The Dialogue That Rarely Happens

The Dialogue That Rarely Happens                                                                                                         

Frank V. Cespedes

Originally published in Top Sales magazine (February, 2016)

 

In any organization, influence is bestowed as well as earned. It requires relevant expertise and results, but also being recognized by others as adding value.  Sales managers are no exception to the rule. In many firms, Sales is still treated as a mysterious black box—essential for meeting quarterly revenue targets, but hermetically sealed off from other functions as a tactical tool that’s rarely part of strategy formulation. Moreover, many Sales leaders like it that way. But those days are passing. Consider what’s happening between Finance and Sales.

 

In the past two decades in U.S. companies, the number of executives reporting to the CEO has doubled, largely driven by more functional specialists (CIO, CMO, etc.), not general managers responsible for integrating activities across functions. Business requires more specialist knowledge. Simultaneously, Fortune-500 and S&P-500 companies with COOs have decreased to about 35%.[1] COOs once outnumbered CFOs in those firms, but the proportions have flipped.

 

Finance now plays a prominent role in strategic planning and in evaluating sales’ execution of strategy. A function called Financial Planning and Analysis (FP&A) evaluates sales effectiveness in companies ranging from Dunkin Brands Group to internet domain seller GoDaddy. At Dunkin, 36 people work on FP&A projects involving customer acquisition and retention, and the CFO (who ran FP&A before becoming CFO) notes that “We stick our hands in absolutely everything”; at GoDaddy, FP&A focuses on analyzing performance metrics and reallocating marketing and sales spending.[2] The function is growing. The Association for Financial Professionals offers credentialing programs in FP&A and thousands have enrolled. Similarly, the burgeoning number of Sales Operations groups—charged with applying analytics to sales processes and selling expenses–are often staffed by people with Finance backgrounds.

 

How well prepared are Sales leaders for this increased scrutiny? In my experience, most understand the funnel activities that currently drive the top-line in their company. But they rarely understand other financial components of selling beyond sales volume. For example:

 

Efficiency (doing things right) versus Effectiveness (doing the right things).  Depending upon a firm’s strategy, some sales forces require cost-efficiency measures while others require effectiveness metrics. A simple expense-to-revenue ratio, for instance, can shed light on the relative cost efficiency of the current sales process but not its cost effectiveness, which is a more complex relationship between selling expenses, revenues, margins, and customers acquired through one or another means of organizing sales efforts.

 

Price versus Cost-to-Serve.  Profit is the difference between the price customers pay and the seller’s cost to serve customers, which can vary dramatically. Some customers require more sales calls; some buy in large, production-efficient order quantities, while others may buy more in total volume but with many just-in-time orders; customers differ in their product customization and post-sale service requirements. Most sales compensation plans (about 70%, according to surveys) bonus reps solely on volume, so the message is that any customer is a good customer. But differences in cost-to-serve are important to understand and manage if, like Finance, you take seriously the notion of positive returns on invested capital. When Sales leaders ignore this and simply chase volume, their people are typically driven by competing price proposals, resources are not allocated optimally, and the firm is ultimately at the mercy of competitors who can manage their true costs.

 

Conversely, while Finance rightly demands value-creation plans from Sales leaders, many in Finance are often unaware how sales decisions affect enterprise value. Hence, many FP&A professionals are perceived as “financial bureaucrats” who only focus on missed budget projections. There are basically four ways to create value for shareholders and daily sales activities are crucial to each:

 

Invest in projects that earn more than their cost of capital. Most projects are driven by revenue-seeking activities with customers. Hence, customer selection criteria and sales call patterns materially impact which projects the firm invests in and its capital expenditures.

 

Increase profits from existing capital investments. Here, key determinants are the interactions that ensue once a sale has been made and that accrete costs, time, and asset utilization patterns in the firm.

 

Reduce assets devoted to activities that earn less than their cost of capital. This requires understanding cost-to-serve different customer groups and how performance metrics affect selling behaviors and deals closed.

 

Reduce the firm’s cost of capital. Financing needs are mainly driven by the cash on hand and the working capital required for conducting and growing the business. Most often, the biggest driver of cash-out and cash-in is the selling cycle. Accounts payables are accumulated during selling, and accounts receivables are largely determined by what’s sold, how fast, and at what price. That’s why increasing close rates and accelerating selling cycles is a strategic and financial issue, not only a sales task.

 

How well prepared are Finance leaders for this scrutiny? How many understand how compensation plans, territory design, metrics, and other factors affect selling? Without that understanding, reallocating Sales spending becomes either an academic exercise or an unwitting impediment to the use of assets that do remain essential to profitable selling.

