“A good sales growth for us … in the industrial glove market … would be 5%. But, even through the recession, we’ve seen a pretty dramatic increase in sales. This year we’re about 25% up in our sales over the previous year.

“I think some of that is the economy but some of it has to be attributed to the sales process [engineering] as well”

Below you’ll find a link to an interview with Joe Geng of Superior Glove. Superior Glove distributes gloves throughout North America from its home base in Acton, Ontario.

In the interview, Joe discusses both the successes and the challenges they’ve faced implementing SPE. What’s particular interesting is the discussion of salespeople’s reaction to the radical changes in their operating environments.

Enjoy!

Justin Roff-Marsh interviews Joe Geng of Superior Glove

New SPE blog features simple design and discussion forum

I’ve been busy over the holiday period redesigning and rebuilding my blog.

You’re looking at it right now!

The change I’m most excited about is the addition of a forum (integrated with the the existing commenting system). The problem with comments is that, traditionally, they’re attached to posts – meaning that all the discussions are disconnected from one another.

Well, my blog now has the best of both worlds. You can still comment on posts, but comments also appear in the forum, along with all other discussions. I’m hoping to recreate some of the lively discussions that used to occur before I transitioned to the blog from a Yahoo Group.

So, please humor me. Take some time to participate in the couple of existing discussions (including the one attached to this post) – or go ahead and start your own discussion by posting a new topic. If you want to register (so the blog remembers you for future visits) you can do that but it’s not required. You can participate just fine without registration.

Trust me: you’ll be so glad I blogged about this.

A one-hour interview with a founder, every day of every work week: totally free!

Every day of the (work) week, I listen-in on a one-hour interview with an entrepreneur.

Since I moved to LA, I’ve listened to shockingly-good interviews with founders, business owners and business luminaries – people like:

• Tim Ferriss (who wrote the 4-Hour Workweek and who invests in numerous Bay-area start-ups)
• Gary Vaynerchuk (founder of Wine Library TV and author of Crush it)
• Jimmy Wales (founder of Wikipedia)

I listened to these interviews on a site called www.mixergy.com. And, amazingly, I’ve paid nothing for the privilege.

Andrew Warner interviews Jimmy Wales (Wikipedia)

The sole purpose of this post is to encourage you to go to Mixergy – to encourage you to start listening to Mixergy interviews – and encourage you to develop a daily Mixergy habit, just like mine!

Please understand that this post is a no-holds-barred endorsement of Mixergy – but it’s NOT a paid endorsement. Andrew Warner (the founder of Mixergy) has no idea I’m writing this post – and I stand to get no benefit whatsoever (other than sharing what has, for me, been a life changing service).

And frankly, I prefer it that way. Absent any commercial relationship, there’s no need for me to pull any punches. I can literally plead with you to take the time to discover Mixergy.

So, I’ve given you a hint of what Mixergy is about. A free one-hour interview every day of the (work) week with a founder. But that’s not the half of it.

Three things that really make Mixergy special

There are three more things you really need to know about Mixergy:

First, the high-profile interviews I’ve mentioned above are just the tip of the iceberg. Of the 658 interviews Andrew has on his site – and of the ~200 I’ve listened to – the greater majority are total strangers. And that’s part of the magic. Every week I hear stories of people I’ve never heard of who’ve tapped into markets I never imagined existed and who have built businesses that turn over millions, tens of millions or even hundreds of millions of dollars.

The second thing you need to know about is Andrew Warner. This guy is a seriously good interviewer. He’s gentle and understated like Larry King. But he has an ability to dig for the key ideas – the root causes of founders’ successes – that is simply unequalled. Part of Andrew’s magic is that he’s a founder himself. Hi built and sold a $38 million online greeting-card company before starting Mixergy. This means that has the credibility to put his guests on the spot from time-to-time and challenge them to justify their positions. This makes for a subtly different dynamic between Andrew and his guests that you simply won’t experience elsewhere.

You also should know that most (not all) of Andrew’s subjects are founders of tech start-ups. Obviously, as someone with a tech bias, this is very appealing to me. But, it I think it should be appealing to you too, even if you are not technically inclined. This is because the tech industry is in a period of rapid growth unlike any other industry. It’s also because the tech industry attracts some of the world’s brightest entrepreneurs – who compete unrelentingly to be on the cutting edge of all critical business functions.

Benefits I’ve received from Mixergy interviews

In the year or so I’ve been addicted to Mixergy, I’ve learned so much about just so much!

I’ve learned a lot about online marketing – about PPC, SEO about analytics, about aggressive media buying, about the optimization of landing and squeeze pages and so much more.

I’ve learned a lot about funding growth – about the pros and cons of taking outside investment, about cashflow management, about taking on partners and so much more.

And, I’ve even learned a thing or two about traditional operations – inventory management, creating productive vendor relationships and more.

Plus, I’ve picked-up so many tips that have delivered immediate benefit to our business. One example: we used to buy an SMTP service from www.smtp.com. Then, one day, I heard an interview with the founder of www.sendgrid.com – a competitive service. I was impressed with the founder so I checked-out the service. Bottom line, I switched to a much more advanced service with a laundry-list of features I didn’t previously have and much better service. And, I cut our monthly SMTP bill almost in half!

That’s just one example. If I sat down and thought about it, I could probably identify (literally) 20-30 similar instances. And I pay NOTHING for Mixergy!

Nuts and bolts

Yep, it costs nothing to listen to Andrew’s interviews. You can watch the videos each day as he posts them or you can set up your podcast catcher to download the audio for you (I use iCatcher on my iPhone).

These interviews are available free for everyone for seven days. After that they disappear behind a paywall. If you want to listen to past interviews you can get access to all Andrew’s content for $199 a year.

I haven’t actually subscribed to Andrew’s paid service yet – I will shortly. But, I’m not suggesting you do that on day one.

Here’s what I am suggesting:

1. Get over to Mixergy now and watch one of the current interviews: www.mixergy.com
2. If you like what you hear, download one of the numerous free podcast catchers to your mobile device and subscribe to Mixergy from that application
3. Whenever you’re in your car – or on a plane – listen to a Mixergy interview – in place of the radio

That’s the process I followed. It took me about 10 days to go from casual interest to fan to total addict. I’ve already introduced Mixergy to a few of our clients, here and in Australia, and they report the same experience.

So, as the great Molly Meldrum used to say, do yourself a favor, get over to www.mixergy.com, and start listening.

And have a very Merry Christmas!

But, as you’ll notice from this chapter heading, we’re not navigating these big subjects in what would appear to be the logical order.

There are two (very) important reasons why we’ll be talking about prosecuting opportunities before we talk about originating them:

1. Assuming that your business exists right now, the first set of opportunities you’ll encounter are those that already exist – meaning that the content of this chapter is immediately applicable
2. Counter to popular opinion, there is typically (but not always) more upside in improving the management of your existing opportunity flow than there is in investing the same effort in the generation of new opportunities

In this chapter we’ll define what we mean by opportunity and then we’ll figure out how to convert opportunities into sales.

Suspects, prospects and opportunities

The definition of sales opportunity would appear to be self-evident: it’s an opportunity to sell something. This definition, however, is a little imprecise.

