At Evergreen, we help companies grow more, predictably. To enable greater and more predictable growth, our work with senior leaders, sales mangers, and sales reps focuses on:
- Making informed strategic choices about which growth opportunities to pursue,
- Organizing resources effectively, and
- Equipping sales managers and teams with the right processes and tools to sustain success
Over the next six weeks – commencing November 1st – we will focus on our top the top 10 growth drivers we believe senior leaders, sales managers, and sales reps should focus on to drive growth in 2013. We have selected these 10 issues because they are actionable at all levels – the rep, team, and the organization. Moreover, they are proven, based on our experience with over 60 clients, to accelerate growth in a wide variety of industries.
Please follow us via email or RSS feed over the next six weeks. And, if you have recently deployed, or plan to deploy, one of our 10 Drivers, please add a comment on the blog or Twitter at @EvergreenGrowth.
Update: Links to the 10 drivers we posted are listed below:
- Growth Driver #1 – Confirm Your Revenue Model
- Growth Driver #2 – Increase Your Value
- Growth Driver #3 – Sell the Way Customers Buy
- Growth Driver #4 – Pursue a Mix of Revenue Gains and Drains
- Growth Driver #5 – Identify Growth Themes
- Growth Driver #6 – Create a Road Map to Success
- Growth Driver #7 – Tighten Your Focus on Sales Management
- Growth Driver #8 – Assess Your Turnover Risk
- Growth Driver #9 – Focus on Opportunity Creation
- Growth Driver #10 – Define Decisions at Customer Touchpoints Before Investing in BI Tools
Your markets are maturing, even declining. Do you know how to evolve your Sales Model?
Lately, the topics of market maturity and decline have been coming up a lot in our discussions with CEO and business owners. There’s a growing sense, as the anemic economic recovery rocks along, that growth for many markets has peaked or is in a steeping decline.
You know the warning signs of maturity and decline:
- Profits are being harvested and paid to investors and management vs. re-invested in product innovation or market expansion.
- Consolidation of competitors is occurring at an increasing rate, and new entrants are innovating from the bottom.
- Price pressure is increasing significantly.
- Customer’s control over the buying process has increased markedly, it’s harder than ever to gain early access to stakeholders.
- Competitors are competing on brand, ancillary services that complement products, and process improvements instead of the products themselves.
Examples of industries in maturity or decline are abundant. One of the most prominent is the plumbing industry which is very mature in the developed world. And, immature in the developing world; it’s products are not well suited because the lack of public infrastructure, water, and energy. A short list of competitors: Sloan Valve, Kohler, Zurn, Toto, and American Standard have dominant market share and market share has been relatively static for long periods of time. Competition is somewhat oriented to products that conserve water, but is substantially oriented around price, and distribution channel control. So what must the plumbing industry, or others facing similar circumstances do to adapt their sales models?
Implications for Sales Models
Maturing and declining markets pose a number of implications of one’s sales model. In maturity, sales efficiency, or the cost of customer acquisition becomes critically important. Where as in decline, one’s ability to capture specific pools of profit becomes paramount. Here are strategies you should pursue:
Sales Process, Sales Process, Sales Process. The first and most underutilized driver of sales efficiency is a sales process that is designed based on the customer’s buying process. Once you have a sales process that fits the customer’s buying process, it is critical to enable this process with a CRM system to measure and track sales cycle times and customer interactions, as well as tools to support quality conversations and information sharing with each customer stakeholder in the sales process.
Focus on Sales Management Processes. Having a sales management process that enables frequent inspection of sales opportunities and coaching of sales personnel around the efficient and effective execution of the sales processes is a critical, and often under-leveraged driver of customer acquisition cost.
Re-align Compensation. In the wake of maturity, it is important to ensure that compensation spending is aligned with the right revenue, profit, and/or product and market outcomes while appropriately rewards levels of performance. Quota setting accuracy, allocation of compensation dollars by product/market, and the shape of payout curves become critical drivers of cost of sales.
