Today a guest post from Aaron Ross, CEO of Pebblestorm who has just published a book called Predictable Revenue. Enjoy the post. My comments are at the end.
For companies selling products worth less than $100,000-$250,000, the old school strategy of hiring more feet-on-the-street to drive revenue growth is failing more often. Or just fails.
Let’s take companies in fast-growth periods who are focused mainly on adding new customers (rather than more mature companies who drive much of their growth through their customer base).
The problem: the old bedrock sales principles that usually worked now don’t… “if I need to double revenue growth, I need to double my sales force to drive it.”
Wrong.
Salespeople do not cause customer acquisition growth, they fulfill it.
Before you rush on to the next section, really consider that. It’s a HUGE shift in traditional sales thinking. I’m talking about root cause drivers, not correlations. Of course you need more salespeople if you’re getting bigger, but they aren’t what is causing new customer growth.
Lead generation causes new customer acquisition and sales fulfills it. I see a future in which sales is more and more like account management, and the focus of new customer acquisition responsibility growth falls more squarely on lead generation executives (VP Demandgen/Leadgen and VP Sales Development).
OK, the Sales 1.0 thinkers out there are saying “You’re crazy. I’m hiring salespeople and they’re adding new revenue. And it’s worked for me for 15 years. Without great salespeople, we wouldn’t be closing these customers. Our 9-stage sales process is really cool too.”
Right. That did work in the past. Things change.
Here’s another way to think about it by comparing two competitors.
Competitor A:
* Trying to double from $10m in revenue to $20m.
* 10 salespeople today, growing to 15.
* Generating $3m per month in new pipeline through proven campaigns in leadgen and marketing (40% of pipeline), a cold calling 2.0 team (40% of pipeline), partners (20% of pipeline).
* Their salesperson ramp-time is 4 months (because they create pipeline for the rep to walk into).
Competitor B:
* Trying to double from $10m in revenue to $20m.
* 10 salespeople today, growing to 20.
* Competitor B spends money on marketing, and salespeople cold call, but no one really tracks pipeline metrics. But the VP Sales and the salespeople have had a knack for hitting their numbers each month so far with some scrambling.
* They think their new salesperson ramp-time is 6 months (but really will end up at 9-15 months…if their salespeople ramp at all).
Who would you bet on?
Here’s the ’11 scenario I personally see playing out for too many companies:
1. Board/CEO sets an aggressive 2012 revenue target (mostly based from new customer acquisition)
2. VP Sales/CEO divides revenue goal by expected quota to determine the number of salespeople needed to hit the target
3. Sales reps miss targets after ramping MUCH more slowly than planned
4. Everyone has an extra helping of pain and a side of stress for Thanksgiving next year (if the VP Sales is still around)
Here is the root assumption that causes ‘VP Sales roadkill’ (although the board and CEO are equally responsible): Their false assumption that salespeople will find new business on their own.
No they won’t. Not enough to feed themselves.
(Ok, SOMETIMES, SOME salespeople can. Some people win the lottery too.)
Here’s why:
- Salespeople are terrible at prospecting
- Salespeople hate to prospect
- Even if a salesperson does do some prospecting successfully, as soon as they generate some pipeline, they become too busy to prospect.It’s not sustainable.
Unless all I’m selling is big deals (>$250k), or in industries that truly are relationship-based (like the ad agency world)…there’s no way in hell I’m rolling the dice on my company based on this assumption.
How boards & CEOs exacerbate the problem
As soon as a product is ready for market and there’s some initial customer traction, the board and CEO tend to rush to set 100%+ growth targets. They arbitrarily pick goals (since there’s no data to base predictions on!) and turn the screws on the VP Sales. The VP Sales sucks it up (especially when he had no voice in the goals) and gets busy hiring salespeople…who miss plan. Company misses targets. Executive team is refreshed.
Why is it easier for people and companies to do more of what doesn’t work than to take some time to figure out what does? By Q2, when the sales people aren’t making their 2012 numbers, there will be the push (from the board, CEO or VP Sales themselves) to hire more! “We’re behind on our goals, we need to hire more salespeople!” How does that make sense?!
I think people, when under too much pressure or stress, tend to retreat to the safe place of what they know rather than taking the risk of trying new things. It’s safe, it’s less scary than what’s unknown. It doesn’t make logical sense; it must come from the reptile part of the brain.
Some answers, kind of
Unfortunately, there aren’t any quick fixes to this lead generation problem today. In fact, if you don’t have any repeatable leadgen programs yet, you’re already behind in getting ready for ’12. Despite your investors’ demands, it takes 12-18 months to get leadgen cranking. What can work is a mix of, for example:
- Trial-and-error in lead generation (requires patience, experimentation, money)
- Patience in building great word-of-mouth (the highest value leadgen source, but hardest to influence)
- Implementing Predictable Revenue Processes (by far the most predictable source of pipeline, but it takes time and focus)
- Building an excited partner ecosystem (very high value, very long time-to-results)
- PR (great if you’re great at getting it!)
Start with more awareness on how much pipeline you’re generating
Not sure what works today, or where to start? Begin with awareness.
- Does your executive team and board know how much new (qualified) pipeline the company needs to generate per month?
- Is that tracked at the board level? (At least while customer acquisition is a primary focus.)
- Is there a common language, common definitions, for “prospects”, “leads” and “opportunities”? One of the biggest problems is usually mis-communication and misunderstanding of terms and metrics between executives and directors.
Email me with your rants, or comment here
Are you skeptical of this? I could use some good email or comment threads to flesh out the ideas and issues around this. Email me at aaron at pebblestorm dot com.
My take: I agree. The rules of sales are changing, particularly in B2B sales. Because of the Internet, customers these days are more knowledgeable than ever and are more likely to research suppliers rather than taking cold calls. Leading companies these days know that the sales and marketing must be aligned and have a sophisticated multi-pronged approach to developing new business. I have a different view on the degree to which sales people can prospect. In our experience, many but not all sales people are terrible at prospecting. It is human nature to avoid the heavy lifting that goes with cold calling andjust as successful selling has changed so has sales hiring.Gone are the days of hiring reps that look good or can shmooze with customers. Today, leading companies know they have to define the skills, experience and DNA required to perform eash sales role and hiring non-BD types into BD positions is a recipe for failure. It will be interesting to see how this all plays out and I suspect the sales leaders who are mastering this as we speak, will be talking about sales 3.0 in the not so distant future.
numbers. Is one of your reps doing poorly because it is summer, because of the economy or simply because of bad luck? It is sometimes hard to know.
How many times have you decided you needed to add sales reps to your team or make some changes and gone to your recruiting function only to find that there is no one you could hire immediately? While your company receives job applications all the time, these are usually from unemployed people who didn’t cut it elsewhere or people who have never sold much of anything and naturally, you don’t feel overly enthusiastic about pegging your hopes on them. Searching for great sales people, evaluating them and courting them to join your company takes time and meanwhile you sales goals that need to be met.
From time to time you will be in a salary negotiation with a sales candidate when they pull out a salary survey as evidence they are worth the compensation they are asking for. So how much weight do you place on salary surveys?
Picture this competitive scenario. Your company is in a dog fight with two other companies to win an important piece of business. One of your competitors is a large, well-known market leader and the other always offers aggressive price discounts, while your company has the superior product. Who will win the business?