After all, anyone who has been around sales for a while knows that there’s a number of other commonly-used terms that reference the probabilistic nature of the sales engagement (e.g. suspects, prospects, leads and potentials).

Let’s start our little quest for precision by recognizing the requirement for different terms. It’s meaningful to differentiate potential sales from one another on two dimensions:

1. Probability (what are the odds of this potential sale becoming an actual sale?)
2. Incremental effort expended (do we process these potential sales individually or in batches?)

Probability

We can use this first dimension to distinguish between suspects, prospects, non-prospects and accounts (sales):

1. A suspect is a name in a telephone book. It’s the term used to refer to an individual (or organization) in the universe of individuals (and organizations) that exist out there somewhere. A suspect has no probability – which, by the way, is not the same as saying that a suspect has zero probability. The thing is, we use the term suspect specifically to refer to the greater population of unclassified (or unrated) individuals and organizations.
2. A prospect is an individual (or organization) with non-zero sales probability. To be more specific, it’s an individual (or organization) with some likelihood of purchasing during a sensible time horizon.
3. Like a suspect, an account has no probability because this opportunity has already been won!

So, where the probability dimension is concerned, I’m suggesting that the distinction is binary: prospects have some probability; everyone else doesn’t.

Incremental effort

The second dimension yields a binary result too. As mentioned, potential sales can either be processed individually or in batches. Salespeople interact with potential clients one at a time – and your marketing department processes them in batches.

This distinction is critical because personal interaction consumes finite resources. Unless there’s something terribly wrong with your technology, your marketing department can process one more click on a landing page or add one more person to an event with negligible incremental effort. Where your salespeople are concerned, however, there’s a hard limit on how many potential clients they can engage with simultaneously.

We use the term sales opportunity (or just opportunity) to refer to those prospects with whom you engage one-on-one.

The other terms we encountered are synonyms for those we’ve already defined. Potential and opportunity mean the same thing, as do lead and prospect.

We now have clarity. A suspect is an unclassified (or unrated) individual (or organization). A prospect is an individual (or organization) with non-zero sales potential. And an opportunity is a prospect in which you are investing incremental sales resources.

Implications for technology (CRM)

It’s useful to consider how these terms relate (or should relate) to modules in your CRM.

Generally speaking, suspects don’t belong in your CRM. Prospects do, and you’ll manage these using your Lead Management and Campaign modules. Opportunities will be managed using (predictably) the Opportunity Management module.

For most organizations, this represents a radical shift in how opportunity-management is done. If, according to our definition, an opportunity is any prospect with whom you are interacting one-on-one, this means that an opportunity should be created in CRM the instant that the sales coordinator engages with the prospect and not when a salesperson deems them to be qualified (or when a proposal is requested)!

Inactive prospects

If you’re on the ball, you’ll have spotted a hole in my definitions! What do we call individuals (or organizations) that have been assessed: but that have been assessed as having zero probability? This is more than an exercise in semantics as the following scenario will illustrate.

Let’s imagine we are a managed fund that promotes itself to large financial-planning firms.

And, let’s assume that we promote ourselves exclusively by purchasing lists and running direct mail campaigns (heaven forbid this is the case in this day and age!)

It would make sense for us to delineate suspects and prospects based on data that is readily available. So if we consider the universe of lists (suspects), we can readily identify the nature and size of most organizations (this information is in the public domain).

So, in our case, we’ll deem all financial-planning firms with greater than (say) 50 employees to be prospects. And, we’ll aim, over time, to ensure that all of these prospects end up in our CRM.

Now, as our salespeople prosecute opportunities that we have generated against these prospects, they may discover that some prospects are committed to certain investment platforms – and that these platforms prohibit them from recommending non-platform funds. With this additional information at our disposal, we’ll now likely conclude that these firms are actually non-prospects. It is impossible – during any sensible time-horizon for them to purchase from us.

But, this does not mean that we’ll reclassify these prospects as suspects and delete them from the CRM! If we were to do this, we’d almost certainly end-up adding them again, in future, when they appear on another list we purchase. What’s more, we’ll probably recognize that their zero-probability status is a transitory thing. It’s possible that these firms will change platforms at some point. It’s also possible that their current platforms will reassess their position on exclusivity – or even that our fund will get picked-up by those platforms!

The solution is to:

1. Make the prospect classification based only upon readily-available information (i.e. avoid stipulating a requirement for omniscience)
2. As more information becomes available, assign a status of inactive to those prospects that have zero probability

Converting prospects to opportunities

You may be surprised that the definitions I’m suggesting are not based on probability thresholds. I’m not suggesting, for example, that a prospect be reclassified as an opportunity when its probability is assessed as being greater than (say) 80%.

While it’s true that you should consider percentages when you are analyzing historical data, it makes no sense to use them as a guide to management (resource-allocation) decisions. When considering where to invest your resources, the question should not be which prospect has the greatest probability of purchasing? Rather, you should be asking, which prospect is likely to generate the greatest yield on the organizational constraint?

Obviously, the likelihood of that prospect purchasing has some bearing on that answer, but there are other factors that should probably receive equal (if not greater) attention:

1. What product or service is this prospect likely to purchase?
2. What margin are we likely to be able to charge that prospect for that product?
3. What is the likely term of our relationship with that prospect?
4. How many units of our organizational constraint are likely to be consumed servicing this prospect?

Of course, there is a high degree of uncertainty associated with all of these factors. The practical solution to this uncertainty problem is to design a sales environment that allows a healthy opportunity flow (volume, not crystal-ball-gazing is the antidote to uncertainty!).

You convert a prospect to an opportunity simply by determining that you will allocate finite sales resources to it. The conversion may be triggered by a prospect’s action (e.g. they may attend a webinar and request a consultation) or it might be triggered internally (e.g. your promotions coordinator sends a pre-approach package to 20 prospects and tags them all for follow-up by a salesperson’s sales coordinator).

If we assume that sales is your organization’s constraint, your primary focus will be keeping your salespeople fully utilized (four appointments a day, five days a week).

Which prospects to convert to sales opportunities is a secondary consideration. You may choose to engineer your sales environment so that the conversion of all opportunities is triggered by prospect actions or (more likely) you will have a mix of externally and internally triggered conversions.

Where the latter is concerned, you can use the factors above to implement a (quick-and-dirty) prospect scoring algorithm (with prospects sorted in descending order). However, you must recognize – as discussed earlier – that such approaches are helplessly inexact (hence, my quick-and-dirty reference).

The (grisly) end of qualification

Now, it’s important to note that I’m not advocating any half-way step in between prospect and opportunity. A prospect is either in play or it isn’t – and if it is, it’s an opportunity.

Of course, if you listen to salespeople talk, you’d be convinced there is an intermediate step where prospects must be either qualified or disqualified. In fact, it’s widely believed, in sales environments, that qualification is a necessary and value-adding activity.

Nothing could be further from the truth!

Let’s consider qualification, as it’s typically practiced:

Lenny, the CEO of a mobile-application-development firm returns from a business-leaders’ mixer with a handful of business cards.

Each business card has been given to him by a senior executive from a mid-sized organization.

