professionals who are most successful help their government partners visualize the results, demonstrate the public benefit and find ways to earn a healthy return, often through "dual benefit" solutions that have both public and commercial application. That’s a win for everyone!