 

Changes in companies are altering what it means to be seen as an effective Sales leader. It requires more informed dialogue with Finance, because there is no such thing as effective selling if it’s not connected to business goals and value creation. In turn, effective leaders can transform Sales into what it should always be: a core agent of strategy, not only a vehicle for a given selling methodology.

 

Frank Cespedes teaches at Harvard Business School and is the author of Aligning Strategy and Sales: The Choices, Systems, and Behaviors that Drive Effective Selling (Harvard Business Review Press).

 

 

ENDNOTES

[1] Julie Wolf, “The Flattened Firm: Not as Advertised,” California Management Review (2012) and Jason Karalan, The Chief Financial Officer (New York: Public Affairs Books, 2014).

 

[2] Alix Stuart, “Metrics Sell Doughnuts and More,” The Wall Street Journal (December 21, 2015).

Hiring Star Salespeople Isn’t the Best Way to Grow

By Frank V. Cespedes and Jacco van der Kooij

You see Pareto’s Principle applied to sales all the time — the top 20% of a sales force produces 80% of a company’s revenues and margins — and it’s applicable in a variety of sectors. In B2B contexts, for example, rep performance in similar territories often varies by 300% between top and bottom quintiles, and in retail stores selling productivity typically varies by a factor of three to four. So it’s no surprise that a company’s usual response to stalled growth is to hire more stars.

There are a few problems with the hire-stars approach, however. First, there are only so many stars to go around since everyone is fighting over the same candidates. Second, even if you do manage to hire stars, their unique skill sets may not be easily portable. Research indicates that there’s good chance that a star at Company A won’t be a star — or even productively relevant — at Company B. The third reason is simple math. Even though 80% of sales may currently come from 20% of reps, incremental improvements in the majority’s performance will have, in the aggregate, a much bigger impact on growth than stars do.

We’re not arguing that stars don’t matter, because they definitely do. But, at the same time companies must do more than rely on stars if they want to improve their overall sales performance.

Companies that have adopted a subscription-as-service model (SaaS) are a great example. In the early years of a SaaS venture, stars typically generate the bulk of revenues, and they are often revered and feared internally for the relationships and power they wield. But, as the venture matures, and they continue to close a few big annual deals, they can limit growth since the SaaS model requires higher volumes.

Although it’s easier than ever to create a SaaS business, it’s also harder to scale one. There’s a lot of competition, which keeps a lid on prices and increases customer acquisition costs. A recent survey of 159 SaaS firms with at least $2.5 million in revenues found that almost 55% were spending more than a dollar to get a dollar in annual contract value. It’s also a tough talent market, especially in sales.

If companies want to scale, they need to improve their sales processes, and this is especially true of SaaS businesses. It is as important as the products and services they sell and the customers they sell them to, and it’s a key to competitive advantage.

Here are three core elements for putting in place a scalable sales process:

Understand the sales tasks. When it comes to sales effectiveness, managers need to consider the tasks that reps must perform, not just their personalities and generic selling skills. These tasks will depend on your company’s strategy, the customers targeted by that strategy, and the business model you’ve put in place to acquire and retain those customers.

Consider a SaaS service such as file sharing or various communications tools such as collaboration or meeting software. These applications aren’t typically mission-critical for customers, and are sold at relatively low monthly subscription prices. Buyers can gather a lot of pre-sale information via an online search, which allows them to act more quickly and decisively. On the seller’s end, “dialing for dollars” is paramount. They conduct online demos and provide prospects with a semi-customized proposal with a few clicks on the website to make the initial sale. But scaling this type of business typically requires “land and expand” sales tasks such as up-sells (getting the customer to purchase a premium version of the product) and cross-sells (getting the initial customer(s) to provide positive referrals to others in that organization). For example, ScriptLogic, which sold simple IT diagnostic tools to system administrators in the IT departments of small and mid-sized companies, built a good business with this sales approach and a “Point, Click, Done” value proposition.

A SaaS platform service such as CRM or MAS (Marketing Automation Service), on the other hand, requires sophisticated integration to install annual or multi-year contracts. This is a complex initial sale with a longer selling cycle that is harder to do online or by phone. To add to that, reps often have to involve the vendor’s engineers in the selling process.

Reps selling CRM services have vastly different tasks than reps selling communication tools. They must focus on landing renewals, increasing price through new functionalities and premium packages sold to different decision makers, and minimizing customer churn. They must also deal with a different decision-making process and budgeting procedures at accounts. The same approach which served ScriptLogic so well in SMB was not effective in selling its products to enterprise accounts, and ScriptLogic was eventually acquired by Quest Software, which employed a very different sales approach in the enterprise segment.