Customer Selection. Once decline begins, the identification and selection of profitable customers becomes critical. To do this, sales leaders, with the help of finance, must develop a detailed understanding of individual and customer segment behavior and the drivers of profitability within the customer’s business and their own. These insights form the foundation of where and how to manage decline while sustaining value at the bottom line.
Channel Selection. Within decline, channel selection and, ultimately, consolidation become critically important drivers of sustained profitability. Before demand shrinks precipitously, sales leaders must begin reducing the number of channel partners while improving their ability, through informed selection and strong partnering programs (invested in and created by the channel partner and manufacturer) , to maintain customer access and ensure quality customer experience.
Sales Coverage. Similar to channel selection, the number and types of sales people deployed across markets must be adjusted as markets decline. Not surprisingly, many sales leaders face maturity without having developed much skill at coverage re-design. This is due primarily to the perceived risk of altering customer relationships by changing account assignments and team configurations. However, this risk is mitigated by maintaining a clear understanding of how, and from whom, customers want to buy – which informs the type and number of sellers required – and creates a basis for making regular incremental adjustments.
It’s not only critical to spot the warning signs of maturity and decline, but also develop the ability to adjust one’s sales model dynamically across the market life cycle, ideally in advance of each stage!
Is your market maturing or declining? If it is, how are you adapting your sales model? Comment here or on Twitter. Or contact me at email@example.com.
If you are feeling like Eeyore, it could be time to reclaim control of your business model.
I recently attended a discussion, with business leaders, on business conditions and the economic outlook for the remainder of 2012 and next year. Interestingly, I came away from the discussion feeling utterly schizophrenic. During the discussion it became evident that we interact primarily with two types of managers. One is the Eeyore camp, who believe business conditions are largely out of their control and imploding, that the key to success is survival and risk management, largely through active cost management and customer retention. The other is made up of optimistic striving individuals who are fighting status quo, re-designing their businesses, and investing in experiments that they believe could transform their businesses.
As these disparate groups came into view, it struck me that the central difference between the Eeyores and the Strivers was a deep understanding of their business model and a desire to reshape it in the wake of market changes. As we dug a bit further, it became painfully clear that many of the Eeyores lacked a fundamental understanding of, or control over, key elements of their business models. I started to wonder how many could answer the following sets of questions about their models:
- Which customer segments are growing or likely to grow?
- What do these segments want to buy and do we have the right products?
- How do these segments want to buy, and are we selling that way?
- What price does each segment expect?
- What’s the cost of customer acquisition and the lifetime value?
- How long is the sales cycle and the yield between each step?
- Do we create enough opportunities at the top of the funnel to drive growth?
- Gross Profits:
- What does it cost us to produce our products/services?
- Are we driving enough volume on our high margin products or too much on our lower margin products?
- Do we understand which customers are more and less profitable?
- What are the biggest opportunities to reduce our costs of goods sold?
- Should we rationalize, or innovate within, our product mix to increase margins?
- If we reduce these costs, what are the implications for our sales and operating models?
- Can margins be increased to the point where investments in growth are self-financed?
- Operating Model:
- Are you spending the right amount on key functional operations outside of product creation and service delivery?
- Where can we eliminate costs without impairing the customer experience?
- Cash Flow:
- How quickly must we pay our liabilities, can we delay payment further?
- How fast can we get customers to pay for goods and services?
- Are there customers who will pay substantially in advance?
- Can we reduce the amount of cash tied up in inventory or our supply chain?
How would you answer these questions about your business model? Do you and your team understand the interconnections between different elements, particularly their impact on cash flow? Where’s the highest value place to wrest control of your business model?
If you have recently addressed one or more of these questions, share your thoughts and experience by commenting here.
Do Your Metrics Enable Accurate Revenue Forecasting and Decision-Making?
As we head into the last third of the year and begin to experience another pullback in the economy, many Sales leaders are asking: Are we tracking the right metrics to gain visibility of future revenues and make critical decisions?
Unfortunately, in too many cases Sales Leaders’ metrics are flawed. They either track too many incoherent metrics, they track and report metrics inconsistently, or they do both.
