blog

The Unsellable Business

Thu, 23 Jun 2011 20:46:45 +0100

Here is an all too common scenario: a business is profitable, been in business for 15 years and the business earns for its owner $150,000 - 200,000 per year in normal years, a little more in good years and somewhat less in leaner years. Overall sales volume is flat to slow growth. As the years go on, the owner is starting to look forward to more of a life of leisure and wants to sell the business and move to retirement.

Every sale of any type, whether it is a widget or a company, is first and foremost, about the buyer and what the buyer’s needs and desires are. It is not about the seller. Why would someone want to buy this kind business--a business that just keeps the owner fed with, admittedly, an executive level income?

The answer is that a buyer would only buy a business that just keeps the owner fed is if the price were particularly attractive or if there was something about the business that has a synergy or creates a specific opportunity for the buyer. Examples of these types of synergies or specific opportunities include:

The buyer can roll the acquisition into existing operations to reduce cost structure and consolidate management--This would be the example of a the acquisition being made by a competitor or a company in the same business in a different or overlapping geographic market.
The buyer has a method to immediately improve profit. This might be because they already have access customers to which they could immediately sell the acquisition's products or services
The buyer is a competitor that wants to eliminate a competitor and cherry pick the business’ key employees, customers and assets. Additionally, with less competition, the buyer may very well be able to increase their margins through higher prices and through getting greater price discounts on higher volume raw material purchases.
The buyer sees some specific value in the business assets such as real estate, trademarks, market positioning, patents or other intellectual property and is willing to pay a premium for it.
The acquirer believes that they can make an operational change in the business through the application of its technology or management methods that can really have a dramatic impact on the profitability.

In short, strategic buyers are the only likely buyers to pay an attractive price for the business because they see the business as an opportunity to achieving a bigger strategic objective. There are not many sane individual buyers who would want to pay money upfront or sign a personal guarantee only to buy a job for themselves.

For many small businesses owners looking for a buyer for their business, the absence of these types of conditions dramatically reduces the number of interested buyers willing to pay more than a token amount of cash in an acquisition. As a practical matter, if your business is not generating more than a few hundred thousand dollars a year, the chance of finding a buyer is dangerously low if these conditions are not clearly present.

The problem presented here is also compounded by the number of baby boomer owned businesses coming on the market over the next 10 or so years as the boomer business owners reach retirement age. This supply of available businesses combined with the recent financial downturn that has made investors and lenders much more conservative. In essence, it will be harder to find a buyer because there will be more businesses available (more supply), fewer buyers (less demand), and less risk capital available --in other words, there is a perfect storm brewing on the horizon.

So, what's a business owner to do?

Get bigger so that there is greater more free cash being generated making the business more attractive to a non-strategic buyer (a cash flow buyer)
Grow your market share
Make operational improvements to lower costs, improve customer value, and competitive advantage
Make changes to become attractive to a strategic buyer
Build a stronger brand and pursue an intellectual property strategy.
Make the business run on "remote control" profitably so it can either become a financial investment for a buyer or a passive income source for the current owner
Get comfortable with the idea of selling the company for less cash at closing combined with creative owner financing.

In summary, the improvements necessary to attract buyer interest and perhaps fetch a premium price are also not simple window dressing that can be bolted on at the last minute. Making a business truly attractive to a buyer who is willing to pay a premium is something that owners should be working on for years before they intend to sell. Designing and implementing change, and demonstrating the positive results of that change that can be factored into a selling price do not happen overnight.