Excited, he hands the 20 business cards to David, one of his salespeople – who agrees to follow them up.

Two weeks passes and Lenny has received no feedback so he button-holes David at the local cafeteria. “What’s happened with those 20 opportunities I gave you,” he asks.

“Well,” David explains, “only 2 of them are real opportunities … and I’m still working on them.”

Lenny is incredulous: “what do you mean; only two of them are real opportunities?” “All of those people are senior executives of decent sized businesses – and all decent-sized businesses have cause to at least consider web applications.”

David shrugs and returns to his lunch.

We can only make sense of David’s position if we consider the environment in which he operates (the traditional model). Because of the multitude of competing demands for David’s time, David has no choice but to prioritize. And, because many of these demands are urgent (e.g. helping production to interpret client requests, solving customer-service problems and so on), David has very little capacity remaining to invest in speculative business-development activities.

When Lenny hands him 20 business cards, he recognizes that he simply doesn’t have time to prosecute 20 opportunities concurrently. His solution is to make a quick (qualification) call to each contact to determine how interested they are in a mobile application.

Not surprisingly, he discovers that only 2 of the 20 have any concrete interest (none of the others has even made a budgetary allocation!)

Sadly, this scenario plays out every day, in almost every organization, in every country of the developed world.

Qualification is NOT selling: it’s actually the opposite (the avoidance) of selling. Of course, the core problem here is the design of the traditional sales environment. However, when we reengineer that environment we cannot simply assume that all the practices that made sense in the old environment will simply disappear in the new one. Some won’t – meaning that they need to be actively eliminated.

Qualification is a particularly insidious – and remarkably persistent – practice. You will need to hunt it down and drive a stake through its ugly heart whenever it makes an appearance.

If a salesperson has an unutilized unit of capacity and there’s a prospect available, that salesperson should be selling them, not qualifying them.

As discussed, it does make sense to distinguish between suspects and prospects but, I’d suggest you avoid using the term qualification for this purpose. Qualification is so destructive that you’re better off exorcising both the practice and the word from your organization!

Now it is true that not all prospects are equal but, as we’ve already discussed we can allow for this by:

1. Sorting (or indexing) prospects using our quick-and-dirty scoring algorithm
2. Maintaining a surplus, so as to ensure that salespeople are occupied with (probabilistically, at least) the higher caliber prospects

It’s also true that salespeople will, from time to time, encounter what we’ve resolved to call inactive prospects: individuals (or companies) who – for reasons that aren’t readily apparent – are not in a position to purchase. Doesn’t it make sense for salespeople to filter these out before they start selling?

The answer is no!

The thing is; if this information is not readily available, salespeople will have to dig for it. And, digging for this data is antagonistic to selling. A better approach is to accept that some prospects won’t purchase (that’s why we call them prospects in the first place!); but to treat them all as if they will (until they advise us otherwise).

It’s important that management helps salespeople to remember that theirs is a low-probability environment: that’s simply the nature of (true) selling.

The opportunity-management process

Now that we have opportunities, we need a process to prosecute them. This process must consist of:

1. A standard workflow that dictates:
   1. The sequence of steps (activities) each opportunity follows
   2. The resource responsible for each step
2. Critical stages (milestones)
3. Centralized scheduling
4. Management information and procedures

A standard workflow

Each of the words in the heading above is significant.

A implies one. You should only have one workflow for each product and service. In fact, similar products should share the same workflow. If you receive opportunities from multiple promotional campaigns, those campaigns should all be designed to feed into the same workflow.

Standard means that the path each opportunity follows through your organization is essentially the same as the path followed by the opportunity before it. Certainly, there is no reason for variation between salespeople. But even where clients are concerned, it is usually possible to adopt a standard workflow, for two reasons:

1. In a mature market, competitive pressures will cause your clients to structure their businesses similarly and adopt similar procurement procedures
2. In an immature market, clients will not have developed fixed procurement procedures – meaning that your salespeople have the opportunity to sell whatever you have determined is the ideal workflow (or engagement model)

And workflow, of course is significant because that’s what we’re here to discuss.

We’ve already discussed, at length, the resourcing component of the standard model. We know that, where opportunity-management is concerned, you have the following resource pool (assuming a complex-sales environment):

1. Sales coordinator
2. Salesperson
3. Project leader

Let’s now consider the activities (steps) that will be required to convert opportunities into sales. We can start by grouping them by general activity type:

1. Face-to-face appointments of various types (including workshops, demonstrations and so on)
2. Conference calls (voice and video)
3. Solution design, estimating and quoting
4. Scheduling activities (via phone, email, etc)
5. Various de-briefing conversations between different parties (particularly the salesperson and the sales coordinator)

To enable the collection of meaningful management information we need to identify milestones (stages) too. The ideal milestones are those locations in the workflow where your client has just agreed to proceed to the next meaningful activity:

1. Scheduled an initial appointment
2. Scheduled a proposal-review meeting (obviously agreeing to a proposal-review meeting is more meaningful that simply agreeing to receive a proposal)
3. Scheduled a management workshop
4. Scheduled a contract-review meeting

Now we have all the pieces, it’s time to assemble the puzzle – to draw our first draft of your standard workflow. I say first draft because this initial diagram will, almost certainly, be redrawn multiple times before its deemed fit for purpose!

For this you’ll need either a sheet of graph paper and a pencil or, better still, a copy of a charting program (my preference is Microsoft Visio.)

Step 1: let’s go swimming

Start by drawing a set of swimlanes (so named, because, collectively, they resemble a swimming pool). It’s standard-practice to delineate resources on the horizontal and stages on the vertical.

You can then name the workflow and each of the resources.

Step 2: a simple, linear flow

You can now start to add entities and connectors.

My recommendation is that you force yourself to map your entire workflow using only two entities: states and activities. (States are inputs to – and outputs from – activities). This restraint will prevent you from mapping the workflow at too granular a level.

In case you’re wondering, the ideal level of granularity is the one where (for most opportunities):

1. All activities are essential
2. All pairs of activities are non-commutative (their sequence can’t be reversed)

If we examine the first few steps in this workflow, we can make some interesting observations:

1. In this instance, we’re assuming the opportunity is triggered by an inbound enquiry, rather than an outbound campaign
2. The meetings have names – as opposed to being described by their location in the sequence (first meeting, second meeting, etc). This is because:
   1. It’s the content of the meeting that’s of primary importance. For example, a second meeting might be a repeat of the first meeting or it may be a materially different event.
   2. The meeting name communicates the purpose of the meeting (and sometimes its intended outcome) to all parties
3. We map a single path with no loop-backs and no trivial activities (e.g. update CRM). We do map the points where the salesperson debriefs their sales coordinator, because these activities are critical and should be tracked.
4. Stage names reference the outcome of that subset of the process and conclude with the word pending. This focuses team members on the concrete outcome, rather than on the activities being performed.
5. The Sales Coordinator is the process owner. For this reason, most states will appear in their swimlane.

Step 3: complexity, be gone

As we get deeper into this workflow (and get more comfortable with the mapping method) we can turn our attention to the structure of the opportunity-management process.