It’s also important to keep in mind that sales tasks typically change over the course of a product-market life cycle. Generally, customer education and applications development are often key tasks in early stages. But as the market develops and standards emerge, sales people spend more time selling against functionally-equivalent brands or developing third-party relationships. If your sales process doesn’t keep pace with these changes, strategy execution and growth will falter.

Match your sales process and resources to the buying process. Most sales organizations spend a lot of time and money tracking progress (or not) through their sales “funnels.” But selling is always more about the buyer than the seller, and most customer buying journeys resemble a meandering path rather than a progressively tapering funnel. B2B buyers, for example, tend to work through four parallel streams to make a purchase decision. So it’s important to understand where customers are in their journeys and how to interact with them appropriately at a given stage.

With SaaS, the initial stage usually starts when the potential customer recognizes a fixable problem or opportunity. The seller can help to trigger that recognition in any of a number of ways, including starting a content marketing or SEO campaign to generate inbound leads, cultivating referrals from existing customers, making sales calls, planning conferences, sending emails to build awareness, and using social media to generate word of mouth.

Subsequent stages again depend on buyer behavior and strategy. Most SaaS businesses have three tiers: a self-serve tier that allows for trial evaluation, a second tier that allows a single or departmental decision maker to engage and experience, and a third tier that requires selling to multiple stakeholders at the customer.

Although some stars can navigate across all tiers, most reps can’t. So, in order to optimize the productivity of your sales force, you must determine where in the process different reps should get involved. Often, high-velocity inside sales reps are productive at the lower tier but counter-productive at higher tiers, which involve a more complex, cross-functional decision-making unit.

Use tools to turn data into information. Considering the average U.S. company already has more data in its CRM system than in the entire Library of Congress, you probably feel overwhelmed by Big Data. That’s why it’s important to keep in mind that the role of data is to help you make better decisions, and in order to separate signal from noise, you need to know what you are measuring and use the right tools to measure it.

Think about forecasting. Most firms put their pipeline information into a CRM either weekly or monthly and then review the volume and value of leads in that pipeline. In order to forecast for the following month or quarter, they typically extrapolate future performance from that snapshot: “Bob did $200,000 in sales last quarter, so let’s budget him for $250,000 next quarter,” and so on.

But buying streams, especially for SaaS, are more like a motion picture than a snapshot, which means you should be measuring flows such as “what is Bob’s ratio of Monthly Recurring Revenue to Sales Qualified Leads (SQL)?” or “what is Sally’s ratio of Commits vs. SQLs?” These questions will inform a big decision: hire more people like Bob or find out what Sally is doing right.

The minimum data streams include the categories outlined below:
Minimum Sales Data Streams for a Subscription-as-Service Organization

These categories will help you separate signal from noise.
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With this data and the relevant analytic tools, you can make distinctions that will help you build a scalable sales process. For instance, depending upon your business model, you can look at any or all of the following and make better use of your Marketing and Sales budget:

Volume Data: metrics that track volume by tracking Wins from number of Marketing Qualified Leads (MQLs) and SQLs.

Conversion Data: ratios that track, for instance, how many MQLs result in SQLs.

Opportunity Costs: extrapolations across multiple metrics. For example, you may compare the cost and Monthly Recurring Revenue generated by a marketing campaign in 30 days versus alternative uses of that money, the customer acquisition costs of your online versus field-sales team, up-sell and churn percentages, and so on.

Many sales efforts need this process because business now changes often and fast. It’s true that any process is only as good as the people managing that process. But hiring Sales Operations or other “data analysts” without an iterative process in place is a recipe for frustration and expensive failure. And failure doesn’t scale.

Conversely, make sure not to follow your process myopically or in a rote manner. Remember to look up: there are stars. But also remember that you don’t need to move everyone to the 90th percentile. Moving up a quartile would be a big deal, and that’s the role of a relevant sales process.

 

Don’t Turn Your Sales Team Loose Without a Strategy

By Frank V. Cespedes and Steve Thompson

When formulating a strategy, markets and segments are important categories to consider. But a market never buys anything. Only customers buy. To borrow a telecom industry metaphor, a deal with a customer is the “last mile” in connecting any strategy with business development efforts and marketplace results.

So, for most firms, de facto strategy is the aggregate result of the deals their salespeople bring in. The problem is few firms clarify their deal selection criteria. Either directly in meetings or implicitly in their compensation plans, they basically tell their sales forces to “Go forth and multiply!” And that is exactly what happens.

As a consequence, salespeople tend to sell to anyone they can, often at discounted prices to make a volume quota target. There are also opportunity costs: since money, time, and people are allocated to customer A, they are not available to customers B, C, and so on.