Luckily, it is relatively easy to solve this problem if you adopt the right principles on the way into discussions with your team.
First, it’s important to think about what metrics increase management’s ability to forecast revenue accurately over 30, 60, 90 days, and potentially beyond.
Second, it’s wise to utilize a small number of simple metrics, that everyone understands and the organization can track and report unfailingly.
Lastly, it is important to implement a set of metrics that enable tactical management conversations and decision-making up and down the management hierarchy, and between Sales and other departments upon which is dependent(such as Marketing and Customer Service).
The Critical Few
Our favorite metrics, which meet the above principles consistently across different types of business models, include:
- # of New Leads
- Conversion Rate of Leads into Proposals
- # and $ Value of: New, Renewal, and Penetration Opportunities by Stage in the Pipeline
- Sales Cycle Time by Stage in the Pipeline
- Conversion Rate of Opportunities by Stage in the Pipeline
- $ Revenue for New, Penetration, and Renewal Sales
- Total Cost of Sales/Total Gross Margin
Typically, these metrics would be tracked at various levels from corporate down to the sales territory. Similarly, they should be reported monthly and rolled up quarterly, semi-annually, and annually for trend assessments.
We find these metrics ideal because they provide the Sales Rep and the Board room with a complete and actionable picture of the Sales Model’s performance, including: the ability to forecast revenue accurately, early warning of changes in demand and rep performance issues, a sense of the company’s competitiveness in the market and the quality of customer relationships, and the overall efficiency of the sales force.
If you are working to refine, or have recently refined, your Sales metrics, we would like to hear from you. Please comment on this post, or send a Tweet.
What’s required to grow on a sustained basis?
We hear this question a lot, so we decided to share a few qualitative and quantitative insights on growth. Before we jump to insights, some context setting is useful.
Sustained Growth is Hard, but Not Impossible
Our research of S&P 500 company performance from 1996 to 2006 shows that just 6% were able to sustain growth for 10 years running, where as 31% sustained it for five years straight during the 10 year period. A closer look at sustained growers vs. non-growers reveals some interesting differences:
- Companies that sustain growth for 5 and 10 years achieve compound annual growth rates of 12.7 and 13.3%, respectively vs. 4% for companies that don’t grow consecutively.
- Sustained growers across 5 and 10 years also grow their sales forces as higher rates, with compound annual growth rates of their sales forces of 1.91 and 3.1%, respectively, compared to a -2.2% compound annual growth in sales by companies that could not grow consecutively.
- As sustained growers across 5 and 10 years grow they decrease the proportion of sellers as a percentage of the overall workforce by- 2 and -3% per year, respectively, where as companies that do not grow consecutively see an average increase of 3% in the proportion of people in sales.
In summary, serial growth companies: realize a flywheel effect where consecutive years of growth begets higher growth overall growth, they grow their sales forces faster than companies that do not grow consecutively and they grow their sales forces at a slower rate than their overall work force.
So What Drives Sustained Growth Companies’ Ability to Achieve High Sales [Capital] Efficiency?
Our experience suggests that sustained growth companies draw on six levers to drive growth:
- Focus narrowly on growing sub-segments within markets. Sustained growers are exceptional at reviewing their growth history and analyzing segments to identify pockets of growth that they can serve efficiently. Become a master at thin slicing your markets to identify pockets of growth, the benefits are significant; 2-4x growth over average is possible in many sub-segments.
- Segment the sales force into specialized groups targeting segments with similar needs and buying processes. Specialization creates efficiency across the sales process and heightens focus on customer experience. Organizations that fail to specialize do so at their own peril. Too often, Sales leaders develop sales investment cases at the margin which contain flawed assumptions driven by historical experience in different markets under different sales processes. For more, visit my previous post on marginal cost justifications for sales force expansion.
- Regularly assess sales force coverage. Having the right number and types of resources covering your target segments is essential to maximizing revenue capture and sales efficiency. Yes, adjusting coverage is unpopular with the field, however, it’s essential to managing productivity and cost of sales, particularly as markets mature. If you are facing maturity or are already there, bite the bullet and create a coverage realignment process.