Entrepreneurs: Don't Hire Sales People In Your Own Image

Thu, 23 Jun 2011 20:47:13 +0100

Entrepreneurs have a certain set of characteristics and skills that often make them very successful at sales but, at a fundamental level, entrepreneurs are entrepreneurs who can sell, but they are not salespeople. When I have asked entrepreneur/business owners about what qualities they are looking for in hiring their ideal salespeople, what I typically hear are:

I want someone hungry
I want someone self-motivated
I want someone who is adaptive and can figure it out on the run
I want someone both very smart and creative
I want someone who is a team player
I want someone who I can build a team around (leader)

Guess what? This description of an ideal sales person is really a description of the entrepreneur themselves! It is the description of an entrepreneur, not a salesperson. While there are going to be exceptions, the vast majority of journeyman, successful salespeople:

Have limited ambition
Need direction and focus
Are not great at figuring a sale process on their own and need information about the sales process defined for them
Tend to be focused on themselves and less interested in doing things to advance the business or even their career beyond what benefits them directly and immediately
Aren't great team players
Are often lazy
Have limited creativity and like to work within a defined procedures and bounds

In short, salespeople and entrepreneurs tend to be different personality types. This gap between entrepreneur's dream salesperson and the reality of what is in the salesperson marketplace leads to trouble over and over. Inevitably, entrepreneurs find salespeople that are either:

Like themselves who end up becoming competition to them (since the salespeople hired are entrepreneurial) by leaving to start their own businesses, or
Too expensive to hire, too demanding and too impatient, or
Employees who will, inevitably, fall short of the entrepreneur's expectation because they are not as ambitious, not as creative, not as smart, not as self motivated and not as hungry as the entrepreneur.

Entrepreneurs need to understand this and manage both their hiring process and their expectations accordingly. They will not find people as smart as they are. They will not find people as self motivated as they are. Stop looking!

What is needed first and foremost is a sales process that can be executed by an employee of reasonable and hire-able qualities and performance. A sales process needs to be built that is realistic. It has to be able to be executed by people the company can afford, can find and can be trained and that are not the dream candidate of the entrepreneur. The dream candidates are either too expensive to hire or just don't exist.

This may be the biggest hurdle that small companies have in getting to the next level. It is the transition of the company to one that runs on defined and realistic management processes and systems rather than just the will and efforts of the entrepreneur.

Often, transitioning to using management processes and systems means a company needs to "dumb down" or simplify the entrepreneurs sales process to something more easily described, taught, executed and managed. For example, when the entrepreneur is doing all the sales him or herself, maybe sales reports, notes and a CRM system aren't really necessary because the entrepreneur can keep track of opportunities and is naturally very good at following up. Once a company begins to have to manage a sales team made up of those who are less self motivated and are generally lower skilled than the entrepreneur, more formal systems and management protocols are going to be inevitably necessary.

In hiring, entrepreneurs need to develop a hiring and training process (as part of the sales process) that balances supply and demand. Supply is what kind of candidates are available. There is no point spending time writing job descriptions for candidates that don't exist at what the company can afford to pay. Demand is the aptitudes, experiences and performance history that are needed. If the company can't find candidates that meet the requirements it must also consider changing the sales process and thus changing the skills necessary to accommodate the candidates that are, in fact, available.

I can't write this article without reflecting on hiring successes and failures that I have made in hiring sales people and lessons from the best sales processes and teams I have seen over the years. The best sales processes are repeatable and scalable sales processes that allow a company to grow its sales team and sales results by just upping their level of investment. They just need to add bodies through their hiring process, add training resources and desks and then they will get a predicted number of sales people who emerge as successful and a predictable number of sales people that will not make the grade and a predictable bump in sales.

Supershopping Leads to "Penalty" Pricing and Bad Business

Sat, 26 Feb 2011 13:28:07 +0100

We live in the era of the supershopper. The supershopper is a distinct buying style that some consumers have where the consumer constantly seeks out the most information and what appears to be the best price. This is a shopping behavior that has always been present, but now with the full search power of the Internet, it is easier and easier to be a supershopper. This behavior is most evident in consumer buying practices but is also present in business to business buying practices.

How do supershoppers operate? Supershoppers may drive BMWs but will drive cross town to save a few cents per gallon on gas. Supershoppers are rarely supershoppers in every aspect of their lives. They may wear designer clothes but will also spend an hour on the internet looking for the lowest costs on a flight on various travel sites.