This is ineffective deal management, and it eventually leads to loss of positioning with customers, and, over time, the nurturing of “commodity competencies.” In other words, the sales force gets better and better at striking deals that more customers value less and less.

To avoid this, some companies establish a Strategic Deal Profile — guidelines and parameters that its sales force can use in conversations with actual customers — and make it part of selling behaviors through performance management practices.

Consider the case of Alphatech (a disguised name), which sells software that allows businesses to deploy applications consistently across their desktops, laptops, and other devices. Since every business has a somewhat unique combination of hardware and software, Alphatech grew by taking responsibility for integration and after-sale support. But by 2012 growth slowed, revenues flattened, and margins declined. At that point, Alphatech’s management reassessed its strategy and sales approach.

Here’s how:

Identifying good customers. Management first evaluated who were, and who were not, good customers. Previously, Alphatech considered any organization in which workers used laptops as a prospect. Because of this, selling cycles were lengthy, and, even when reps did close deals, they did so at highly discounted prices and were forced to include unwieldy service requirements. As a result, false positives and negative-value prospects littered the sales funnel, and about 75% of margins came from just 25% of the deals—almost all of which were managed-services contracts versus one-off “project” installations.

With analysis, Alphatech identified regional hospitals—which faced mandated digital-records requirements, and usually lacked the scale and IT staff to do that on their own—as their best customers.

Hospitals presented two advantages. They were accessible because Alphatech could oversee integrations remotely via the internet. And, since they were spread out across a geographically diverse area, they represented a large enough market to support renewed profitable growth.

Creating the right sales processes and incentives. Next, Alphatech set out to redesign its sales processes in order to support its new strategy. It did this in a few ways. It reorganized its sales force to focus on specific segments within the hospital market, and trained both its sales and service teams (which now visited sites early in the sales cycle) on outcome-based selling. It changed its sales compensation incentives from revenue bookings to commission payments tied to margins, service mix, and duration of subscription agreement. It also standardized its proposals to include managed services offerings as an option, and changed its marketing collateral to emphasize its new value proposition. In turn, it tracked the number of calls its salespeople made to hospital administrators at assigned accounts, and included this as a metric in performance reviews.

Following a strategic “Deal Profile.“ At this point, Alphatech knew it wanted to sell its services to the regional hospital market and felt it had the capabilities to do so. But it needed a Deal Profile first — a set of guidelines that would link the company’s strategy with the approaches used by its salespeople.
The first component of a Deal Profile is figuring out how to define success. Sales calls now focused on defining success with the customer, including specific outcomes such as time to deploy applications and system up-time guarantees. These metrics were critical because many of the applications affected patient care, hospital reimbursements, and health-care confidentiality requirements, and various stakeholders had different perspectives.

Establishing a common language of value helped customers to communicate internally, which, in turn, accelerated sales cycles when Alphatech won a deal and minimized selling expenses when a customer and Alphatech could not agree on outcomes.

This method of selling also tended to involve more senior decision makers. In the past, sales reps sold to IT system administrators, but now they were conversing more with CFOs and other executives, which better positioned Alphatech to expand at accounts where it did land deals.

Second, Alphatech had to decide how to communicate value. Alphatech was selling a change process as well as hardware and software services. That meant that to be effective, they really needed monthly conference calls with the customer and periodic Customer Business Reviews (CBR) with IT and administrators after implementation.

For customers, the calls were reviews and reminders of agreed-upon success outcomes. They were also opportunities to talk about best practices and to troubleshoot any issues they were encountering.

For Alphatech, the CBRs provided opportunities to extend or expand a contract, or both. Since a longer term contract needed approval outside IT, it was in Alphatech’s best interest to keep key senior execs involved in the process.

Pricing guidelines were the third key factor. In the past, Alphatech’s pricing had been driven by competing proposals, often from competitors with lower service levels. The sales force was often closing initial deals at a loss in the hope that the value they ultimately delivered would lead to higher prices.

But hope is not a method. With Alphatech’s Deal Profile, sales people were only able to offer 5-10% discounts off book prices if the customer bought at least three months of services. The three-month period was beneficial to both parties. It lowered customers’ risks of trial, while the network and service terms gave Alphatech access to better information about value drivers and change requirements at that account.

Further, experience indicated that, despite value delivered, it was difficult to get higher prices after an initial discount. So pricing with the new Deal Profile provided a basis for profitable future business if and when expanding service became a reality.