- Invest in defining, updating, and consistently following a sales process. Surprisingly few sales forces consistently follow a defined sales process, and fewer still regularly revise the process with customer input. This lack of discipline breeds waste, inefficiency, and customer discontent.
- Tightly align sales and marketing. Creating tighter alignment between sales and marketing, particularly in targeting, awareness building, and lead creation reduces inefficiency by preventing the expenditure of sales resources on unqualified opportunities or early, less valuable steps in the sales process. Serial growers know that maximizing quality lead volume is critical to sales efficiency and impossible, with the prominence of the web, for sales to do one its own.
- Invest in a sales management system. Serial growers consistently have strong sales management systems that clearly focus on managing activities to achieve interim goals which lead to business outcomes. Creating this linkage enables managers to utilize predictive metrics and have coaching conversations with reps that lead to skill development and behavioral change. See my previous post for more on this topic.
Now get out there and start working on these levers, you need not approach them in order. There is incremental value in each one, and perfect alignment across all six requires constant tuning.
If you are pursuing serial growth or have achieved it, we’d love to hear from you. Please comment here or @Evergreengrowth on Twitter.
As mature companies pursue their second and third stages of growth through new products and/or new markets, they are frequently shocked by the underperformance of their sales channels. Despite successfully selling mature products to existing customers channel partners fail to develop a lead stream and sales volume for new products within existing, let alone new markets.
While disappointing and unexpected, this is a frequent and predictable occurrence. Many factors contribute to the underperformance of channels, including: price competitiveness, product innovation, short product lifecycles, and a proliferation of new competitors. But, the crux of the problem lies in human nature; sellers do what’s easy, known, and highly probable, first and foremost and that leaves little time or effort to take on new things. We see it all the time, a company has a brilliant new product with a great value proposition and high profit characteristics (to the channel partner and rep), but channel partners remain incredulous, and despite the marketing brochures, PR, and noise created in the market, the sales needle barely moves.
So what should you do to avoid this jam?
- Sell Direct and Build the Reference Customer Base. Creating a number of dedicated direct (your employees, selling only new products) sales positions to expand the reference customer base in two or three target segments will give you the currency you need to attract and maintain the attention of channel partners. It will also give you the insights (into sales process, objections, buyer behavior and needs) needed to onboard and ramp up (new or existing) channel partners. Remember, selling new products and penetrating new markets is fundamentally different than selling established products into mature markets, it’s like starting over, you must create a dedicated sales effort to build the customer base just like when you were a start-up.
- Offer Generous Terms. I know what you’re thinking, We can’t afford to be generous, particularly after investing in direct sales to build a base we turn over to a partner, you’re crazy! Actually, I am not, to get repeatable scale from a channel you need to invest in it by allowing the channel to reap higher margins early on. You must make it worth your partner’s while to take on your product and champion it internally. I am not suggesting you give away the store with no strings attached, rather, I am recommending you allow your channel partners to earn higher margins commensurate with their committing to specific actions and accountability across the sales process, and for achievement of specific results.
- Support the Channel. In the past you may not have needed to do this, you had a manufacturer’s rep that could run interference and keep your distributor’s happy. These days are over, product life cycles are too short, margins can’t support two-tiered distribution, decisions are made too quickly, and end-user and channel intimacy is too important to operate with an intermediary. You must have channel managers, ones who are equipped with tailored (channel and end user) marketing materials and plans, and who are skilled at lead development and sales process execution, as well as deepening the skills of your channel partners. Without these folks your share of the channel’s mind will recede and you will lack the market intimacy to remain innovative and competitive.
In short, channels are partners, and rolling out new products or entering new markets is a reset in many respects for them and for you. So, don’t treat things as business as usual; if your channels fail you, you’re to blame, they are not, their doing what’s natural and rational.
Let us know your thoughts on this piece by commenting here, or connect with us on Twitter.