Specifically we need to consider the difference between a workflow for a simple sale and one for a complex sale. Interestingly, there isn’t much of a difference! (Or, at least, there shouldn’t be.)

Consider the continuation of our (complex-sale) workflow, above.

To date, we’ve performed a couple of appointments: the first with our initial contact and the second with the team of decision makers. As a consequence, we’ve secured a request for proposal. If this were a simple sale, we’d be proposing our ultimate offering at this point; however, because it’s a complex sale, we’re proposing an intermediate offering: a solution-design workshop.

You’ll soon see that the solution-design workshop consists of a couple of appointments and terminates in the presentation of another proposal: in this case, for the final offering.

However, if this sales opportunity were more complex still, the solution-design workshop might terminate in a proposal for a pilot, which – you guessed it – would be an engagement that leads to yet another proposal!

It should now be clear that a complex sale does not necessitate a complex opportunity-management process. Just as a centipede with 191 trunk segments is no more complex than a fly (with only 12), the complexity of an opportunity-management process does not increase as we accumulate multiple iterations of an inherently simple sub-process.

In summary, then, we prosecute a simple opportunity with a simple process (consisting of just a handful of activities). We prosecute a complex opportunity, with the same simple process – repeated multiple times.

We’ve just stumbled across the secret of what’s typically referred to as major-account selling. If you read books on this subject you’ll learn that the key to prosecuting complex deals is to get inside of – and attempt to manage – this complexity.

Again, nothing could be further from the truth. By definition, complexity is that which cannot be managed.

The key to prosecuting complex deals is actually to engineer the complexity out of the engagement process. Of course, both you and your clients will benefit from the simplification of an otherwise unproductive workflow.

Step 4: Solution design

We can now go ahead and complete the mapping of our representative opportunity-management process. (And, with this done, I think you’ve earned yourself a cup of tea!)

The solution-design workshop

A solution-design workshop is an invaluable addition to your opportunity-management workflow whenever you are selling a custom-engineered product (or service).

Such a workshop (they are often called feasibility studies, envisioning workshops and similar) provides the following benefits:

1. It enables you to take control of your client’s decision-making processes (which, absent your involvement, is often entirely unstructured and ineffective)
2. It turns solution-design into a collaborative process – which results in potential-clients assuming ownership of the solution long before they are asked to purchase and slashes the duration of the solution-design process
3. It enables you to socialize the new direction with a larger number of stakeholders (client-side) than would otherwise be possible

The solution-design workshop should be facilitated either by a project leader or by a dedicated facilitator. In either case your salesperson and nominated project leader must be present (and actively involved). You should design your workshop so that the greater proportion of the content that will ultimately populate your outcomes document (and accompanying proposal) is actually generated during the workshop (excluding content that is standard to all documents, of course).

Ideally, the workshop should consist of a series of tightly-choreographed exercises. You can conduct these exercises on a whiteboard, but my preference is to use a word processor and a charting application (in conjunction with a data projector) as a virtual whiteboard.

The exercises are likely to include the following:

1. (Very) brief introduction from the workshop sponsor (client side) and the project leader – including a summary of the scope of the workshop
2. Discovery of the sets of symptoms (undesirable effects) that have given cause to the workshop (I say sets of symptoms because you want to record the perspectives of multiple participants)
3. Reasoning from the undesirable effects to the root cause (or causes) of these effects
4. Determination of the direction of the solution
5. High-level design of the solution (ideally using diagrams)
6. Resolution of key lower-level design issues
7. Risk analysis (including a review of possible unintended consequences of the proposed solution)
8. High-level economic feasibility review (how will the organization justify the likely expenditure of money and other resources)

After the workshop, the project leader should convert the outcomes into a formal presentation of findings document and review this document with the salesperson prior to the scheduled presentation of findings meeting. My preference is to create this document in a PowerPoint (or similar) format.

Proposals, estimates and quotations

Where proposals and other similar documentation are concerned, it’s worth reviewing who should do what.

We know, already, that we do not want the salesperson involved in the creation of any documentation. And we should also have a good idea about who will be responsible for proposals for simple transactions (the customer-service team) and complex transactions (the project leader).

There are, however, some proposals that resist being squeezed into these two categories!

The solution-design workshop proposal

Take, for example, the solution-design workshop proposal: who should prepare that?

This proposal should be a stock-standard document – simply because all your solution-design workshops should use the same basic structure. Obviously the duration of the event will vary from client to client – as will the name of the client! – but all such variability can, and should, be accommodated with a simple automated Word document like the following.

With a basic knowledge of scripting an advanced user of any
word-processing application can create a master document
that prompts the user for variable data upon opening

Proposals for complicated (but not complex) products

We’ve resolved, already, that a complex sale is one where a perfect hand-off between sales and production is impossible. This definition leaves room for situations where the quote is still pretty complicated because of either the technical or the commercial requirements.

In these situations you need to ensure that the salesperson captures all of the information required to generate the proposal in the sales meeting. In other words, the salesperson should be able to submit all the data required to generate the proposal to their sales coordinator at the conclusion of the meeting (this might involve emailing a PowerPoint or Excel file or simply pressing submit within a custom tablet application).

Salespeople are likely to object that they need to need to customize the sales preamble at the start of the proposal and that this cannot be done in front of the client.

This is simply not true.

The reality is that clients, if they have invested the time required to meet with a salesperson, would rather receive a proposal that accurately captures both the commercial and technical realities of their situation.

Furthermore, in many cases, clients will be intending to take the proposal and use it to influence others in the organization who aren’t present in the meeting – meaning that they will particularly value the salesmanship contained in the document.

Demonstrations

Demonstrations are the cause of much value-destruction in complex sales environments (particularly among technology companies).

As is evidenced by the pitch-doctors who sell nifty potato peelers in shopping centers, nothing sells like a good demonstration.

Sometimes, however, the demonstration is a distraction from that which you are trying to sell. Here’s a scenario.

Imagine you’re the financial controller of a business that does $100m a year in sales. And, you’re considering purchasing a new ERP system.

Ask yourself, what are you really buying? Are you buying a piece of software? Or are you buying a better approach to governance, to management decision-making and to operational performance that will (hopefully) be facilitated by a software application?

It’s the latter, isn’t it?

Now, ask yourself this, if you stare long and hard at the software, is there any likelihood that the business outcomes you’re looking for will suddenly appear?

Of course not: the software is a distraction from what you’re buying. A smart ERP vender will not show it to you. Rather than demoing software, this vendor will talk to you about the assumptions, theories and methodologies that are baked-in to their software. They’ll understand that if they can sell the theoretical underpinnings of their software, then you will lose interest in examining the application itself.

They’ll assume that, if you’re one of the very few software vendors who’re capable of having a high-level discussion about the realities of business management, then you’ve probably also figured out how to build software that works.

One of our silent revolutionaries (a particularly successful enterprise software producer) has discovered that it makes sense to postpone demonstrations as long as possible and then to finally show the software in the form of a training session for users – with decision-makers looking on.

Continuous improvement

We’re about to turn our attention to the generation of sales opportunities – a big and exciting subject!

However, before we do, I must reiterate my exhortation that you first pay attention to the prosecution of your existing opportunity flow.

