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Why Warren Buffett Would Make a Better Site Redesign RFP Than You

Oct 22 '18

Just about every organization that issues an RFP is looking for an agency that has experience with similar organizations. While they may insist that this is a crucial criterion in the vendor selection process, it’s actually a useless metric that reduces the chances a project will succeed because it distracts from criteria that do matter.  

Warren Buffett wouldn’t fall for this common mistake which is why he’d make a killer RFP that would engage leading digital agencies (his name wouldn’t hurt either). If you will, give me a chance to plead my case.

Why similar experience isn’t as valuable as you think

A tremendous number of website redesign and commerce replatform RFPs cross our desk at Third & Grove, and we only bid on a tiny percent of them—we learned pretty quickly that it’s better to bid on the most relevant projects that our team would be interested in working on rather than responding to all of them.

There are three reasons why having similar industry experience is not as valuable as most organizations think:

  1. You are not 100% unique -  Your industry’s needs aren’t unique. Every industry has organizations that need to improve page on time or lead generation form conversion, or pageviews, or sales, or engagement or whatever. An agency’s experience addressing these issues with clients in any industry will be effective in addressing your issues.

  2. Your business strategy is your expertise, not your agency’s - If they know your business strategy better than you do, you have a much bigger problem than an out-of-date website. No one knows the problems with your website better than you,  but no one knows the solution better than an agency.

  3. Only the jargon is different - Sure, different industries have different regulatory environments, growth prospects, competitive threats, and a whole host of other factors. But that is all just jargon, and you can Google it. After all, modern wisdom is just applied Google wisdom, right?

Here’s what you need to understand: Prioritizing an agency with similar experience optimizes the return you get from the least risky part of the project. What is the riskiest part? To understand that—let’s turn to the Oracle of Omaha.

What return on capital teaches us about website redesign RFPs

Warren Buffett and most of the successful CEOs of the 20th century are obsessed with return on capital. The idea is very simple: If you have $10 dollars to invest in one of two similar businesses, a business that earns $1 a year and a business that earns $2 a year, you should choose the business that returns $2 a year. The former business will take ten years to make your money back but the latter business will only take five years.

The latter business is a terrific investment (an annualized 14% return) while the former investment is lousy (7% return, equal to the historical annual return of an index fund). So lousy in fact you should just put your money in an index fund and do nothing.

This sounds so simple but amazingly most acquisition decisions do not consider return on capital (they focus on more abstract things like market position or synergies or cost savings, all important factors, but only after you have identified that a capital outlay will actually give you a good capital return).

Now, apply the idea of return on capital to digital projects. Think of capital more as resource allocation (time, money, effort, risk) and return as more site traffic, more conversion, more leads, higher total cart value, GMV increase, etc, for your project.

Thinking like Buffett, your RFP process suddenly is about narrowly defining what selection criteria improve the chance of success. And here lies the primary issue: A website redesign or replatform project involves a tremendous capital outlay (paying an agency hundreds of thousands of dollars and staff spending hundreds of hours) and tremendous risk (the project doesn’t make anything better).

To get the best return on your capital you want to minimize the biggest risks because they create the most expensive mistakes to fix.

The greatest risk of any website redesign is that the technology doesn't work

Technology is complicated and there are right and wrong ways to implement any technology. Technology is also tightly coupled to many different components, like your hosting platform, your analytics system, your site theme, your downstream data integrations for CRM and ERP, your email marketing system, and most components in your entire digital customer experience ecosystem.

That interconnectedness is very similar to a house and the components that make it up (plumbing, electrical, HVAC, floors, walls, etc). Anyone who has owned a home can tell you how plumbing, electrical, and carpentry can be used well or poorly with the same result: a house you are stuck with. You can easily change the wall color (design) and you can easily change a toilet (strategy) but you can’t easily rip out the HVAC, plumbing, and electric—those are in the walls and require more effort to change.

Think about it: If your HVAC system wasn’t installed correctly you are looking at having to replace the entire system—which spiders itself throughout nearly every room, floor, and wall in your house—just to fix it. That renovation does not sound fun and it sure does sound expensive.

This is similar to your technology platform: If the design doesn’t work well you can pay a fraction of the project budget to tune up the design. If the navigation has problems, changes are a small strategy and engineering effort. If the product details page isn’t converting you can instrument the page properly, gather data, and make a discrete fix often with dramatic results. If a landing page template isn’t optimized for SEO you can make some modest template changes. But if the underlying technology doesn’t work you are completely screwed because ultimately the entire platform has to be rebuilt.

Next time you are drafting a redesign or commerce replatform RFP, be a bold contrarian and insist that you don’t really care about industry experience and focus on proven ability with the underlying technology in use.

If you’re looking to learn more about writing a great website RFP we have advice on that, too.