The Deal Profile also specified payment terms with pricing. This is an important and often overlooked aspect in many strategy discussions. Any deal affects a company’s economics and valuation. Financing needs are driven by the cash on hand and the working capital required to conduct and grow the business. For most firms, the biggest driver of cash out and cash in is the selling process. Accounts payable accumulate during selling, and accounts receivables are determined by what’s sold, how fast, and at what price, and payment terms. That’s also why a Deal Profile is a strategic issue as well as sales issue.

Finally, there’s measuring results. Business results were outstanding: EBITDA more than doubled in the first year and ROIC increased almost 300%, with fewer sales people. And, while the Deal Profile meant that Alphatech was saying “no” more often than in the past, customer churn for done deals decreased and customer lifetime value and profitability increased as a result.

Not everything went without a hitch. With the Deal Profile in place, many sales people left because they found the new selling behaviors alien to their skill sets and preferences. But the most important lesson here may be this: it is not the customer’s responsibility to inform you when you are barking up the wrong tree. It’s your responsibility to make that judgment and make it real through execution. And a Deal Profile is a basic building block in linking strategy and sales.

The Best Ways to Hire Salespeople

By Frank Cespedes and Daniel Weinfurter

Many firms talk about talent management, but few deal systematically with a basic fact: average annual turnover in sales is 25 to 30%. This means that the equivalent of the entire sales organization must be hired and trained every four years or so, and that’s expensive.

Consider these stats. Direct replacement costs for a telesales employee can range from $75,000 to $90,000, while other sales positions can cost a company as much as $300,000. Moreover, these figures don’t reflect the lost sales while a replacement is found and trained. In sectors like medical devices, big capital equipment, and many professional services, including these opportunity costs can push turnover cost to $1 million or more per event.

The challenge is compounded by the fact that there is no easily identified resource pool for sales positions. According to Howard Stevens in Achieve Sales Excellence, more than 50% of U.S. college graduates, regardless of their majors, are likely to work in sales. But of the over 4,000 colleges in this country, less than 100 have sales programs or even sales courses. And, even if companies are lucky enough to find qualified grads, the increased data and analytical tasks facing many sales forces mean that productivity ramp-up times have increased. Each hire is now a bigger sunk cost for a longer time.

Bottom line: companies typically spend more on hiring in sales than they do anywhere else in the firm. So how do you improve the returns on this investment? Here are four places to start:

Hire for the task. In business, you hear so many opinions about what makes for a good salesperson. But most are a bland summary of the Boy Scout Handbook, with traits like extroversion, assertiveness, empathy, modesty, and an “achievement orientation.” These platitudes are often reflected in firms’ competency lists and are so broad that, at best, they simply remind us that people tend to do business with people they like (but not always and not as often as many sales trainers assume). At worst, these abstractions are irrelevant to the execution of business strategy, and they make hiring, in sales and other functions, a classic example of the cloning bias: managers use these slogans to hire in their own image.

Selling jobs vary greatly depending on the product or service sold, the customers a salesperson is responsible for, the relative importance of technical knowledge, and the people contacted during sales calls. A review of hundreds of studies about sales productivity finds that “[t]he results of this research have simply failed to identify behavioral predispositions or aptitudes that account for a large amount of variance in performance for salespeople. In addition, the results of this research are quite inconsistent and, in some cases, even contradictory.” Common stereotypes about a “good” salesperson (e.g., pleasing personality, hard-wired for sociability, and so on) obscure the realities you face.

Selling effectiveness is not a generalized trait. It’s a function of the sales tasks, which vary according to the market, your strategy, the stage of the business (i.e., startup or later stage), the customers targeted by your strategy, and buying processes at those customers. This is true even for firms in the same industry. Think about the difference between sales tasks at Nordstrom, where personalized service and advice are integral to strategy execution, and Costco, where low price and product availability make sales tasks less complex and variable.

The first step in smart hiring and productivity is understanding the relevant sales tasks in your market and strategy and then reflecting those tasks in hiring criteria and a disciplined hiring process.

Focus on behaviors. Research based upon thousands of exit interviews shows that a primary cause of poor performance and turnover is poor job fit. People, especially salespeople with a variable pay component, become frustrated when they’re hired for tasks that are a poor fit with their skills and preferences. Conversely, as the saying goes, “You hire your problems.” Zappos CEO Tony Hseih estimates that bad hires have cost his firm $100 million. Famously, Zappos will pay people to leave voluntarily after a few months on the job.