Merchants/vendors have responded to supershoppers and they do that by changing the way the rules are played. No longer do merchants/vendors make their money on the price for the primary product or service, they make their money in hidden little ways. What do I mean by that?

They make their money through extra fees. For example:

Airlines compete on fare prices but look for every opportunity to up-charge consumers for baggage, overweight baggage, beverages and snacks, ear phones, reservation and ticketing changes, and fees for curbside check-in
Consumer electronics companies do little more than break even on product sales and make their money on selling service contracts, interconnect cables and accessories
Online retailers make their money on shipping and handling fees that bear little resemblance to the actual costs associated with shipping and handling. They have to keep their prices unreasonably low to win the price search engine wars.
Banks compete on "no fee" checking but hit you on every fee under the sun.
Car dealers make their money on options, financing, service, trade ins and service contracts and will sell cars below invoice.
Ink jet printers are cheap but the ink refills are very profitable (the Gillette razor business model).
Cell phone companies make money on those who use significantly less than their contracts call for or those who run over their contract or, heaven forbid, those who use their phones overseas.

The list goes on. In the business to business world, there examples like this:

Building contractors who underbid on a contract but push for change orders at full rate for every little deviation in the design.
Service providers who compete by dropping their labor rate by using illegal labor or not having the required insurance they claim to have and hope for the best if there is a liability claim or investigation.
Hidden expenses and kickbacks to vendors on all sorts of deals from subcontractors.
Fees that rise with the rise in price of certain commodities but don't come down unless the customer is diligent about demanding it.
Eliminating post sale customer service.
Service providers doing substandard service and promising warranties that they know they are unlikely to be able to actually deliver on.

The question, of course, is whether these buyers are really saving any money or just deluding themselves. There are those buyers who can navigate the waters of the fees and keep their total costs low in these situations but those people are the minority. The irony, of course, is that the merchants and vendors that are most honest and upfront with their pricing based on a cost structure and lean but reasonable profit margin often lose the deal to those using the penalty pricing model--that is a pricing model predicated on finding ways to cost the customer more when then least expect it. The buyer loses and the honest vendor and merchants lose.

So, the question is this: What is an honest vendor or merchant to do in a market like this? I think there are only two strategies: The first possible strategy is to join the fray and be a bandit like your competitors. Clearly, this is the strategy that most airlines and banks are taking as they cut services and increase fees to follow the likes of Spirit Air and Citibank. The second strategy is to educate, or attempt to educate, and market to prospective clients about the total fees involved and the value of the services provided to convince them. The bad news about this strategy is that it requires mental investment on the part of consumer and some won't be willing to invest the energy into learning and possibly changing their behavior. Additionally, as long as the consumer hope holds out hope that they can be one of that minority that actually saves money, they are going to be difficult to convince. There is no simple one size fits all answer here.

Not a Big Enough Ticket To Support Your Sales Cost or Commission Structure

Tue, 28 Dec 2010 21:10:45 +0100

Many products cannot be sold effectively or efficiently because the cost of sales is simply too high. I remember seeing this problem all too well early in my consulting career when I was consulting with a pharmaceutical start-up. They were just getting their flagship first product through FDA approval, had worked out the manufacturing processes, and obtained all the necessary certifications for their production facility. It was only then that we all realized there was a problem with the simple economics of being able to afford to hire, train, pay and manage sales reps to call on all the doctors that could potentially use their product. The sales reps weren't able to write a large enough sales ticket to cover their commission. This is called the "Size of the Sales Ticket" problem.

The analysis of the costs was pretty straightforward, but the essence of the problem was that each individual sales person could not individually generate enough sales to make each sales call financially worthwhile. While their niche product had very good margins, it was unlikely that the doctors, called on by the salespeople, would prescribe enough of it to cover the total cost of the sales team and its management while achieving target profits. The cost of maintaining a sales force that could only call on a set number of doctors per week was just too great for that expected amount of sales per doctor or the amount of sales per salesperson. The cost of sales per unit was too high. The cost of sales was going to be too high because there was a limit to the amount of sales productivity--the number of doctors called on per day or week due to the necessary time of each sales call involved.