I hope this chapter has made it clear what a big subject opportunity-management is – and provided you numerous ideas for improvement. Please be sure to exploit all of these ideas before you shift your attention to promotion.

The bad news is that this sampler consists of just the introduction and the first three chapters of The Machine.

The good news is that, as you can see in the picture, The Machine ships with a DVD – and this DVD contains:

1. A PDF of my first book (Reengineering the Sales Process) – the entire book
2. A PDF of The Machine (perfect for reading on your Kindle or iPad)
3. A 2.5hr video of a recent Lunch-n-Learn workshop (an introduction to SPE)
4. A multimedia presentation (overview of SPE)

The proposition

The proposition is simple. If you put a link to my blog on your site, I’ll send you the book and the DVD.

That’s it.

The link can consist of:

1. Your choice of one of a handful of banners like the one below
2. A simple link (you can write your own text and link to the homepage or the article of your choice)
3. A reprint of one (or more) of the articles from my blog (with a link-back, of course)

You can place this link anywhere on your company site – or on your blog (in a static page or a post). You can leave this link live for as long as you like.

Three steps

If you’re happy to help me spread the word – and you’d like a copy of the first few chapters of The Machine – here’s what you do:

1. Provide your site administrator with the URL for the page at the end of this post
2. Once the link is up, complete the form on that page to provide me with your snail-mail address (and the URL of the page containing the link)
3. Wait patiently by your letterbox

If for some reason you can’t help me spread the word (maybe you work for GE and the legal department won’t let you spruik about me on the company site), I can’t send you the book in physical form, but I will provide you the contents of the DVD (including a PDF of The Machine sampler).  Just choose the appropriate option on the form.

Here’s the page where you can make it all happen!

http://www.salesprocessengineering.net/spe/spread-the-word/

A common criticism of SPE is that it can’t be applied to small businesses.

Well, I’m happy to present (another) video case study that invalidates that position.

TEBA is a very small technology company. They supply and integrate network infrastructure, targeting mid-sized enterprises with multiple points of presence.

Before the transition, TEBA had a number of salespeople performing, collectively, very few sales calls.  After the transition, TEBA has no salespeople! Steve, the CEO, performs a small number of high-value sales appointments each week and opportunities are originated and managed by a dedicated sales coordinator.

Steve explains what his new model looks like and talks about the transition and the future. He explains how they are using events to generate a decent volume of sales opportunities and provides some insight into the size of the deals he’s winning as a consequence of these events.

He also makes that point that, in spite of the fact that the new system requires that he does more sales calls than his salespeople did collectively, he now has more spare capacity than he has ever had!

[watch video]

Market embraces new Ballistix service offering

Two months ago, I blogged (here) about how we were transitioning away from projects and towards a managed service.

Well, that blog generated a whole bunch of interest – including three people who e-mailed me right away saying essentially (or literally, in one case), sign me up!

Since then, we’ve:

1. Launched 5 new service engagements
2. Got word from 2 companies with existing projects that they want to transition to the service model at project end
3. Consumed all of our engagement launch slots in the near term in both the US and Australia
4. Built a wait-list in Australia
5. Officially stopped offering projects to anyone

Bottom line: we’re excited!

A total-sales-back-office solution for the price of a PR firm

One of the most exciting things about this new direction is the economics of the proposition.

Of course, transitioning to an annuity is nice from our perspective, but I’ve been shocked by how good the economics are from our clients’ perspectives.

Here’s a nice way of viewing the numbers:

Cost

Outsourced sales operations (OSO) costs about what your firm would pay to have a small PR firm on retainer.

Benefit

So, if you replace your PR firm with us, your bottom-line is unaffected.  However, we will, over time, reengineer and optimize your entire sales operations.  And, from day-one, we’ll provide all your promotional collateral (print, online and video). And, we’ll provide you a hosted technology bundle including enterprise CRM and Business Intelligence.

Oh, and back on the subject of costs, as you well know, we’ll almost certainly reconfigure your sales resourcing, meaning you’ll have fewer salespeople (and sales managers), but more internal sales-support personnel (which is likely to save you a bundle on payroll). There’s also the possibility that you’ll close a remote sales office or two, while simultaneously increasing the territory you cover.

What about PR?

So, you smell a rat? Yep, that’s right. PR isn’t one of the services we offer. So you replace your PR firm with us and we do everything other than PR (sounds kind of like a bait-and-switch, or something, right?)

Well, actually, it’s not. If you have a PR firm on retainer, they will be currently attempting to provide you every service under the sun – other than PR – while simultaneously trying to convince you that the term PR actually means everything under the sun, other than PR.

The thing is, there are only two events that are genuinely newsworthy (i.e. likely to land you an article in Forbes or Industry Week):

1. You launch a new product that is materially different from anything else that’s readily available
2. You get raided by the IRS

Each time one of these events occurs, your PR firm will do a sterling job of drumming-up coverage for you. But in between these special occasions, they’ll be trying to stay busy building you websites, posting on your Facebook Fan page, producing brochures and doing all sorts of non-PR stuff.

The advantage of having us doing everything other than PR is that we excel at synchronizing the entire sales function. In other words, we ensure that absolutely everything subordinates to the No. 1 objective: maintaining your sales team at 100% utilization (four appointments a day, five days a week).

Now, I don’t mean to pick on the PR firm. There’s a handful of other service providers we make redundant too, from the CRM vendor to the traditional design firm and the executive coach. And in every case, our point of difference is clear: there may be others out there that can build prettier websites or offer more esoteric CRM features, but there is no one – bar no one – who understands how to build a complete sales function like we do.

Oh yeah: we’re excited!

Here’s where we dot all the ‘i’s and cross all the ‘t’s. We’ll be talking about roles, workflows, campaigns, technology and much more. But I don’t think we should be satisfied to examine these building blocks in a vacuum. After all, Part 2 is all about practice, not theory. Accordingly, it’s my intention to weave a conversation about how and when these blocks should be deployed, around the description of their constituent parts.

It’s important, therefore, that we set the scene for this conversation. What we need to get started is a high-level plan. You need a model for your new environment. You need a rough understanding of the resourcing (and cost) implications of the new model. And you need to know what the transition is likely to look like.

Interestingly, without guidance, most executives approach these questions in the opposite order. They start planning the transition without a clear understanding of the model or its resourcing implications! As a consequence, these are the questions that typically preoccupy a recent convert to our cause:

Do we start with salespeople, perhaps? Provide them new job descriptions (and a revised compensation plan)?

Do we start with promotions? More sales opportunities will never go astray, right?

Or, do we start with technology? After all, there’s something cathartic about a new enterprise application and all the friendly consultants who come live with us during its implementation!

Of course, all of these approaches are wrong. Dangerously wrong!

A plan that commences with these initiatives will almost certainly fail. Worse still, it will fail so spectacularly that it will discredit the whole notion of sales process engineering – providing you with little choice but to persist with the traditional model, in spite of its shortcomings.

The model

As suggested, the identification of the ideal model is the starting point.

We examined four models in Part 1, but we’ve also acknowledged that our four key principles provide no limit on the number of possible models.

