RFPs: Even when you win, you lose

I had a professor in college who would auction off $20 bills — for up to $180 sometimes! It was amazing!

Here’s how it went: Anyone could bid on the $20 bill. The winning bidder would pay their bid and get the $20 bill, but the second-place bidder also had to pay their bid and get nothing in return.

At first, the bidding is rapid. Who wouldn’t bid $5 for a $20 bill? But as the value approached $20, people start to drop out until there are only 2 bidders. Why does one bidder offer $21 for a $20? Because if he wins the bid at $22, he’s out $18. If  he loses the bid at $19, he’s out $19. So logic tells you to keep going. Plus it’s exciting and you want to win.

rfpgraphicI watched him stand in front of a Northwestern class and bid a $20 bill up to $140 — close that transaction and take a second bill out of his pocket and do it all over again with the same group of people, bidding the second bill up to $180!

The lesson he was trying to teach is that some games are rigged, and the wisest competitor is the one who chooses not to play.

The Request For Proposal (RFP) is such a trap.

It’s exciting to get an RFP, right? There’s the potential of new business, and you don’t have to drum up a lead. The person is ready to buy.  How can you lose?

Well, you lose if you start playing. Let me explain.

In order to enter the auction, you have to fill out the RFP, which is typically 5 − 50 hours of high-level executive time that goes into answering questions about your competency, your financial stability, your capacity, etc. In answering these questions, you attempt to show your expertise, but the whole RFP process is designed to treat what you do like a commodity. The only way to really show your expertise is to give away part of the engagement as part of the proposal, to show them you know what you are doing (most RFPs actually require you to do just that)! You don’t really know enough about the situation (because of the paucity of information in the RFP) but you try anyway.

So every bidder has a cost to enter into the process. You’ve already lost. You’ve lost your time and energy, and you’ve given away (devalued) your most valuable commodity — your expertise.

How many bidders are there in this auction? 3? 5? 10? More? Even in the best scenario you have a 33% chance of winning it (or less since there is most likely an incumbent who has a greater than 50% chance of winning.)

But, you say, someone has to win! You can’t be the winner if you don’t play.

What? You’ve never filled out an RFP and then later found out they gave the work to nobody? Or worse, your best guess at their situation turns out to be laughably wrong and your attempt to demonstrate expertise turns out to be way off base and embarrasses you. Those are also potential outcomes, right?

But let’s say you “won” the RFP! What have you won? A client you don’t know, who doesn’t know you well, and for whom you were likely the low bidder. Congratulations.

RFPs are exciting — they are — but they are not a good way to build your business. When you are filling out an RFP, you are agreeing that your expertise is a commodity and that you are undifferentiated from your competitors.

Don’t be the best in the world at what you do; be the only one in the world who does what you do. ~Jerry Garcia

Thanks, Jerry.

Instead, develop your expertise. Be good at something, and tell everyone that you are good at that thing by writing, speaking and teaching everything you know. Then when someone is looking for what you do, they won’t send an RFP because they will know that you are the only one who can do what they need done.

Don’t take odds at 1:3 or 1:5; go for the deals where your odds are 1:1.

But that doesn’t mean you want to offend a potentially big client by being unresponsive — send them a response that doesn’t take all that time or give up your expertise for free. Like this one here.

Brad Farris

As principal advisor of Anchor Advisors, Brad Farris has experience leading businesses & business owners into new levels of growth and success. Through his work with over 100 Chicago area small businesses he has experience in guiding founders and business owners through the pitfalls and joys of growing their business. Prior to joining Anchor Advisors, Brad spent over 10 years managing business units for a family-owned conglomerate with sales of $2 million to $25 million.
When not working Brad enjoys cycling, cooking and the NFL. He is married with 5 children and lives in Chicago, Illinois. Connect with him on Google+, Twitter and LinkedIn.

  • http://www.DataScopic.net/ Oz

    Brad, I like this. Question: how would you think through a scenario where pulling together an RFP would be worth doing? How big does a “potentially big client” have to be compared to your resources and the number of bidders?

  • http://www.enmast.com/ Brad Farris

    It depends…. How close is it to my 100% sweet spot project? Do I know ANYONE at the prospect, or is this 100% blind?

    If I don’t know anyone on the other end I will just send my letter.

    If I can talk to the buyer and have a rich conversation, qualify the number of bidders, etc. I might consider it — but I will most often try to talk them out of the RFP process.

  • http://twitter.com/Vicki_Kunkel Vicki Kunkel

    Great post! This is so true, Brad. Most RFPs, in my experience, come from either: (a) tire-kickers who really are not serious about initiating a project, or (b) companies that aren’t concerned about outcomes or quality–only the lowest cost vendor. Your advice is spot on: Find what you do well, find the audience/market that needs that niche product or service, and target those people and companies.

  • http://www.enmast.com/ Brad Farris

    It’s so easy to say, but so hard to follow. You get that thing that looks like a lottery ticket (Motto: “You can’t win if you don’t play.”) — but it’s really a big pile of work to even get into the lottery.

    Glad you liked it Vicki!