I see this type of problem in a lot of the small and mid-sized businesses I work with, particularly for those companies that rely on face-to-face salespeople making sales calls. There are a number of reasons why this problem has become more and more common as time goes on. Primary among them is the undisputable trend toward margin compression in nearly every industry today. Margins are simply getting smaller as competition is increasing and as companies become more creative in reducing costs and finding alternative channels of distribution that are more cost efficient. There is less and less room on the income statement for costly sales models.

The pharmaceutical company found a solution to its cost of sales problem. Their solution was to partner with another pharmaceutical company whose sales reps were already making calls on the doctors that were also the target market for my client. This way, the partner company's salespeople could "write a sales ticket" for my client's products as well as the products of their company which spread the cost of the sales call among a greater number of products sold. There was also enough incremental margin in my client's product with little incremental selling cost that the partner company would benefit from carrying my client's product.

The pharmaceutical company found a workable solution through partnering which was a way for them to outsource their cost of sales to a more efficient channel. To address this issue we have a choice of two basic strategies:

Changing the time horizon in your thinking about profit and cost of sales.
Change the sales model.

Changing our time horizon means that sometimes we need to factor the lifetime profitability of a new customer in considering whether the cost of sales is, in fact, too high. For example, if we know that on average, a customer stays with us for 5 years and has considerable profitability in the second through fifth years it might be an acceptable business decision to make the sales cost investment in new customer acquisition. That investment may cause you to lose money on the initial sale but is worthwhile because you know you will make up for it down the road with the customer. The first sale is a loss leader for the customer's total profitability. Embracing this strategy also has the advantage of putting the spotlight on customer retention which is a key for any company's long term profitability.

There are a number of ways to look at re-engineering the sales model from the traditional salesperson's face-to-face selling, including:

Sell online - Selling online can be one of the lowest cost of sales methods of distributing a product or service and is even becoming prevalent in b2b as well as b2c industries. This trend will only continue.

Telesales - Using an outbound telesales team or service to provide a lower cost sales model. There are a lot of inefficiencies inherent with face-to-face selling that could be avoided with telesales.

Outsource Sales Functions - Outsource all or part of the sales functions to make your salespeople more efficient.

Pull (Advertise to "call now") - Use advertising differently to get customers to call in as pre-qualified rather than require your sales reps to reach out to both the qualified and unqualified prospects. With your team focused on qualified prospects, their productivity as measured by their close rate will be much higher.

Independent Distributors - Use independent third parties to sell your products which can be more efficient than you or can bundle your product in with other products or services in a broader sale (thus increasing the sales ticket to a profitable level).

Partnerships - Create a partnership with another company (or companies) so that they can sell your products. It might also make sense to have a two way partnership where they are selling your products to some markets while you can have your salespeople also sell their products. This solves the problem for both of you.

Hybrid - Keep your sales reps focused on big opportunities and use another channel for smaller opportunities or any combination of methods.

Take on Other Products - Either develop or distribute other products so that your sales reps can increase their sales ticket size and cover their commission and cost.

Re-engineer Your Products - It can be possible to re-engineer your company's products to make them more efficient to sell. This could mean making them more standardized so that customers can buy them from a web site, a product brochure or in greater quantity.

Improve Sales Tools - Salespeople with better tools, including better management, can have greater efficiency to increase their close rate or increase the number of prospects they see in a day. This is an increase in productivity.

Solving the "Size of the Sales Ticket" problem is about re-engineering the sales process for more efficiency or re-engineering your business model itself to change the way you do business or think about business. The only thing we can be sure about is change in our business environment and in this age of globalization we can be sure that competition can only increase. For budding entrepreneurs, the "Size of the Sales Ticket" issue is an important consideration in determining whether a business idea/business plan is executable. If a product or service in a business plan cannot be sold efficiently, by covering its sales and delivery costs, then the business plan is not viable.