If one of the models described is a perfect fit, that’s terrific. However, if your environment is more complex than the four described thus far, you have two choices:

1. Simplify your environment to fit one of the four models
2. Start with one of these models and customize it to fit your requirements

Of course if you are not convinced that your environmental complexity is adding value, option 1 is the preferable one!

Either way, your first challenge is to select one of the four models, either as the optimal one or as the starting point for customization.

Unpacking account management

In order to do that, you should answer four fundamental questions:

1. Where business-development is concerned, what is the nature of the conversation and where does it (or should it) occur?
2. Where transactions are concerned (repeat purchases), what is the nature of the conversation and where does it (or should it) occur?
3. What discrete sales activities absolutely must be performed in the field?
4. What discrete technical activities absolutely must be performed in the field?

The purpose of these questions is to unpack the concept of sales or, to use the more common terminology, account management. As we’ve discussed, it simply doesn’t make sense to treat sales (or account management) as a single activity.

As you answer these questions, try and organize your answers around two axes:

1. Inside versus outside
2. Selling versus not-selling

It’s helpful to unpack ‘account management’ tasks into four categories

With the help of a trusty Boston Matrix you’ll end up with something like the above. (It’s likely that you’ll be surprised by the small number of activities that do actually need to be performed in the field.)

Direct or via a channel

With this information at your disposal, you’re in a position to contemplate a big question:

• Does it make more sense to sell direct or via channel partners?

It’s a big question because the implications are huge – and because each option really needs to be an all-or-nothing proposition.

To arrive at your decision you should read (and re-read) the section of Chapter 5 entitled Indirect Sales.

The good news is that, if you conclude that you will sell via channel partners, you’ll likely discover that the indirect-sales model described in this chapter is good to go (with minimal customization).

Mapping activities to roles

You can now start to map activities to roles. Not the roles you already have, mind you. Pretend that you’re starting with a blank sheet of paper, here.

You’ll likely discover that the roles and activities don’t match-up with the categories in our Boston matrix – but that’s okay: that’s why arrows were invented.

Messy is okay. You’re on your way to creating a masterpiece here!

In the example above, you can see the following mapping:

Now that you have a general idea of the division of labor you can get little more detailed in your planning.

My preference, at this point is to create a diagram of the sales environment (including customer service and engineering).

This diagram should be granular enough to show functions, personnel (one circle per person) and work queues – but no more granular. At this point, you should not commit to the number of individuals in each role. You’ll almost certainly want to revise your initial assumptions after we shine the spotlight on resourcing in a moment.

Here’s an example from a business that sells a mixture of simple and complex design-related projects (from another of our quiet revolutionaries).

 A high-level drawing of the model is great to crystalize your thinking
and invaluable to sell your ideas when you’re done

In this example, we have a Special Project team that operates in an engineer-to-order environment with our standard model.

Project leaders are members of the design team – which also provides simple design concepts to Inside Sales.

The Inside Sales team is responsible for making outbound calls to solicit simple orders (make-to-stock and make-to-order). This team escalates more complex jobs to the special-projects coordinator.

The Customer Service team is responsible for order entry and management and issue management. And the Promotions person is responsible for generating sales opportunities for Inside Sales.

Resourcing

You now understand the division of labor. The next step is to determine exactly how many individuals are required in each role.

It’s best to start with field personnel and work backwards.

Salespeople

It’s almost certain that you need a fraction of the salespeople that you already have.

As you already know, a typical salesperson performs only two true business-development meetings a week. And, if we re-allocate all tasks other than business-development meetings, the result will be that your salespeople’s effective capacity will increase by a factor of 10 (from two business-development meetings a week, to 20).

This means that:

1. Your existing team can do 10-times the volume of business-development meetings
2. A team one-fifth the size can do twice the volume of business-development meetings
3. A team one-tenth the size can maintain the same volume of meetings

Regardless of your growth aspirations, you should immediately eliminate option ‘1’. Considering the magnitude of the change associated with the transition to this new model, there is absolutely no way that you can commit to generate ten-times your current volume of sales opportunities in the near to mid term.

Absent a ten-times increase in opportunity flow, the obvious outcome of the transition to the new model is that expenses will increase and your salespeople will spend most of their time standing idle.

(And, please, don’t even think about suggesting that salespeople might be able to use their idle time to originate sales opportunities. If this were possible, they’d be doing it already!)

The more sensible approach is to reduce your sales team to between one-tenth and one-fifth its current size. This gives you the opportunity to place your most capable salespeople in the few remaining business-development roles and to redeploy remaining salespeople elsewhere.

Some simple math will help you to arrive at the right answer.

The math

Start by determining the average weekly volume of (true) business-development appointments performed by your total sales team (it’ll most likely be around 2 per person).

Now, there’s a right and wrong way to determine this number. The wrong way is to ask your salespeople (or your sales manager) for an estimate!

The right way is to sit down with a representative number of salespeople and actually examine their calendars – page-by-page – and count the business-development meetings over a one-month period. Remember to differentiate between true business-development meetings and account-management visits (the latter have no explicit business-development objectives).

Let’s call the resulting number your: current (weekly) appointment volume.

Then, examine each of the following, and estimate the number of appointments that can readily be extracted from each on an ongoing (weekly) basis:

1. Existing accounts (remembering that we’re only interested in appointments that can be scheduled with an explicit business-development objective – no doughnut runs)
2. Existing under-exploited opportunities (these are opportunities that are currently being neglected because salespeople are deeming them to be unqualified)

Once you sum these two numbers, let’s call the result your: readily-achievable, incremental appointment volume.

The number of salespeople you require in your new model will be roughly equal to:

Of course, 20 is the weekly capacity (standard appointments) of each field salesperson in the new model.

In practice, then, if you have 10 salespeople in a particular region (or division) now, with the transition to the new model, this number will drop to between one and two.

The actual number should be determined primarily by your confidence in your ability to generate incremental appointments from existing clients and opportunities.

It pays to be conservative here. Even if you maintain your appointment volume at its current level, you’ll still derive significant benefit from:

1. Better salesmanship: all appointments are now being performed by your most capable salespeople
2. Better opportunity management: sales coordinators have better attention to detail and pursue prospects more relentlessly than salespeople ever do
3. Better customer service: the centralization and formalization of customer service (and project leadership) more often than not has a profound impact on customer satisfaction and, in turn, on re-order frequency

And there’s another important reason to be conservative.

In my experience, most organizations over-estimate their ability to respond to a sustained increase in sales. What typically happens is that an increase in business-development activity quickly consumes the customer service team’s protective capacity. And then, as this activity translates into orders, we discover that, while production has unutilized capacity on paper, it takes quite some time to exploit this capacity, in practice.

At least one-third of our quiet revolutionaries experience the following sequence of events:

1. They apply division of labor and transition to the new sales model (with a much smaller field salesforce)
2. The centralization of customer service and project leadership causes an immediate improvement in customer service and an unsuspected lift in transaction flow
3. Customer service and production run out of capacity and need to either add personnel or need to review their operating procedures
4. With more aggressive offers and better salesmanship (remember, the more capable salespeople are now handling 100% of the sales opportunities), the sales function becomes more effective
5. However, with limited customer service and production capacity, sales must deliberately throttle salespeople’s activity until the constraint shifts back to sales (this can often take months)

Bear in mind that the scenario above occurs after the sales team has been reduced to one-fifth its original size!