The key is to focus on the behaviors implied by the sales tasks. In many firms, this means upgrading assessment skills. Managers are excessively confident about their ability to evaluate candidates via interviews. In reality, studies indicate a low correlation (generally, less than 25%) between interview predictions and job success, and some indicate that interview processes actually hurt in hiring decisions: the firm would have done better with blind selection procedures! The best results, by far, occur when those making hiring decisions can observe the potential hires’ job behaviors and use a recruitment process based on a combination of factors, as illustrated in the following graphic:

W151021_CESPEDES_HOWTOEVALUATE

There are many ways to do this, including simulations, interviewing techniques, or (as at Zappos) providing an incentive for self-selection after recent hires experience the required behaviors. Especially in expensive sales-hiring situations, many organizations could emulate the practice used by investment banks and consulting firms when hiring MBAs: the summer job is, in effect, an extended observation by multiple people at the firm of the candidate’s abilities before a full-time offer is extended.

Then, immerse reps in the tasks they will encounter in working with customers. At HubSpot, which provides web-based inbound marketing services to businesses, Mark Roberge has sales hires spend a month in classroom-style training but also doing what their customers do: create a website from scratch and keep that site populated with relevant content. Roberge notes, “they experience the actual pains and successes of our primary customers: professional marketers who need to generate leads online. As a result, our salespeople are able to connect on a far deeper level with our prospects and leads.”

Be clear about what you mean by relevant “experience.” Previous experience is the most common criterion used by sales managers in talent assessment. In one survey, over 50% of respondents cited “selling experience within the industry” as their key selection criterion, and another 33% cited “selling experience in [an] other industry.” Driving this view is a perceived trade-off between hiring for experience and spending money on training. But because selling effectiveness depends upon a company’s sales tasks, “experience” is an inherently multidimensional attribute. It may refer to experience with any (or any combination of) the following:

A customer group: e.g., a banker or other financial services recruit hired by a software firm to call on financial firms; or, in health care, firms sell different products, but many sell to hospitals.
A technology: an engineer or field-service tech hired to sell a category of equipment.
Another part of the organization: a service rep moved to sales because internal cross-functional support is a key sales task and that rep “knows the people and the organization.”
A geography or culture: a member of a given nationality or ethnic group who knows, and has credibility within, the norms of the relevant customer’s culture.
Selling: an insurance agent or retail associate with experience in another sales context.

The relevance of each type varies with your sales tasks. So consider what type is, and is not (see below), relevant, and require the people doing sales hiring to clarify what they mean by experience.

On-going talent assessments. Markets have no responsibility to be kind to your firm’s strategy and sales approach. It is leadership’s responsibility to adapt to markets and develop the competencies required today, not yesterday.

As organizations confront new buying processes, required competencies are changing. The figure below, based on an extensive database of company sales profiles, indicates the changing nature of sales competencies at many firms. Competencies that, only a decade ago, were considered essential are now lower in priority.

W151021_CESPEDES_SALESPEOPLEREQUIRE

Does this mean that developing leads, qualifying prospects, and adapting to different buyer motivations are no longer important? No. Rather, as one should expect in a competitive activity where success is ultimately measured by relative advantage, the focus of productivity improvement in sales is shifting. Yesterday’s sales strengths have become today’s minimum skill requirements.

This underscores the need for on-going talent assessments to stay in-touch with changing tasks and required behaviors. The good news is that the tools for doing such assessments, based on behavioral research findings, are more available and have more granularity and practicality for sales leaders. Conducting a skills inventory and determining the best fit for your sales tasks need not be the standard mix of folklore, various embedded biases by front-line managers, and the content-free platitudes about “selling” that populate many blogs. And it is increasingly necessary because companies must ultimately be worthy of real talent.

It’s often said that many firms maintain their equipment better than they do their people. If so, you ultimately get what you don’t maintain, especially in sales.

What Salespeople Need to Know About the New B2B Landscape

By Frank Cespedes & Tiffani Bova

Selling has always been more about the buyer than the seller. So any effective sales model must adapt to changing buying protocols, not ignore or resist them. This is a big transition for firms whose marketing, sales-training and enablement tools, and wider organizational processes reflect outdated assumptions about purchasing in their markets.

For a century, buying has been framed in terms of moving a prospect from Awareness to Interest to Desire to Action (AIDA). The AIDA model and its variants are the basis for sales funnels at many B2B firms. The typical funnel starts with a marketing-generated lead for a “suspect” that, after qualification, becomes a “prospect,” and then a customer through steps that are measured and managed. In each step, sales people are expected to perform a series of tasks, usually sequentially, in order to close. It’s an inside-out process and CRM systems are there to provide data about progression (or not) through that company’s funnel steps — the famous “pipeline” metrics that dominate so much talk about sales.

But Gartner research (see here and here) indicates a very different contemporary buying reality. Rather than moving sequentially through a funnel, buyers actually work through four parallel streams to make a purchase decision.

