Why B2B SaaS Startups are Investing in Value Engineering
Coming from growth-stage startups, I’d never heard of “value engineering.” Turns out, it’s an approach that can help scale-ups move upmarket and unlock enterprise customers.
The value engineering approach complements the typical enterprise sales process. Value engineers sell into enterprises by working collaboratively with customers upfront (and for free) to quantify the value a product can deliver (i.e. monthly engineering time saved) and build a business case for the purchase together.
And value engineering WORKS. A survey by MetaCX and RevenueCollective comparing businesses with and without a value engineering team found a 13-point difference in reported effectiveness when a formalized value engineering team existed.
I only learned about value engineering when I joined Twilio and saw some of the resources created by the value engineering team to help enable sales and customer success. Once I saw that, I decided to interview Segment’s Director of Value Engineering, Kent Shimek, to learn more about what value engineering is and when revenue leaders should think about adding it to their operating model.
What exactly is Value Engineering?
Value engineering, or value consulting, is an approach where you quantify business value upfront. It’s been employed by major enterprise tech companies like Siebel Systems, SAP, Deloitte, and Oracle for decades.
Value engineers compute the best balance between cost, quality, and performance to arrive at a realistic price that the customer is happy with while still ensuring maximum profit. They identify, quantify, and realize the true business value that the product can deliver. Some of this can be boiled-down into calculators like this, but more broadly value engineering is about developing the business value case for a solution collaboratively with the customer.
What are examples of ways that Value Engineering can drive enterprise revenue growth?
In a typical SaaS sales process, startups rely on pre-sales solutions engineers for tech validation, while all the business aspects are left to Account Execs. Solutions engineers work closely with AEs, targeting a subset of accounts with a specific ACV and are at a particular point of the customer journey, and help these accounts develop the business case and pricing so that all parties will be satisfied.
The way Kent described it, value engineering is essentially a free presales business consulting engagement. A value engineering engagement serves as a deeper and comprehensive discovery process than what a typical AE would have the time and training to accomplish in a typical sales process.
Here’s an example: A value engineering team might conduct an investigation to determine the expected cost savings of adopting a tech solution. Over the course of the investigation, the value engineer gets buy-in from stakeholders in establishing their current costs and expected impact of the solution, using mutually agreed-upon assumptions. Together, they develop a shared framework, which becomes the business case for implementing the solution.
The other big impact of a value engineering engagement is that it allows a solutions provider to price on value rather than on some other metric like licenses or transactions.
So if a customer agrees upfront that your product will save them $1M, then any price under $1M is justifiable. This approach can create pricing power with deep-pocketed enterprise customers, who otherwise might demand steep volume discounts. Other benefits of value engineering are detailed here.
How can you get into Value Engineering?
Kent began his value engineering journey at PTC, where he learned how to compute a product’s realistic expected gain, keeping in mind cost savings and risk mitigation. He then built the value engineering program at Optimizely and at Moogsoft and was also responsible for introducing it at Segment.
A lot of the folks he has hired have MBAs or management consulting experience, which demonstrate high business acumen. A background in product marketing could likewise indicate that a candidate will be a good fit. They should also be able to lead consulting engagements and presentations to board members and C-level executives.
Finally, prospective value engineers should also be assessed on how they’ll do a SaaS selling motion. All these require deep expertise in your specific industry or product.
Can sales enablement or product marketing be in charge of value engineering?
Value engineering is more difficult than it seems. It’s not just creating content or using a calculator or formula to arrive at a number that all parties will be happy with. And while having product marketing experience can help value engineers in their work, they also have to be able to work one-to-one with disparate stakeholders within an enterprise.
Field engagement and sales partnership are high-impact parts of the role, and that’s something most product marketers don’t have experience with.
When does it make sense for a company to invest in value engineering?
The big idea I took from my conversation with Kent is that value engineering is a way to collaboratively build a business case and a proven go-to-market approach when selling into enterprises.
One big downside of the value engineering approach is that you need to be willing to take on what is essentially a consulting project completely free. Larger companies usually have dedicated value engineering teams, but a smaller startup may not have that luxury.
Does Your Company Need a Value Engineering Team?
If you’re consistently winning deals in mid-market but struggling to sell into enterprise, your business may be a good fit for value engineering.
Additionally, for a growth-stage startup that sells into mid-market but not enterprise, piloting a value engineering practice might be an interesting way of testing or validating the enterprise product marketing and pricing strategy before scaling it.
The bottom line is that all companies, no matter the size, stand to benefit from a value engineering process. By having a framework to build a business case collaboratively in a way that helps the enterprise customer balance speed, quality, and cost, you can get your money’s worth.
In fact, the principles of value engineering can be applied by anyone undertaking a project. While it’s often thought of as a management tool to reduce costs, it’s really just a problem-solving framework that clearly delineates alternatives and offers choices based on necessity, desirability, or availability, and proposes price-value relationships that lead to growth.