Fire the Sales Force!

One of the most common attributes of an inexperienced entrepreneur is their understanding of what’s involve din generating revenue beyond their own personal friends and family network.

Most start-up companies are founded on the basis of several “friends and family” individuals or companies agreeing to be the first paying customers of a new product or service. Their faith and trust in the outcome is usually based on a personal or professional relationship with the founders that can withstand the normal blips and misfires of a new company’s launch. There is no need or a “sales department” or fancy brochures to close these “foundation accounts”. The close is done on a personal, eyeball to eyeball shake of the hands between two trusted parties.

The trouble starts when the start-up company starts to look beyond the founders’ friends and family network. There are two daunting factors at work here:

1. the prospective customers/clients don;t have a trusting relationship with the company or teh founders

2. the founders (CEO, CTO, etc.) are usually busy doing other things like getting the next release/product ready, hiring people, or raising money

The most common choice made at this point is to interview and hire a “sales guy/gal” either as a “hunter” sales warrior or as a VP Sales chartered to build a team but hunt in the short term.

This is where a very common mistake is made.

What most people look for in a sales candidate is someone who has outperformed against quota consistently over a period of time. Fair enough. But what if there is no quota because the company is so new that nobody really knows what portion of the addressable market can be won in a year, or a quarter. Well, you say, let’s just assign our financial forecast and see what happens!!!

Also, most sales people are used to getting sales leads (qualified maybe…) by the marketing department. But what if there is no marketing department? Or sales leads? Or a mechamism to generate sales leads?

Usually what happens is the newly hired salesperson falls short of an unreasonable target and gets fired. This process usually repeats itself a few times before the company either fails or the management team wakes up.

Sound familiar?

What’s needed in this situation is not a “sales” warrior. What’s needed is a “business development” professional that combines the sales skills described, marketing experience, partner and channel management, and product management all in one person. The role is not any one item; it’s a combination of all items.

Someone needs to figure out how to generate sales leads consistently and reliably from prospective customers/clients outside the founders’ friend sand family network. Someone need to validate the basic value proposition and competitive positioning. Someone needs to recruit partners and establish distribution channels.

In bigger companies, these functions are all done by different people and/or departments which leads to other problems which are outside the scope of this post.

Here’s a job description for a business development professional from Sales HQ.

“Job Description: Business development combines marketing, sales, and product development skills into a unique and dynamic, hybrid career role. As the name implies, a business developer’s primary task is to evaluate their company’s products and capabilities, locate new business opportunities or markets, and pursue those opportunities to increase revenue. Professionals in biz dev often write marketing plans, recruit new sales prospects, negotiate sales and partnership deals, and even help develop their company’s products.”

The job requirments are broad and require a seasoned professional. It’s definitely not just a “sales” job.

Feel free to contact me for any help I can provide on this important topic.

When times are good, people and businesses are making money and are resistant to change. Why rock the boat?

When times are tough, many are searching for answers and a way back to prosperity. Not everyone.
Some companies take a bunker approach closing up and and holding on. These companies are most vulnerable as innovation and renewal take place around them. They risk running out of cash and lose talented employees who see greener pastures elsewhere. The least talented will stay and hope for the best.

More insightful companies will look on downturns to invest in new ideas and new talent. When the down times turn around they are positioned to be the new leaders and will grow quickly. The most well known of this type of companies is Google, formed and launched during the last major downturn. around 2000.

At the time, everyone wondered how yet another search engine could possibly find success in a relatively crowded market. Remember Alta Vista? However, Google represented a fundamentally better way to do search and people who used it for the first time recognized it. The company took off and now dominates.

AOL and Yahoo, the dominant players at the time, took the bunker approach and now lag badly in the market.

Now is an incredibly good time for new companies: a new administration in Washington, the auto industry finally being recognized as the failure it is, and many traditional outlets for private and investment capital dried up or gone altogether. The stage is set for some real innovation right now.

It’s an exciting time!

I have a new client that is a small but well regarding web design and development firm in NYC.

After six weeks of 70 hours/week business development, we have signed one new deal, have a pipeline of 8 or 9 new opportunities including 4 major accounts each of which could eventually produce $500K in total billings. Not bad!!

It’s a classic example of how a small number of talented, dedicated people working as a team can easily outperform a much larger organization with more resources and options. When you’re small, there are no options - either grow revenue or disappear!!