Let’s examine these activities, one by one:

Explore: Here, buyers identify a need or opportunity and begin looking for ways to address it, usually via interactions with vendors and self-directed information search on the internet.
Evaluate: Buyers take a closer look at options uncovered while exploring, again leaning heavily on self-directed search and peer interactions as well as vendor sales representatives.
Engage: Buyers initiate further contact with providers (or accept proposals from providers) to get help in moving toward a purchase decision.
Experience: Buyers use a solution, increasingly in pilots or proof of concepts, and develop perceptions about its value based on that usage.
With these changes in mind, understanding where customers are, and how to interact with them appropriately in a given stream, are now central to effective selling.

Here are a few tips and insights to help you navigate these shifts.

The sales force is more important than ever. Regardless of which path customers take, or in which order they take them, they want to deal with people who can help them move toward a purchase decision, be the internal champion at the vendor, and bring it together for that customer. In fact, B2B buyers report that, compared to other sources of information, these interactions are the most influential in their decision making process:

W150729_CESPEDES_MOSTINFLUENTIAL

The source considered the least influential is social media. Don’t believe the hype. Sales people have not been replaced by digital, and providing relevant solutions remains key in most B2B buying scenarios.

One reason why the sales force remains so important to the B2B customer is that most products and services sold to business organizations are components in a wider usage system at that buyer, and customer value ultimately resides in that usage, not just the individual product.
To add to that, business buyers must justify a decision to others in the organization, especially as capital expenditures flow less liberally in many industries since the financial crisis of 2008. And you are naïve or spending too much time on your smartphone if you believe that a combination of economics, solution identification, product application, risk management, and political journey through the buyer’s organization is now handled predominately online in most buying scenarios and without knowledgeable and savvy sales help.

The research also found that, across all buying streams, buyers emphasized that interactions with sellers — technical demonstrations, sales presentations tailored to my company’s need – should be about the buyer’s needs. Among the least valued interactions are sales calls in response to registering for webinars or events. That is, core solution-selling and account-management skills still matter.

Lastly, although buyers certainly use online search, they use it as a complement to, not a substitute for, interactions with sales reps, channel partners, and others at their suppliers. If anything, access to information online has increased awareness that relevant alternatives and best practices about product applications and service requirements often reside outside one’s firm. In turn, this drives the B2B buyer’s propensity to seek information from vendors who work with companies across regions or vertical segments, and who can use that knowledge to help frame and deliver solutions for that buyer’s needs.

Buying is a continuous and dynamic process. Specious talk about disintermediation of salespeople obscures the real issues facing firms. Sales people are not disappearing, but buying processes and therefore sales tasks are changing.

For example, note that in the second figure above customer references are a close second in terms of influence, and the nature of references has changed. In the past, a buyer might ask for references and that seller would cite a few satisfied customers. But through the web, customers connect with each other and get unedited versions of others’ experience through review sites such as bazaarvoice and PowerReviews, and they gain access to thousands of people at other companies who can share experiences and options through community sites such as SAP Developer Network and Marketo Marketing Nation.

Also playing important roles are events, white papers, and the seller’s website — activities that are typically part of marketing’s domain, not sales. This puts pressure on a notoriously fraught relationship: improving coordination between sales and marketing, two functions that are increasingly interdependent but different in their perspectives and procedures. The marketing–sales relationship now tops the agenda of concerns in a survey of B2B executives.

More generally, it’s important to recognize that web sites, blogs, and other digital media have made vendor organizations more visible and transparent to potential buyers, which has disrupted the inside-out funnel approach. Prospects now touch your brand and company at many different points (online, offline, marketing collateral, and so on), when they want, and each touch has an impact on selling tasks. Buyers value interaction with others at your firm besides the sales person (e.g., product specialists, technical experts, professional services personnel, delivery personnel, pre- and post-sales applications resources). In their buying streams, they expect the rep to orchestrate those interactions purposefully, and efficient coordination of these interaction points must be reflected in an effective 21st-century go-to-market strategy.

Finally, if you consider the streams that now characterize B2B buying and what buyers value in their suppliers’ behaviors, a big disconnect becomes apparent. Despite huge advances in technology over the past two decades, most sales models and performance practices are the ad-hoc accumulation of years of reactive decisions, often by different managers pursuing different goals. This is why many B2B sales models firms are incapable of dealing with the reality that buying is now continuous and dynamic — an on-going movie, not a selfie or snapshot in a funnel.

Choices are often false. Despite what you often hear, no single tactic — e.g., a given selling methodology, “challenging” the customer, or more “big data” analytics — will address the new reality. Aligning buying and selling is a process, not a one-shot deal.

