Fire the Sales Force!

A client CEO once handed me a list of the top 50 banks in the US and said he wanted me to follow up right away on these “leads”! He might have included (even though he did not, in fact) individual names of senior management, phone numbers, and even email addresses, but they still wouldn’t be sales leads! This list is just what it appears to be: a list of names of people who work at banks! Sales leads these are NOT!

Oh, and by the way, this information is readily available to anyone from 100 different websites!

A sales lead is when a qualified buyer (definition to follow) expresses interest in a product or service. Nothing more, nothing less…”expresses interest”.

That means when you pitch your product or service, they say “I’m interested, tell me more”.
Or it means that when they see an ad for your product or service, they click it on-line or call a phone number from a print ad. In other words, they DO something to respond to the value proposition being offered.

None of the people on my client CEO’s bank list did anything except report to work and get listed on their companies’ org chart in order to be on this list. Some of them COULD be sales leads but only after doing SOMETHING to express that interest.

Expressions of interest can be subtle. Sometimes it’s only a matter of agreeing to download a whitepaper from a company’s website. But this SOMETHING is better than nothing.

Also, before I forget, a “qualified buyer” is someone who has enough money or influence over someone who does have enough money, to buy your product or service within a reasonable period of time.

Clear? OK, no more dumb lists of banks, please!

I attended Tech Aviv Meetup last night in a lecture hall at NYU. the hall was filled and several companies presented.

Since I arrived late, I only saw TurnTo, an online social network for shopping/product review. eHire, a resume and job board with the job hunter has their primary focus.

The best part of the evening was a presentation by Steve Barsh, an entrepreneur, investorm, and professor at Wharton. His presentation on “De-risking” a start-up venture by “converting assumptions into facts”.

Woody Allen once said that the most important thing about being a success was just “showing up”.

In entrepreneurial business development, the reality is that no matter how smart or hard you work, only a small percentage of the potential opportunities you identify will actually develop into real revenue. The pressure is always on and one’s natural tendency is to back down and become discouraged. This, of course, will lead to failure and game over.

No matter what happens in the course of your day, you must resist the tendency to slow down the deal flow. It’s just slow suicide.

Once steady and consistent deal flow is established, work can be applied to improve the closing ratio and success rate but without deal flow, there is nothing.

Showing up makes all the difference.

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.