Geography and risk

While most executives understand the case for conservatism, many are reluctant to trust the math.

The two common objections are:

1. Geography: our salespeople have huge territories – they simply can’t do four appointments a day
2. Risk: if we reduce our sales team to a fraction of its current size, we’re exposed – if we lose a single person we’re in deep water!

It’s true that a lot of salespeople have large territories. What’s more, if you reduce your sales team to one-fifth its current size, territory size will obviously increase.

But here’s the thing: travel time is not primarily a function of territory size. What determines travel time is the distance between a given appointment and the one preceding it. As appointment volume increases, it becomes possible for a sales coordinator to batch appointments by travel time.

A typical salesperson, who performs only a few appointments a week, will inevitably find themself flying from city to city because they have only one person to visit in each location. However, a salesperson who performs 4 business-development appointments a day will, at any point in time be working on 80-200 opportunities concurrently (depending on opportunity cycle time). With this number of open opportunities, this salesperson’s coordinator should have no problem scheduling a day or two’s work in (say) Chicago, followed by a couple of day’s work in (say) Atlanta.

Now, if you’ve ever visited Chicago you’ll know that, even within the one city, travel times can be horrendous. But, on closer inspection, even this is not the problem that it appears to be. What tends to happen in large cities is that organizations of a similar type (manufacturers, technology companies, advertising agencies, etc) form clusters, which mitigates the travel problem.

The second concern is risk. In large organizations there’s often a feeling that more salespeople equal more sales. It simply doesn’t seem right that you could increase sales by decreasing the size of the team. Of course the flaw in this reasoning is obvious, it’s not sales people that’s the primary driver of sales – it’s sales appointments.

This concern does take a more rational form, however. If a field team is reduced to just one or two people (as is often the case) management often worries what will happen if a salesperson falls ill (or resigns).

This concern also evaporates on closer inspection. If we imagine a situation where a team of five salespeople was reduced to a single salesperson, it’s true that the organization is exposed if that person falls ill. However, it’s easy to see that this exposure is no worse than in the previous model when you consider that:

1. Most of the activities previously performed by salespeople have been redistributed across sales support and engineering team members
2. The salesperson’s role has been simplified to the point that it can be readily filled (on a temporary basis) by a senior executive (or, worst case, by a project leader)

Now that you know how many field salespeople you require, we can work backwards to make resourcing decisions for the rest of the sales environment. (Don’t forget to adjust your draft model as we go.)

Project leadership

To recap, project leaders are only required in complex (typically engineer-to-order) environments.

The project leader is a technical person who can hold their own in the client’s executive suite. They are responsible for managing the technical component of the end-to-end engagement and, as a consequence, for ensuring the tight integration of sales and production.

It’s important to note that, in most complex environments, most (if not all) existing salespeople are actually a better fit in the project leader role. This is because complex environments demand project leadership skills and, consequently, attract more technical people.

This means that, if yours is a complex environment, while it’s true that you’ll be drastically reducing the size of your sales team, all that will happen, in practice, is that most salespeople will be reassigned to project leadership roles.

To determine the ideal ratio of project leaders to salespeople you need to estimate the amount of time that an average engagement will consume, bearing in mind that:

1. Not all sales opportunities become projects
2. All projects will require the project leader’s post-sale involvement
3. If you intend to run your salespeople at full utilization, it’s impossible for you to also maintain a project leader at full efficiency because you’ll regularly have resource contention (as the ratio of project leaders to salespeople increases, this becomes less of an issue)

You’ll get a much more accurate result if you estimate the load on the project leader in units of half a day. (To estimate in hours is like trying to measure the circumference of an island with a ruler!)

There’s no doubt that you’ll discover that one salesperson can keep a number of project leaders busy. The ratio of project leaders to salespeople is always greater than one-to-one and often as high as four-to-one.

Sales support

Now that you know the number of salespeople and project leaders you require, it’s quite easy to estimate resourcing for your sales-support team. (I’ll use the term sales-support to refer to customer service along with all centrally-based sales resources, including promotions coordination.)

Bear in mind that, under no circumstance does it make sense for your organizational constraint to move to sales support. Even if your designated constraint is your sales function, you will want to resource this function to ensure that salespeople (field or inside) are the constraint – and not support personnel.

In summary, then:

1. If sales is the designated organizational constraint, every role within sales support must have enough protective capacity to subordinate effectively to salespeople
2. If another function is the designated constraint, salespeople must have sufficient protective capacity to subordinate effectively to that function and sales support must have enough protective capacity to subordinate effectively to both salespeople and to the constrained function

Let me reiterate: there is no conceivable situation where it makes sense for sales support to become a bottleneck!

This should be obvious but, sadly, I see organizations almost every week where sales (and production) support resources are overburdened – meaning that significant value is being destroyed (cashflow and customer service quality), because of management’s unwillingness to maintain protective capacity in these areas.

Sales coordinators

It’s very easy to calculate the number of sales coordinators you require. You need one for each field-based salesperson.

That’s it. And it’s non-negotiable!

Think of it this way. Your salespeople are about to increase their volume of work by ten times. It takes an enormous amount of work, behind the scenes, to enable a salesperson to operate at this rate. And most of this work will be performed by your sales coordinators.

The economics make good sense too. The sales coordinator makes the most significant contribution to the ten-times increase you’re about to see in your salespeople’s effective capacity. But, in spite of the value they add, they typically cost less than half what salespeople do.

Customer service representatives

You need enough capacity in your customer service team to:

1. Absorb all the customer service tasks that are currently being performed by salespeople (including the generation of simple quotations)
2. Process all inbound orders
3. Update (proactively) clients on any changes in their orders’ expected delivery dates

In addition to this, we mustn’t forget our commitment to maintain protective capacity in all sales-support resources.

It is likely, therefore, that you will need to add some team members to your customer service team. However, you should be on the lookout for opportunities to improve the productivity of this team. Typically, our quiet revolutionaries have made an incremental increase in team size – but have generated huge increases in productivity by making simple changes to operating procedures and management.

If you’re wondering if you have opportunities for productivity improvement, check your answers to the following questions. If the result isn’t a string of yes’s then the questions themselves will give you an idea of what needs to be done in this area.

1. We have a happy, enthusiastic team that processes almost all (>90%) of orders, issues and requests-for-quotations well within customer tolerances
2. The team can accomplish (1.) while working normal hours
3. We have standard workflows for all common work-types – and checklists for complex activities (these workflows are posted in plain view of all team members)
4. All orders, issues and requests-for-quotations are managed using the ERP (or CRM), not using manila folders, post-it notes or home-grown Excel workbooks
5. The team has daily (or, twice-daily) work-in-progress meetings that include:
   1. A review of case-flow and of the size and location of any work queues
   2. A review of problem cases and creation of an action list
   3. Updates from production (and procurement), identifying jobs that are likely to be delivered late
   4. Review of a defect log (containing quality issues that were identified internally)
6. The team’s supervisor (or team leader) can quote your current on-time-task-completion percentage, without referencing a report

Inside salespeople

If you currently have a field team, it’s unlikely that you have inside salespeople at all. Or, if you do, it’s likely that they interact only with those customers that haven’t been assigned to field salespeople.