What Makes An Under-Performing Employee Tick

Tue, 28 Dec 2010 21:08:55 +0100

I am forever shocked by the difficulty many entrepreneurs, and other managers, have in managing the under-performing people who work for them. This is not about employees who don't have the skill to do the work, but simply about employees who don't perform at their potential. Here is what I hear:

"John is so frustrating; he never does what I have told him to do. He never follows procedures."

"I don't understand why Bob can't get nearly as much done as Susan. Doesn't he see how much more Susan gets done? Doesn’t he realize that he is recognized as a much worse performer than anyone in his group?"

Isn't it also interesting that it is very rare that when we either fire an under-performing employee, or give a bad review, the under-performing employee does not truly know beforehand that there was a critical performance issue. They respond with surprise and shock. We are all constantly amazed that these under-performing employees don't "get it" that they are critically substandard performers. Rarely do they see the ax coming for them? What is going on here?

There are a number of factors at play but I have thought a great deal about the way that I have seen people deal with (rationalize) their under-performing realities. I have found that there are five categories of this rationalization:

Outright denial of the situation--my performance is not bad, your measurement of it is flawed
Acceptance--it is true but I make up for it in other ways and thus I am valuable
Acceptance--it is true but I chose not to try hard because I am above all this
Denial by changing the norm--I should be measured by you against a different criteria and in this different measure, I am performing well.
Acceptance--it is true but I am in denial that the manager realizes it (this is rare)

When I work with my clients on this issue, I use the following example as an illustration: Clearly there are people who are above average looking, average looking and below average looking. Do those who are below average looking admit that? It is doubtful. There is a often convergence to the norm. In other words, those who are below average would probably say, "I am not the best looking, but I am around average" and that would be good enough for them to avoid dealing with the unpleasant reality and this is an example of outright denial. Another way people deal with it is that they might say, "Yes, I am below average in looks but I make up for it in my personality" which is acceptance but that they make up for it in other ways. For changing the norm, "yes, I am below average by some measures but I have very beautiful eyes." And finally, they also might say, "yes, I am below average in looks but that is only because I don't try very hard to keep myself up."

Aren't these the same kind of excuses that under-performing employees give?

"Yeah, I do less than Susan but I am the one that plans the Christmas party. (Acceptance but I make up for it in other ways)"

"Yeah, I do less than Susan but Susan is the exception. I am average in the group except for her. (Denial by changing the norm)"

"Yeah, but I can do so much more. I under-perform because I am not challenged. (I am above all this)"

If you are an entrepreneur reading this, you have built a business and you did that be being able to look into the face of failure and accept and work with your own shortcomings. You are a performer and you probably don't need motivation--you have it internally. How do we deal with under-performing people?

The first way we have to deal with under-performance is to simply not allow denial or rationalization to exist in any form. You need to drive this from the mind of the employee. Employees need to KNOW, beyond any doubt, that they are working below expectations and that their employment won't continue at that level of performance--in fact, it won't continue at anywhere near that level of performance. This message has to be loud, clear and beyond any doubt or wiggle room. If you do written performance reviews (which I recommend), this has to be clearly stated. You also must articulate what the definition of the level of performance is. Employees must not be permitted to hide either their performance or behind their excuses for their performance.

Be The Hammer, Not The Nail

Sat, 20 Nov 2010 15:29:34 +0100

I was approached by a Realtor friend of mine a few weeks ago and got a typical complaint from her: "It is so frustrating! Too often I work with a client for weeks showing them property after property and then I lose the client to another agent when the client is ready to submit an offer."