EMAIL INQUIRY
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Tom,
I was hoping to tap into your expertise….
One question – when you have a head of sales – say managing 4-5 territory managers – is it advisable to give him or her an individual quota, above those of his subordinates, or should he manage the collective quote of those direct reports and sign up to an aggregate number for the team as a whole (on which I am assuming he makes a commission)
Thoughts?
Thanks so much for your help
(CEO of $8M market research company – named removed for confidentiality)

REPLY
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CEO,

Great hearing from you. Feel free to use my professional email address: thomas@thomasmorling.com if you’d like. I am happy to help out with questions like these and hope you find my comments helpful.

The issue you raise is a classic one in sales management. I’ve seen it done in every possible variation but only one way works, in my opinion.

Sales compensation is a big issue for both sales people and other employees. When a sales person performs well and exceeds quota, they typically become some of the highest paid employees in the company. If they don’t perform well, they are subject to dismissal.

This fact creates competition (sometimes intense) for new sales leads and opportunities. Ideally, this competition is healthy and leads to improved sales results.

What is not good is for the sales person to feel that he (or she) is competing with their manager for those leads and opportunities. You want the sales person and the manager to work as a team and if you give the manager a separate sales quota, you create an obstacle to this teamwork.

The sales manager should be compensated by the collective quotas of their direct reports against a regional or national sales goal plus MBOs for management tasks (such as cost control, diversity hiring, etc.) that are not relevant to an individual sales person.

Please feel free to call on me for any help I can provide.

Best,
Thomas Morling

Forget about positioning or strategy, the lights are about to be turned off!

Sometimes you just have to produce revenue from any source possible. It’s the reality of start-ups. If you disappear, nobody is going to care what your strategy was!

One common tactic for companies trying to increase their sales presence without increasing costs is ot recruit “agents” who get paid a finder’s fee whenever they bring in business. It’s usually an open ended arrangement with no set quotas or goals and no real relationship between the company and the “agent” except for signing a non-disclosure agreement and a terms and conditions letter specifying terms of payment for a lead or a deal.

The major problem is that, despite the minimal cost - a few phone calls, a run through of the corporate pitch, the process won’t really ever produce meaningful results for either party and will eventually just fade until the agreement expires.

The reason is the relationship is never really important to the company or the agent. The company has sales goals to reach and the agent has bills to pay. Both parties need to focus their time on tangible not speculative results. If the agent runs across a deal opportunity, fine, but no real time can be invested with the risk of no return.

The return on the investment for the agent is low - the finder’s fee - usually 10% of the gross revenue to the company.

Since the agent carries no sales quota, the return on investment for the company to work with the agent is low. The failure mechanism is built in from the beginning.

It’s the same reason banks don’t loan money to start-ups. A bank charges interest on a loan, usually something like 10-15%/yr. A VC will make 15-20 times on money invested in an exit for a portfolio company. That’s a big difference and justifies the high risk in the investment.

For an agent to assume all the risk for a substantial investment in sales time for only a 10% return doesn’t make sense. The company should take the risk because the return on making sales goals is an increased valuation of the stock every executive owns or has options for. The return on increased company valuation based on sales goal achievement is substantially higher and justifies the risk in paying for sales time invested by the agent.

Solution: either hire the agent as a full or part time employee or establish a contractor relationship. Set monthly and quarterly quota goals with measurement and review and establish terms for termination for failure to achieve desired results. And, in exchange, establish a modest retainer, perhaps as little as $1000/month.

One deal brought in through this “agent” channel will pay for the cost of the process and if an “agent” doesn’t work out and is terminated after 6 months the cost is $6K - much less than what it would cost to hire a sales person through a recruiter.

This suggests that the “agent” channel can also be a recruiting channel. If one agent performs well and is hired as a full time employee for every three agents contracted, then the company is still way ahead. One of the biggest wastes of money for a company is to pay a recruiter for a “sales superstar” who, for whatever reason, doesn’t perform and is fired after 12 months. This agent process can work well as “try and buy” mechanism for the company and remove the need for recruiting fees.

In at least half the companies I speak with about business development, I am asked the question:
We’re short on cash. Would you work for commission only?

This is, in effect, suggesting that the time and effort expended in developing a market and getting a sale is worthless unless it results in a sale. While I believe monetary incentives to close business should be available to anyone in the company who helps close the sale; conversely, the business development team should not be forced into a “double jeopardy” situation where they must invest their time, expertise, and energy into work that will only be compensated on completion.

Why is that?

When you hire an accountant, is it customary to ask for their time and expertise to balance the books but offer compensation only if the company shows a profit? Is it customary to interview an HR manager and offer compensation only if certain results are met?

I don’t think so!

Of course where there’s a question of incompetence or gross negligence, there are different issues involved.

