In a sales-driven business like funds management, the single most critical factor in winning and retaining business is owning a value proposition that out-sells your competition. Your value proposition is simply the reason why investors should buy from you over the other options available.

Managers are broadly selling the promise of forward performance and true-to-label investing. But the institutional investing space is incredibly competitive in both the sheer number of players and the seemingly small margins of difference between them, especially the top managers.

To get short-listed as a manager, you need to find something unique to you. A hook that sets you apart and gives more credibility to your promise of the future delivery of benefits. The weaker your performance track record, the bigger the hook required.

Unlike the lower-involvement retail space (retail investors), the high-involvement institutional space contains legions of highly paid professionals pulling apart every aspect of your products and services to determine the most appropriate manager to award a mandate to. Relationships continue to be important, but with more decision-making authority being delegated by investor Boards to CIOs and an increased focus on corporate governance, offerings must appeal more than ever on their investment merit. And if you haven't got the goods to make the shortlist, you have next to no chance of winning business.

So, how do you get shortlisted?

Simply put: you must have a credible and convincing value proposition, which clearly communicates why investors should buy from you over the other options available.

Simple, yes. Easy, no.

Some managers struggle to find a difference that will give them a winning edge. They all talk up the great people they've got, the detailed and robust investment processes they have, and the track record of the product or if that's a stretch, the track record of the individuals in the team. But are these points of difference or just hygiene factors?

Put yourself in the client's shoes. Is everyone fundamentally saying the same thing? How do you discern who is most likely to deliver on their promise of true-to-label performance?

We all know that "past performance is not an indicator of future performance". But what better proof is there of the quality of your people and processes than past performance? If you've been operating for years without a true-to-label performance track record, you will find it more difficult to get short listed as you have not proven what you do leads to the outcome you're promising.

And it's because your comparative performance may not yet have materialised or may change over time, that your value proposition needs to look beyond this to other drivers.

There are four keys to developing winning value propositions: leveraging market drivers, understanding competitor value propositions, discovering your competitive advantage and perfecting delivery of your value proposition.

Leveraging Market Drivers

Spend time with your target market to understand what the main purchase drivers are. Some of the broad market drivers include risk management and managers staying true-to-label. But while there are certainly overall themes, it will usually come down to the individual needs and requirements of specific investors. Getting close enough to the investor to truly understand what these drivers are means that you need to have strong relationships and be seen to be delivering some value, often by way of insightful information, innovative ideas and solving problems. CIOs are very busy people so you'd better be able to add some value to justify some of their precious time. Once you have a firm grasp on these purchase drivers, you need to figure out how to develop, structure and communicate your offering so it addresses these drivers better than your competitors. Great value propositions offer a unique solution and benefit to something that the target market values highly.

Understanding Competitor Value Propositions

If you are to identify a winning value proposition, you must also understand your competitors' value propositions. For example, if your value proposition was about delivering superior risk management through the use of a particular software application, you'd better know if this value proposition is already offered (and possibly dominated) by a competitor (who may also use the same software). It's difficult to usurp another manager's reputation in a particular area. You don't win business by being the same as someone else. You earn it by being tangibly better or different.

Discovering Your Competitive Advantage

What is it about you and what you offer that's both different and wanted by the target market? Ideally, you are looking for that silver bullet that sets you apart from the others. If you have a strong track record of performance as proof of your competitive advantage, then you have a definite advantage. If you don't, you have some more work to do. In such a mature market, silver bullets can be hard to find. So, winning value propositions are often made up of a number of carefully crafted ingredients, which as a whole are unique and attractive. Often, it is only one weak ingredient that can lose you the business. Find out what your weakness is and fix it.

Perfecting Delivery of Your Value Proposition

You can have a highly competitive value proposition, but it can all come undone if your delivery (your pitch and sales approach) is weak. Many managers spend little time developing this important area. Some have business development and portfolio managers who are naturally gifted in reading clients and pitching for business. If this isn't a natural skill in the right areas of your business, you need to develop them or buy them in.

Here are seven rules to perfecting the delivery of your value proposition:

• Walk a mile in your prospect's shoes. Put your CIO or asset consultant hat on and think about it from their perspective. This will help you get to the point on the critical issues that affect prospect mandate decision-making.
• Be the invited guest rather than the unwanted pest. You need to get the balance right between seeing the prospect enough to remain top of mind but not so often as to be seen as a pest. Business development managers should have good reasons to request investors' time. Adding value by offering highly relevant ideas, concepts and products will help you get invited as a guest.
• Spend more time on 'why' than 'what' and 'how'. Portfolio managers are by their nature technical and detailed professionals. They love to go into detail about what they do and how they do it, but often at the expense of the investor's interest and attention span. Spend some time on what and how but make sure you balance it with why and what's in it for the investor. They are busy people reviewing many managers, so be succinct, focus on what you do that is different or better and what's in it for them.
• Provide proof that what you are saying is credible. Your true-to-label performance track record is the ultimate proof, but it's not always available or good enough. Come up with concrete proof of what you are claiming in your pitch. Use hard numbers and real examples where possible and be specific as generalities don't sell. Proof leads to credibility and more confidence about your ability to deliver what you are promising.
• Be likeable. All things equal, people buy from people they like - if an investor can't discern a difference between your offering and another, they will often gravitate towards the manager they like most/have the best fit with.
• Carefully craft your value proposition. Spend the time required to craft the best, most credible and effective promise of future performance. Just as there is an art to selling, there is a definite art in structuring a value proposition to be clear, concise and have impact.
• Practice. Practice. Practice. Invest in developing your capability in communicating your value proposition (your pitch). Your first presentation run should never be in front of a live prospect. Get your practice runs out of the way privately in front of people who will be critical and pull apart what you just presented. Do as many practice runs as you need to iron out all the bugs, deal proactively with questions and objections and credibly deliver your value proposition. If this is not your strength, get professional assistance.

Manufacturing a Value Proposition

Some managers may literally have insufficient substance to develop a winning value proposition. After all, you can't put lipstick on a pig and expect investors to think it's beautiful! In these cases, you need to manufacture a winning value proposition, often by making changes to your business including:

• People/cultural fit. Have you got the right mix of skills and reputations on your investment team?
• Business model. Are changes required to your business model to be more palatable to asset consultants and investors (e.g. ownership structure, remuneration structure)?
• Investment process. Does your investment process/model need to change to deliver a style in more demand by investors?
• Systems. Is an investment required in systems to provide an edge in information, investment process or risk management?
• Packaging. Do you need to rethink how you package your services including either reducing or increasing the product/service elements you offer?
• Joint venture. Can you do it by yourself or are you in a stronger position teaming up with another manager to offer something more unique? 50% of something is better than 100% of nothing.
• Performance. If you do not have a competitive performance track record in a broader area, can you specialise in a particular in-demand area where comparative manager performance is not so critical to decision-making? Or in new areas where performance track records don't yet exist?

Changing your business to manufacture a winning value proposition can be painful, but depending on the base attributes and benefits you have as a manager, it may be your only option.

Developing and delivering a powerful value proposition is one of the most critical business initiatives a fund manager can undertake. It is fundamental to winning and retaining mandates and can make or break a fund manager's businesses. Dedicate time to it to create that margin of difference that will win you mandates.

Bruce Stafford