This is no different than the complaint I have heard for ages from B2B sales reps in many industries: "I spend all the pre-sales time and effort with the customer, educating them, answering all their questions, going through permutations and combinations of configurations and helping them develop the specification only to have them just send the bid out for the lowest price. Inevitably, I lose the deal to someone who had spent none of the effort--in fact, since their cost of sales is super low so they can afford to bid lower than I can."

These two situations are symptoms of the same disease: You have a company "value add" problem. You are either not impressing your prospects and clients of your company's value add or your company's value add is not in alignment with the key leverage points of the buyer's buying process.

In the case of the Realtor, the client sees the Realtor as a commodity that is easily replaced. If the Realtor doesn't call the client back in 15 minutes, the client takes out the next Realtor's business card from the pile and calls a new Realtor. The client doesn't see the value add of a particular Realtor and believes that they are interchangeable. As a practical matter and as a very unpopular thing to say is that in most cases the client is correct--all Realtors have the same access to the same databases and can show the same properties. Every Realtor says they are experts in every neighborhood how can a client discern who really knows and whether that really matters? In the case of the B2B sales rep, his value add of providing excellent pre-sales support isn't in alignment with the buyer's buying process. The buyer may see the pre-sales effort as valueless in his buying decision or he may realize that the pre-sales is very valuable, but he is bound by his company's buying policies to go out for competitive bid and use the lowest cost bidder regardless of the pre-sale service.

What to do? For the Realtor, find a value proposition that is not about looking through MLS listing for clients and it is not that you are so "personable" or "reliable" (distinctions impossible to prove and are the same thing everyone else says). Create a perceived value and exclusivity that is distinct. For example, I recently met a Realtor in Ft. Lauderdale Florida not long ago whose sole focus waterfront property in the Ft. Lauderdale area. He only wanted to represent those home and handle clients who wanted those homes. He has distinction. He also can say that he has real expertise in the nuances of that market for both buyers and sellers and since he would turn down other clients not interested in waterfront property (or at least say he did) he was believable. He also didn't take listings that weren't waterfront. His message was clear and his website is in alignment: I know more about buying waterfront property in Ft. Lauderdale than anyone since that is all I represent--come with me and tap into my knowledge. His website, business cards and everything in his marketing supported this message. He turns away business outside his geography and brags about it (He may even have someone in his office that handles those deals, who knows?). Not many Realtors have the guts to do that but it all works out for him in the end.

Another strategy for Realtors is to be the Realtor that is actually stealing the deals rather than the one who has the deals stolen from them! Let someone else do all the work dragging around the clients from property to property! Have a focus that is more about "seen dozens of properties but still haven't found the right one, maybe you are working with the wrong Realtor…" which is a strategy that focuses on the frustrations of the clients. Likewise, a strategy that focuses on the transaction could be very successful such as "our firm is the firm to use when it comes time to work with the bank on a short sale. We have more experience than anyone getting banks to come around." This is creating the sales value at the point of transaction which, when done well, will keep clients or drive clients to you at the transaction.

For the B2B sales rep, stop being the nail, and start being the hammer. At a certain point in time, you need to have that honest yet uncomfortable meeting with the customer and explain to them that you can't work with them in the same high cost of sales format using your high cost and high value resources and then lose the business to a competitor with a low cost of sales just having an assistant generate a quote. Let someone else do the pre-sales and then you can be the one who is just do the bidding or better yet, sell the pre-sales service as a professional service that can be applied to the proposal amount. If the buyer can't correctly specify the RFQ without your pre-sales services, they will realize that they need professional services to buy the right thing and you will be positioned to get that work.

Is Your Sales Commission Model Realistic?

Fri, 06 Aug 2010 01:13:02 +0100

I have seen many entrepreneurs struggle with their company's sales commission model. A commission model has to create balance between maintaining profitability for the company while creating incentive for the sales team--an incentive for the team not just to sell more, but to sell the way you want them to and for them to behave the way you want them to.