I’m talking about business development professionals like myself who have families to feed and bills to pay just like anyone else. I bring years of experience and accomplishment to the table. Why is it an acceptable practice to ask me to work for nothing just because my skills are in business development?

I don’t get it.

How many times do we hear that a sales person has been unable to reach potential customers?

Sales blames it on voicemail and email filters.

Management blames sales for lack of enthusiasm or ability.

In fact, everyone blames sales when the pipeline is thin or revenues are down.

Sound familiar?

The truth is that neither sales, voicemail, or email is the problem.

The reality is that if you sound, smell, or feel like a sales person, prospects will go out of their way to avoid you. It’s ironic because, in many cases, a ready solution to a current urgent problem in their business is right at their fingertips through one of these in-bound sales campaigns. But which one?

The reason this blog is entitled, “Fire the Sales Force” is because, to a large extent, traditional sales people are obsolete. Prospective customers can get all the information they need about a product or service from multiple peer-generated sources on the web. What they want and need is an expert in their domain, a peer, who can advise and guide them to pick the right product or service configured or customized in a way that optimizes business benefit.

With a recent client, a software company offering a media database for video assets, we returned from a major trade show with hundreds of sales leads. We literally did not have enough people to follow up with each one and, as we all know, leads go stale after a few days or weeks. I decided to engage 3 or 4 senior software developers to follow up on some of the leads. At the end of the week, the developers, not sales or the marketing department had the best results.

Why? Simply because they were experts in the field and prospects felt they could learn something by talking to them!

Bingo!

Instead of hiring lots of sales people with impressive sales track records and teaching them your business, try taking known experts that you already have and hiring a sales mentor to guide them through the sales cycle. Then rotate other experts in your company through this process.

The sales person is now a “facilitator” of peer level expertise and thought leadership that most prospects will respond to. Sales still owns the revenue quota and the pipeline but the “face” of the company is the domain specialist. Everyone in the company starts to have ownership, pride, and accountability for achieving revenue goals. This is a good thing!

The process worked great at my client and they achieved another key benefit which is saving all the money on recruiters and draw payments for a sales team. The revenue goals of the company were also achieved!

There are times when a sales lead has been qualified both as an opportunity and as a buyer, but the sales just can’t move forward right now.

This may be because the urgency of the problem or need isn’t there or the buyer isn’t sure about your product or service or there may be other competitors that the buyer wants to evaluate. Make sure that the qualification of the prospect buying authority and budget availability has actually been done becausee the sale may be proceeding forward, just not with the person you are talking to.

But if you’re certain that the buyer is authorized and able to buy and the opportunity is, in fact, a budgeted project with visibility from senior management, and the sale just isn’t moving forward, it may be time to back off and just nurture the opportunity for future benefit.

It’s this step that, in many cases, separates the business development professional from the amateur. With all the pressures of meeting quota. it is very tempting to say, “OK. This person isn’t buying. Time to move on.”

While it is time to move on, it is a major mistake to forget about the prospect altogether.

The correct action is to nurture the prospect with periodic updates, whitepapers, new announcements, the occasional lunch, introducing to domain experts and senior management when it is mutually convenient. The idea is to continually add value to the relationship without pushing too hard or letting the relationship lapse.

When the time is right to buy, you will have a established with the prospect a trusting and dependable relationship which will generate sales both now and over the long term. This is called strategic selling!

Yesterday, I blogged about Lead Generation.

It occurs to me that I should define what a lead is first of all, since there is typically a wide variance in what people consider a sales lead to be.,

I’ve had CEO’s and managers hand me a directory of US banks or a list of attendees at a conference and ask me to “qualify these leads”. First, let’s be clear, a phoine book is not a list of leads; a list of people in the industry certainly, but leads, no.

A sales lead is a person who has expressed interest in your product or service and is open to follow up steps to a sales transaction. Got it? “Expressed interest in follow up!”.

Once it’s clear that the sales lead is interested and wants to and is able to move forward, the first follow up step is to encourage the “lead’s” interest with informed answers to any questions they might have and to put forward questions that “qualify” the sales lead. Here is another important step int he sales process - qualification.

There are two levels of qualification. The first is qualifying the sales lead as a person who can decide or influence the sale. Can this person influence or agree to a sales transaction based on personal or organizational authority. The answer, by the way, is yes or no. “Maybe” means you don’t know.

The second level of qualification is the opportunity. Is the prospect’s interest realistic in terms of budget available and whether your product or service is a rational solution to a particular business problem or need.

Any questions on this, please let me know.