This is a guest blog post by Jacopo Romei. Author of Extreme Contracts, a book about how to build trust, and deliver value without traditional contracts.
How to build trust with clients and stakeholders while getting what you deserve for your work: a story about trust
Over the last ten years, I’ve experienced the direct impact of lack of trust in vendor-buyer and even colleague-colleague relationships. I’ve come to find that it is the main reason why collaborations in knowledge work fail.
I’ve tried to fix that in my own work as an independent consultant and when working with other colleagues. That’s why I ended up experimenting with a new type of agreements which are optimized for trust building. This experimentation resulted in a set of principles that I call Extreme Contracts. Now, all my customers and I use this approach to shape our collaboration and they have started using Extreme Contracts also with their customers.
Making our proposal based on Value
In March Raffaello, the CEO of Sixth Sense, a service design company, asked me to join them in the very beginning of a new project. An important Italian publishing company, Bolognelli, asked us to assess the workflow of their six publishing lines. They wanted to spot bottlenecks, wasteful activities and define a shared set of guidelines to help their six publishing lines work better and learn from each other. After the first meeting, we started thinking about the best possible workshop design to help them dig deep enough in their status quo and start to understand the current issues while at the same time enabling them to have some concrete results by the end of the sessions.
We prepared a workshop series that included six independent sessions to map each publishing line’s process and understand the issues they were struggling with. At the end of the six sessions, we would have had a day with all the publishing lines to co-create the guidelines, which was what we had been asked to help with and was our final goal. Raffaello and I “only” had the problem of setting a price and convince them to accept our proposal.
It was too late to ask and explore with the customer how much these guidelines were worth to them—this should have been the way to go!—so we thought: will they think investing €90 000 in fixing their core process is too much? If this is genuinely a strategical activity for them, and considering their yearly revenue amounts to €300 million, will investing 0.03% (that’s 3 ten thousandths of their revenues) be too much to ask?
We decided it was not, but we were still concerned about one thing. No matter how small the investment is for you, you would never throw money out of the window, not even a dime. In our case, this translated into the fact that Bolognelli had not worked with us before, and consequently, they could not trust us enough to accept the risk of throwing €90 000 out of the window. In other words: how could they pay us €90 000 unless we could promise them, with certainty that they would reach their goal?
Addressing their needs in our proposal
By asking ourselves these questions, we were putting in practice one of the vital Extreme Contracts principles, known as In Their Shoes. We were starting to think in terms of the customer’s need rather than our need. We were soaking ourselves in their perception of the problem, by giving voice to the customer’s deepest fears, just by acknowledging that we hadn’t delivered a single drop of value up to that point, and, from their perspective, we could all be just a team of useless idiots.
By asking ourselves these questions, we were putting in practice one of the vital Extreme Contracts principles, known as In Their Shoes.
They needed safety, more than they needed a cheap price. We could have shown the enormous difference between the customer’s investment and their yearly revenue, but we needed to convince them that it was worth the risk they took by trusting us.
That’s why we asked ourselves: how can we make the perceived risk smaller? Is money the only dimension along which we can address risk? Well, it could be, but we can also negotiate an agreement that increases trust between them and us.
Trust as the primary collaboration driver
Trust is the primary currency of collaboration in any endeavor with an uncertain outcome: from sports to exploration, from developing a successful software product to shooting the best photos for a fashion show, you have to trust your teammates and the professionals you hire if you want to win the game. Would distrust pave the way to victory if you were part of an ice skating pair? Would distrust help a crew while sailing non-stop around the world?
Trust is the primary currency of collaboration in any endeavor with an uncertain outcome
It has also been proven that trust may reduce the perception of risk in those endeavors that imply some human interaction. Suppose some people are asked to judge the risk of the following activities: a flight on a glider, a rollercoaster ride, a 30-meter dive, a marriage and a contract with a stranger. Research shows that by sniffing some oxytocin—a relationship-related hormone—people perceive all those risks the same except for marriage and contracts because they are relationship-related! [Source: Chaudhuri] (On a side note: amazon.com sells oxytocin in spray, something you may want to consider for your next negotiation with a hard negotiator…)
In order to reduce Bolognelli’s risk we presented to them one possible action. The goal: to earn their trust. Don’t get me wrong: their lack of trust was legitimate. We should never assume we deserve any trust if not based on concrete precedents. Our trustworthiness has to be tested!
How could we earn their trust? Should have we written a complicated contract trying to address all the way our possible lack of competence could have an impact? Should have we agreed on hundreds of clauses to desperately show we were trustworthy just out of words printed on paper? Should have we relied on the hope a given amount of conditions would have made them rest assured we were good for the €90 000 investment? I think nothing beats facts and substance when we want to earn someone’s trust. I also believe that when we face a non-previously-tested collaboration, often rather than discussing the lack of trust itself, we try to create false confidence through artifacts which go by the name of “quotation” and “contract”, while they are not needed at all when we are working with a well-established partnership.