For example, the commission model has to incent the sales team to make sales without burning up the market, without damaging the company reputation, without burning bridges without setting customer expectation so incorrectly that the customers do not buy again in the future and, all the while, maintaining good records and information collection. In summary, the incentive component of the commission model has to balance sales team motivation and reward, as well as, the long term objectives of the company all the while being sufficiently profitable for the company (we mustn't forget this!).

The problems I have seen in sales commission plans fall into two categories: sales incentive problems, sales profitability problems and simplicity problems.

Here are some examples of incentive problems:

Commissions paid upon and based on signed contract rather than a delivery. This doesn’t consider bad deals that get signed that are un-implementable or promises made to customers in the sale process that can't be fulfilled that require later contract cancellation or modification. This creates that unpleasant situation where commissions need to be recovered or adjusted from the salespeople. This also takes the pressure off the sales team to get a project or sale implemented and shipped. The salesperson is paid and has a lot less interest in implementation and customer satisfaction.

Commissions paid at the very end of a long implementation cycle. In this second and, in many ways, opposite problem, the sales team doesn't have a direct tie between making a sale and their financial reward and thus loses motivation. Sales people need to be able to DO something to affect their income. The need to be able to come in to work and say, "I need to pay for my kid's summer camp, I better get on the phone" and then be able to feel some results.

Commissions paid generously on long term residual business. This causes your most productive sales people to turn from great hunters to farmers as they get tied up with account maintenance tasks and no longer have the time or the financial incentive to pursue new accounts.

Commissions don't actively promote "good behavior" on the part of sales people. Full commissions are paid on bad or simply unprofitable deals, unprofitable customers, less profitable products and implementations. In this scenario, there is no incentive for good team citizenship activities like maintaining a properly updated CRM, client notes or proposal archive.

Some examples of the profitability problem:

Too much money is being paid out in commission or there simply isn't enough profit in the average transaction to offer sufficient commissions. It is too often the case that the company's business model and sales process is set up such that there simply isn't enough commission dollars available to properly incent and reward the sales team or there isn't enough profit margin to sustain the company after paying commissions. The company's products or services simply can't be sold profitably in the current manner. Solving this problem isn't a matter of finding some superstar sales person, it is about fundamentally re-engineering your sales process and possibly your business model.

The lifetime value of the customer is not being considered in calculating commission or marketing investment. I have seen many business leaders recoil from the idea of making significant investments in either sales commissions or marketing to get a new account or even a strategic account even when the long term return on investment is extremely favorable. The irony is that most business leaders would borrow against their 401k, or their house, to make an investment with the same ROI if it were presented by their stock broker.

Sales goals are set too low with corresponding commission rates too high to both keep the sales team properly motivated and to maximize profit. There is a fantasy that many entrepreneurs have that their sales people want to make more and more money. The reality is that this is the exception, not the rule. Over and over I have seen salespeople shift into lazy mode once they have made their personal target income and/or their "keep management off my back" target.

Simplicity Problems:

Commission plans are too complicated and conflicting for sales reps to keep track of how much money a deal represents.

There is no fast and easy solution to any of these problems. The incentive problems need solutions that focus on finding that optimal balance between proper incentive and company profitability. While the profitability problem is one of bad business reasoning, or that the overall sales process is not supporting sustainable company profit.

In my experience, it is virtually impossible to create a sales commission plan that optimizes all these characteristics simultaneously particularly because there is an additional requirement--that a commission plan be reasonably simple and straightforward so that the sales team can understand it! If we make a sales plan that has bits and pieces to address all sorts of individual goals, it becomes analogous to the US tax code with loopholes, penalties, credits and deductions. It is best to keep the plan addressing the key aspect of profitability, but focusing on clear and simple incentives.

What It Takes To Get That Referral!

Wed, 16 Jun 2010 10:59:45 +0100

The American Bar Association just published this article I wrote for one of their publications:

http://www.abanet.org/lpm/lpt/articles/mkt06101.shtml

While it is written for lawyers, I think its lessons apply to all industries where referral business plays a big role.