Going forward, many B2B sellers will need to reconfigure their selling processes more effectively and efficiently for each buying stream. They should not waste lots of time and energy debating whether to be online or in-person, interacting via the web or through sales reps, digital or human. They need to do both, and create the right mix for their go-to-market programs.

It’s also important that every group within an organization that deals with customers has a shared vision of how customers buy and, more importantly, a clear sense of their company’s strategy. The cross-functional communication and coordination that is required to navigate this change is the job of leadership. Is your organization, not just your sales force, ready to deal with this purchasing reality?

Finally, to paraphrase Churchill, it is not “the end of solution sales” and it’s not the beginning of the end. But it should be the end of glib generalizations about sales and selling, which remain complex, changing, and people-dependent activities in most B2B markets. As a leader, understanding how buying really works is the place to start in order to spur effective selling, profitable growth, and better resource allocations in your firm.

3 Secrets to Scaling Your Business

3 Secrets to Scaling Your Business

International business consultant Frank Cespedes explains how you can build your platform, drive effective sales, and increase the growth potential of your business.

I’ve learned so much from my mistakes, as well as the mistakes and wisdom of my peers. In business, and in life, you have to keep listening and learning if you want to succeed.

Many entrepreneurs get started and get stuck! So, how do you grow your business when you don’t know where to start? I asked Frank Cespedes, Senior Lecturer at Harvard Business School, to help me shed some light on this topic. Frank has consulted businesses around the world and his latest book, Aligning Strategy and Sales: The Choices, Systems, and Behaviors that Drive Effective Selling, has been hailed “The best sales book of the year” by Strategy+Business Magazine. Here’s what Frank had to say:

It’s tough to start a business that gets traction with paying customers. Data indicate that less than half of US start-ups survive beyond three years. But it’s much harder to grow. Even for businesses that attract venture funding, fewer than 6% achieve more than $10 million in revenues and fewer than 2% more than $50 million. The increase in angel groups, the advent of crowd-funding, the slow but steady spread of VC money beyond its traditional few cities, and mechanisms like incubators make it more possible to start a business. But as one investor says, “It has never been easier to start a company, and never harder to build one.”

Read the full article on Inc.com.

Top Sales World’s Top 50 Sales & Marketing Influencers

When we published the first Top 50 Influencers list back in 2012, it was an original and unique idea, which had never been seen before. Since then many have followed suit with their own lists. Does this render the exercise as pointless? No, we don’t think so. Anything that helps raise the profiles of so many really talented sales commentators and experts has to be good for the sales space.

Read the full article at Top Sales World.

Does Social Media Sell? The Jury Is Out (and getting impatient)

Does Social Media Sell? The Jury Is Out (and getting impatient)

My sincere thank-you to DrivingSales and Paul Moran for his response, “Does Social Media Sell? A Harvard Professor Says No,” to my HBR.org article, “Is Social Media Actually Helping Your Company’s Bottom Line?” Paul says I am taking “a shallow perspective” on this topic. I disagree, and here’s why:

First, Paul does not take issue with the facts in my article: that most companies don’t have ROI measures for their social media investments; that few companies, according to the McKinsey research, even have accountable managers in place for that spending; that much online discourse about products and companies is fake, bought, or otherwise engineered, not “engagement” with potential customers; and that the comScore data about the unviewability of many display ads is bad news. Well, Mrs. Lincoln, except for those details, it’s a great play!

In fact, Paul agrees that many companies “are digging themselves into a large social media hole that will be very hard to climb out of.” His agreement supports a basic point in my article: “people tend to overhype new technologies and misallocate resources, especially marketers.” Don’t shoot the messenger who points out what the emperor is not wearing.

Read the full article on DrivingSales.

Likeable Radio with Dave Kerpen

Likeable

This week Likeable Radio embraces the new, with our first ever Meerkat session – fueled by host Dave Kerpen’s passion for the new streaming video app. This week’s guest is Frank Cespedes, a senior lecturer at Harvard Business School who has consulted businesses around the world. He has written over 40 case studies about companies and numerous notes on varios topics. He is also the author of the highly-acclaimed Aligning Strategy and Sales: The Choices, Systems, and Behaviors that Drive Effective Selling. Sold? I thought so!

Listen to the podcast.

CFOs: You Don’t Need All The Answers, Just The Right Questions

Forbes

CFOs play an increasingly integral role within an organization – so much so that Frank Cespedes, Senior Lecturer in the Entrepreneurial Management Unit at Harvard Business School and author of “Aligning Strategy and Sales,” says that CFOs can and should start acting as a catalyst to help integrate roles across C-Suite functions, particularly between the sales and strategy teams. I spoke with Frank to learn more about what CFOs can do to foster these connections.

Read the full article on Forbes.