And so the question lingered in our minds as we prepare the proposal: how could we earn their trust so that they would perceive no danger in investing €90 000 of their money on us?
Risk should not be tackled by discounts
I was discussing this approach with Raffaello when I had an idea: we could deliver the first workshop for free and—if they had checked out and liked the design, the facilitation, the output, and the outcome—we could go on with the remainder of the workshops after their OK-go. We agreed on that approach and we sent the proposal to Bolognelli.
With this move, we were leveraging another important Extreme Contracts principle: Skin In The Game.
This way to go was a good way to tackle their perception of risk while leaving our pricing untouched. With this move, we were leveraging another important Extreme Contracts principle: Skin In The Game. According to Nassim N. Taleb—a trader turned stoic philosopher and author of a few books on risk and rationality—Skin In The Game is the best risk mitigator: it lets trust build up with no rule overhead. You don’t need too many rules when everybody has Skin In The Game, as simple as that. The simple possibility that we would not get paid was enough for Bolognelli to completely re-frame our €90 000 proposal. Furthermore, if we considered ourselves that good, well, what should we be afraid of? On the contrary, knowing that we had stated so clearly our responsibility made us lots more lighthearted in sending our proposal. We knew we couldn’t be accused of trying to pull a big score.
When you address real needs, real needs get discussed
As soon as Bolognelli received our proposal, they asked to meet us a few days later. I made myself promptly available: the chance to discuss a proposal is always a sign of success. We met in Milan and I was ready to hear their feedback on our proposal and more than ever convinced that our offer made sense. I only had 35 minutes to spend in Milan, before jumping on the next train to Rome. That made me feel very focused.
When we met at the bar we chose to meet, I discovered Bolognelli’s general director had decided to join us. That’s another success sign! It is always best to negotiate with a representative as high as possible in the customer organization’s hierarchy. In Extreme Contracts we call this principle Talk To The Grinder and sticking to it prevents already-made decisions to be overridden afterward when your arguments cannot be defended well anymore. If you did your homework and you based your offer on a sound rationale, then never be afraid to face your client’s boss.
In Extreme Contracts we call this principle Talk To The Grinder and sticking to it prevents already-made decisions to be overridden
The general director went straight to the point. She wanted to discuss two aspects of our proposal.
Foster trust, stick to trust
First, she wanted to broaden the range of people involved in the workshops, including the people from the printing division (yet another sign of success). She thought that working with the authors alone could reduce the chances to spot critical issues lying between the authoring and the printing sub-processes. I agreed, it made sense to me. With this request, she was addressing the impact of our workshop design.
Second, she asked for two free workshops as the minimum threshold to give us the OK-go on the rest of our work together. She stated that one workshop only would not be enough to tell us apart from a bunch of imbeciles and, honestly, who am I to say she was wrong? 🙂 With this request, she was addressing the price/cost risk of our proposal, and no one could legitimately argue with that. Risk is a personal perception.
Risk is a personal perception.
To tell the truth, I was quite confident in our design, and I did not fear them dropping us after two workshops, so I could have accepted the agreement that way, but this time it was our risk that I had to consider. Too much self-confidence may be a problem sometimes, and I wanted to play it safe.
I explained that the opportunity cost of two days of ours was too big an exposure for us and that we couldn’t deliver two days completely for free. I let this message sink for a second or two, and then I quickly offered a solution: I proposed to deliver the first two days for a low fee and then unlock the rest of the budget in case we had gotten the OK-go. I also explained that for the first two workshops to be a real test, it could be enough for the price to be lower than 2/7 of the whole budget. Let me explain the thinking behind this proposed solution.
We were discussing a proposal made of seven workshops (6 publishing line workshop + 1 workshop with the whole group), so, assuming a linear release of value after every workshop—just for the sake of reasoning—we could say that each workshop could be worth 1/7 of the whole €90 000 budget.
If we had asked for 2/7 of €90 000—which is €25 000—or more for the first two workshops, we had actually negotiated for an even superior economic performance than the main agreement, which is not exactly like showing Skin In The Game and letting your customer test your skills! So, I thought, our requested fee for the first two days had to be anything lower than that in order for those 2 workshops to be acknowledged as a test run. I proposed a €12 000 fee for the first two workshops.
If risk is always a personal perception, trust was once again the personal solution. Bolognelli’s general director and all the staff accepted the agreement and I jumped on my train to Rome, happy to call Raffaello and let him know we had our prospect turned into a customer. Six one-day workshops, one plenary full-day workshop, and €90 000K to earn.
The €90 000 price was never discussed during that negotiation, not even for a second. This was only possible because an effective trust-building negotiation strategy made discussing the price irrelevant. When trust kicks-in, everything is possible.
About Jacopo Romei
Agile practitioner since 2003, entrepreneur more than once, he has been agile coach in eBay Italia, co-founder of the ALE Network and a former member in Cocoon Projects, an open governance based company. His main focus now are contracts and lean-thinking-compatible agreements.