It Is Not The Sales Training, It Is The Sales Process That Is Broken!

Sun, 16 May 2010 15:42:57 +0100

Sales training is often just a crutch or an excuse for an under-performing sales team. Sales management grasping for straws over a poor performance will grasp onto sales training as the cure like a drowning swimmer grasps onto the first floating object they come to. "We need training!" is a cry heard in boardrooms. No, training isn't by any means a cure-all.

There seems to be this prevailing attitude that if only your salespeople can learn a few more "tricks" for overcoming objections, or ticks for getting past the gatekeepers or another close technique ("teach them the Ben Franklin close and it will all be good!") they should dramatically improve their results. Nothing could be further than the truth. Learning sales tricks is nothing but the icing on the cake, it isn't the cake itself. A few new tricks might save a few sales in an organization but statistically it won't add up to much. The qualities that make a good salesperson are much more about their attitudes, aptitudes, desires, personality coupled with basic sales skills. The qualities that make a successful sales person is that they must have the qualities to be good and they must be driving an effective sales process. Great personal qualities applied to a poor process is as bad as poor personal qualities applied to a great sales process.

What is important is to have sales people with the right attitudes and aptitudes selling products and services that are well positioned in the marketplace and sold with a sales process that is proven, repeatable and profitable. What makes up a proven, repeatable and profitable sales model will be discussed in greater detail in an upcoming blog entry, but suffice it to say that it means that the sales process--the way you sell your products and services--is a process that can be executed successfully (proven) and efficiently by your sales team and that it is scalable (thus repeatable) such that your company and your successful sales team can both make money! If the sales process needs some work, fix it! Then create sales training that is tied to the sales process so your sales team can execute it successfully!

The most important steps to addressing an under-performing sales team center on three things: The sales process, the qualities and aptitudes of the sales people and then and only then the sales skills through sales training. The sales process is the result of the best sales minds in the company with or without outside help distilling the buying process of the various customer segments. With an understanding of the buying process for each segment, a sales process needs to be overlaid that can efficiently move the buyer through that buying process. The sales organization must be organized to that sales process and the sales team must then be taught the skills to execute the process. That is how effective sales training is done!

What Is The Difference Between Business Development and Sales?

Mon, 30 Aug 2010 17:37:55 +0100

There are many ideas about these overlapping terms, but generally speaking sales is considered a subset of business development with business development considered more strategically focused and sales considered more tactically focused. All sales is business development but not all business development is sales. The nature of the buyer's buying process and the company's sales process dictates whether a product or services is brought to market through sales or business development.

Sales is more process driven selling pre-defined products and services or not so predefined products and services that are fairly limited in their flexibility or the boundaries of their flexibility are limited. Business Development, on the other hand, is more about deal making and creating customized products and services or products and services customized in some other aspect of their transfer like terms and conditions, delivery conditions, post sales services. Like many things, it is often most illuminating to look at examples. While these are generalizations, here are some examples products and services and whether we consider them to be products and services that would be "sold" through a sales process or a business development process:

Item

Sales

Biz Dev

Why

Cars

You can choose color and options but you are limited in the ways you can modify the car and the ways you can acquire one

Ships

When you buy a ship, you are buying a ship to your specifications and each one is unique to the customers requirements

Cessna Single Engine

Like cars, a buyer of a small airplane has some features and options to choose from but doesn't have a huge range of possibilities

Boeing 787

Each customer (airline) can extensively modify the plane's interior, cockpit, power-plant in a very wide range of ways.

Legal Services

Both! Home closing, simple divorce, simple immigration or patent and trade mark matters can be "brought to market" through a sales process. More complex matters require a customized service and thus would be business development candidates.

Office PC Support Services

Nowadays, PC support services are generally quoted on the basis of the number of desktops supported and the applications supported. There is little customized.

At Shaer Associates, we know the difference and we know how to help our clients create effective and profitable processes.