Today I had a revelation about requests for proposals in the service industry. They are fruitless, for the organizations that issues them and for the companies who respond to them. During their time of conception they were pretty innovative, one long document that summarises what kind of vendor you’re looking and how you would like them to respond. It was an excellent way of selecting value 30 years ago. However in this new millennium where are lives are ruled by smartphones, smartwatchs and smart TV’s, RFPs are no longer a smart way to discover value or sell value. Organizations that use the RFP process are losing the greatest asset their company has, time.
How The Company Responding Loses
It takes time to draft a request for proposal. I consult a nonprofit here in Houston that dedicates 40 work hours per month just to draft and disseminate various proposals. In contrast, one of my friends who's in construction recently told me that it takes him an average of two to three weeks, just to prepare one proposal after receiving a RFQ (Request for qualifications). In my industry of consulting, it typically takes me 8 to 15 hours to prepare one proposal in response to a RFP or RFQ.
30 years ago using your time in this matter didn’t seem counter productive or costly. That was until we discovered the importance of ROTI. ROTI stands Return On Time Invested, its sole function is to quantify the amount of time used to produced sales revenue. This is highly important for service organizations and professionals who sell services. For example, if your annual revenue goal is 500,000 a year and you only work 1920 hours per year, then every hour you waste on activities that doesn't yield revenue cost you $260 per hour.
ROTI Formula = Revenue goal / Time invested
Considering every RFP a company replies to is not going be accepted, the time devoted to them could literally end up costing a company hundreds of thousands of dollars in a relatively short time.
How The Organization That Issues Fails To Capture Value
Corporations, nonprofits and government agencies that persist in playing russian roulette in a broken system fail consistently to capture true value for their projects. Preparing a 20 or 100 page document to get service providers to sell you on why their qualifications are better than everyone elses is a total waste of resources. It doesn't guarantee vendor quality or value, and more often than not contracts are granted to mediocre or incompetent companies.
“Millions of taxpayer dollars were wasted to build a website that didn't work, all because of bureaucratic incompetence,”
- William Gao, Contractor for Healthcare.gov
In the public sector there are hundreds, if not thousands of examples of where this happens frequently. The best and most recent example of this can be seen in the failed launch of Obama’s only legacy, Healthcare.gov. The Obama administration spent over $666 million to design and launch Healthcare.gov. A site so poorly built that it couldn’t even handle more than 50,000 users simultaneously when it launched. In comparison, Mark Zuckerberg, his roommate Dustin Moskovitz and business partner Eduardo Saverin, spent only $19,500 to launch the beta version of Facebook which successfully onboarded 1 million users (without crashing!) within its first year without crashing.
There is a saying I recall hearing a lot when I first launched my consultancy four years, “Those who can’t do teach”. The saying is meant to point out how many professionals who can’t deliver value in the private sector, somehow end up in the education, government and nonprofit sector. How true that is I am not sure and is not an issue of debate here. I mentioned the phrase only because it begs me to ask the question whether the RFP system is being upheld by government agencies and nonprofits because they’re slow to change, or is it those “who can’t do” fear being exposed for their lack of competence?
Ultimately, what all organizations who are seeking value from vendors need to realize is that anybody can sell the value of their company on paper, but that doesn’t mean they can actually deliver value to your organization. In order to capture value, organizations need to begin developing new methodologies and processes that can truly measure a firm’s capabilities and service results.
“The site was originally intended to handle about 50,000 concurrent users, but fell short in the first weeks of operation” - PCWorld
How Organizations Can Capture True Value
It stands to reason that if we toss out the RFP process we need to have something more proficient to replace it. For those who sale services there are plenty of more different ways to engage organizations about buying your services that don’t involved writing a dissertation. For instance, one of the most effective methods in approaching nonprofits I actually learned from studying how advertising companies sell services. The Ad agency sales model is built around showing value before purchase. Ad agencies typically come up with the ad campaign concept, strategy and visuals before receiving any guarantees of purchase from their clients.
When I approach some nonprofits in attempts to sell my value I use a similar model. I typically offer services that don’t cost my firm a lot in time or resources, but are high in value to nonprofits pro-bono. Currently I have two nonprofits I service in this matter. The gain for me is the immediate opportunity to cement my value and rapport with the key decision makers for the organization. Opening the door to potential sales opportunities or referrals later down the road. The gain for the nonprofit is they get a free trial of my firm’s expertise with no obligations to buy.
This method obviously is not one that will work in every scenario, but is just one example of how repurposing existing processes and methodologies from different industries can help organizations make smarter decisions in choosing vendors that can actually deliver real and consistent value .
How Service Providers Can See ROTI
So how does Ad agency sales model work better for service providers than answering RFP’s? What is the ROTI? Just from working with the two nonprofits I have mentioned, I have made a little over $15,000 from clients directly referred from professionals who sit upon one of the boards of each nonprofit. I only spend a total of 84 hours per year working with each nonprofit. In this scenario the return on my time is $178. 57 per hour. But what if you donate your time to prove value and the organization does not purchase your services or refer any clients? How do you recoup your time?
If organizations fail to recognize your value in paying for your services and don’t repay your time with referrals, you still gain. Remember, any work you complete for a nonprofit can be repurposed as a special case study. Case studies are excellent marketing pieces that validate service quality with new clients. If you have already have spent 84 hours servicing a nonprofit, why not spend another 8 hours turning it into a case study to attract new business. Just one properly outline case study create thousands or millions of new revenue every year.
Ending RFP’s & Regaining Time
For service providers competing to differentiate their firms, the RFP process has been like a tighly fitted noose, choking away opportunities to demonstrate their value and expertise. For organizations in the public and private sectors, the request for proposal process is one that quietly has become a standard of attracting and retaining mediocrity. The time has come to put an end to RFP’s and their valueless impact. The ad agency model mentioned above is just one example of how new processes that deliver and demonstrate value can be developed to benefit organizations and service providers.
All it takes is an open mind to admit and accept what we already know, the RFP process is broken and doesn’t work. Once that reality is accepted we can begin to innovate new ways to capture and demonstrate value. We can begin to perfect what we offer to clients, communities and begin to produce things that improve the world. Benjamin Franklin once said, “Lost time is never found again”. If we continue to uphold archaic and fruitless practices, refusing to acknowledge their failure and deficiency, then time will continued to be lost and never recouped. Fore it is time that determines and guarantees value. Organizations that learn how to appreciate and properly allocate time, will always be able to deliver and capture value.