Enterprise Sales and the Prisoner’s Dilemma

If you’re not familiar with The Prisoner’s Dilemma, it’s an interesting exercise at the heart of game theory. In the dilemma, 2 criminals are imprisoned separately and can’t communicate. The detectives don’t really have enough evidence to convict them on all charges, so they offer each prisoner a deal– if they rat out their colleague, they can go free (while the colleague gets 3 years). If no one talks, both prisoner’s get a year on lesser charges. If both prisoners talk, they each get 2 years. The optimal result is that neither talks, which is the “cooperative” state. If one “defects”, the cooperator (cooperating with their colleague, not the police), gets punished. So, the rational behavior for each person is to defect, even though they would both be better off cooperating. (There are lots of variations on the game, but this is the basic idea.) This type of problem illustrates how rational behavior can lead away from optimal outcomes, and it’s often a useful way to analyze political systems, arms races, and other seemingly irrational systems behavior.

What does this have to with enterprise sales?

A recent Dilbert strip reminded me of why I hate enterprise sales so much.

This is an illustration of brinksmanship on the part of the seller. In a former life, I saw this type of behavior on both sides. The most frustrating part was watching how each side was worried about the possible penalty for “cooperating”, which led to actions that caused the other party to worry about the same thing, which created the very problems both sides were trying to avoid.

For example, buyers naturally want a working solution at a reasonable cost. Nothing wrong with that. So they might start by sending a 500 questions request for proposal to various possible vendors. Other than being an insane waste of time for everyone involved, I can’t get too upset by this.

Then, in theory, the top 2-4 vendors based on the “objective” criteria, get invited to some kind of bake off. Since no one can possibly just solve the problem “out of the box”, the sales teams want to at least get into the bake off. So they may be known to stretch, bend, or completely ignore the truth about capabilities and pricing, because they believe (probably correctly) that everyone else is doing the same thing, and they will be penalized for being honest.

However, the buyer knows that this is happening, so they subject the bake off contestants to further interrogation and demonstrations. Now, the same process repeats, but with more work involved from everyone. A vendor could say “we don’t have this screen, but we can add it”, but that might imply that they don’t have something that others are claiming to have. So a bunch of half-baked demos get built (often involving people working around the clock on something that will get thrown if the vendor wins the deal). The cost of the deal has to be millions of dollars to justify the effort involved just in selling it. (Multiple vendors are spending hundreds of thousands of dollars, after all, and only one will win.)

Meanwhile, with the buyer’s organization, the same thing plays out. Someone in charge of a key process or system doesn’t want to admit that their data is unusable, or some other serious problem. If a vendor figures this out, they don’t have an incentive to reveal it, causing a delay in the project and a raising of the price tag. Yet, as the discovery process goes on, it becomes clear to everyone that key parts of the problem are more complex than first thought, so the expected timeline and budget does increase.

Now, with the project even bigger, more approvals are required. The “winning” vendor, as illustrated in the cartoon, has strong incentives to get the deal signed and started, even if they know that they can’t deliver on time or on budget, even if that isn’t their fault.

While every individual step is rational (or at least “rationalizable”), the end result is that both sides end up with a suboptimal outcome. Because of the stakes involved, and the penalties for cooperating, the whole process becomes a vicious cycle. The buyer’s efforts to minimize risk and cost end up increasing both, and the seller’s efforts to win the deal quickly and profitably also backfire.



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