Either situation is likely to represent a missed opportunity.

Even in major-sales environments, there are generally transactions that can be readily made on the telephone. And the notion that better clients should be managed from the field and not the phone is clearly fallacious.

Your best clients will almost certainly benefit from phone contact, in addition to field visits.

Assuming that your inside team is not your sales front line, it’s unlikely that you will need to add inside salespeople on day-one of this transition.

A better approach is to experiment with the creation of inside sales once you have restructured your existing team. You can start with one or two inside salespeople and add more once you can see that they are paying for themselves.

Traditionally, organizations keep inside sales away from their field accounts because they’re concerned about communication problems (and sales commissions). With the elimination of commissions and the central planning of all field activities, both of these issues disappear.

Promotions coordinator

As we discussed in Chapter 3, there are two likely scenarios where promotions is concerned:

1. You have a marketing department, however, their primary concern is general marketing communications (as opposed to the generation of sales opportunities)
2. You have no marketing department, meaning that all necessary inputs are provided by contractors or agencies

In the first case, the promotions coordinator is a marketing team member who lives in the sales function and ensures tight integration between these two functions.

In the second case, the promotions coordinator interfaces with external providers.

In both cases, the promotions coordinator will be responsible for all campaigns and for the not-insignificant technical implications of campaign management (CRM management, online lead management, event management, etc).

Because a promotions coordinator deals with opportunities in batches (and because a larger batch does not typically consume greater effort), a single promotions coordinator can handle the demand generated by a very large sales team. Typically, we see multiple promotional coordinators only when organizations have multiple sales teams, spanning regions where different languages are spoken.

Management

It’s important that we don’t neglect management. Counter to most executives’ expectations, the transition we are contemplating is likely to be far more traumatic for management than it is for salespeople.

We’ll pay special attention to management in a later chapter so, for now, let’s just reflect on the resourcing implications of the new model.

For starters, it should be clear that the requirement for traditional sales managers has diminished significantly. After all, the field-based business-development team is now one-fifth its previous size (or smaller).

Secondly, much of the activity that was previously being performed in the field is now being performed by an internal sales-support team. Such a team requires an entirely different management approach.

Let’s discuss different approaches to the resourcing of these two important roles.

Sales management (field)

We need to start by asking if the field team is large enough to necessitate a sales manager. If your business-development team now consists of two people – and if project leaders now answer to engineering (which is likely) – the answer is certainly no.

In this situation, it probably makes more sense to combine sales and sales-support management into the one role. In fact, many of our quiet revolutionaries have taken advantage of the industrialization of their sales environments and made sales a responsibility of their operations managers.

If you have a larger sales team and you elect to maintain a dedicated sales manager, it’s important to make sure that your sales manager spends the greater majority of their time in the field (where the salespeople are). They should only visit the office to:

1. Facilitate sales meetings (which tend to be conducted via web conferencing software anyway)
2. Recruit and induct new salespeople (on the rare occasions that this is required)
3. Attend senior management team meetings

All clerical activities (including reporting) will be performed by sales coordinators. When you consider that the sales manager will never make solo visits, sales coordinators can plan the sales manager’s schedule with negligible additional effort.

Sales-support management (inside team)

Earlier, I’ve hinted at the cost of neglecting (or mismanaging) the customer service function. The problem, however, is that many organizations don’t have a big enough sales-support team to justify proper management.

Well that’s about to change! With the centralization of most of the activities that were previously being performed in the field, sales support is growing to include sales coordination, promotional coordination and inside sales – in addition to customer service.

Shortly, you’ll have a team that’s large enough and critical enough to deserve proper management.

Obviously, you need one sales-support manager for each sales-support location. However, you should have only one sales-support team for each continent!

That’s right. Sales support should not live in sales offices. In fact, with this transition, you’ll almost certainly discover that you no longer need sales offices. My rule of thumb is that the sales-support team should be based in the same location as your master (production) scheduler.

When you co-locate the scheduling of production with the scheduling of sales and engineering then you have taken a big step towards synchronizing the firm as a whole.

I trust I’ve provided you enough insight to fine-tune the model of your new sales function – and to calculate the numbers of heads required in each role. It’s time now to consider the economics of this transition.

The economics

Because you’re contemplating a major change here, your planning really needs to be iterative. In other words, it’s better done with a pencil and an eraser than with an ink marker.

This discussion of economics is a great opportunity to check the work you’ve done so far and go back and make changes if you discover you’ve made a mistake.

Expenses cannot increase

So, let me tell you, right up front, how to spot when you’ve made a mistake:

• You’ve made a mistake on the design or resourcing of your model if you determine that it causes operating expenses to increase

There are two reasons why I’m firm on this point:

1. Management always overestimates its requirement for field salespeople in this new model (this is sometimes a result of management overestimating the ability of the firm to grow)
2. The transition you are contemplating is complex and stressful without an increase in operating expenses however, if you increase expenses, the requirement to demonstrate a positive ROI multiplies this pressure

But don’t despair, if you’ve done a good job of designing your model, you still have significant upside. The thing is, you should be able to double your volume of business-development activity before you run into a requirement to increase operating expenses.

An illustration

The best way to navigate this discussion of economics is with an illustrative example.

We’ll consider the case of a typical mid-sized, engineer-to-order organization (maybe a custom manufacturer or a software development firm).

Here’s the resourcing situation, before and after the transition. The right hand column shows the change (delta) in payroll cost. Payroll costs are indicative, only. Salaries will vary from region to region, but the relative numbers will stay pretty much the same.

Here are the changes in this example:

1. The field sales (business-development) team has decreased to one-fifth its previous size
2. Each salesperson is supported by a dedicated sales coordinator
3. Each salesperson is supported by two project leaders (it’s highly likely that project leaders were sourced from the sales team)
4. The capacity of the customer-service team has increased by 60% (ignoring efficiency improvements)
5. No inside sales personnel have been added
6. A promotional coordinator has been added, along with a sales-support manager
7. There is now just one sales manager
8. All team members are paid salaries
9. Management is responsible for ensuring that salespeople are maintained at full utilization (when the sales function is the organizational constraint)

And here are the predicted effects:

1. Sales (business-development) capacity (and most likely the volume of business-development meetings) has doubled
2. Customer service quality has improved significantly (a consequence of a larger and more efficient customer service team and four dedicated project leaders)
3. Management is now in the position where they can actually manage the sales function, in the true sense of the word ­manage
4. Payroll cost has reduced by $310k (it is also quite likely that some regional sales offices were closed, but this cost saving has not been accounted for)

The transition

At the beginning of this chapter we discussed that, without guidance, most managers approach the critical questions in the wrong order – starting with questions about the transition:

Do we start with salespeople, perhaps? Provide them new job descriptions (and a revised compensation plan)?

Do we start with promotions? More sales opportunities will never go astray, right?

Or, do we start with technology? After all, there’s something cathartic about a new enterprise application and all the friendly consultants who come live with us during its implementation!

Well, we haven’t fallen into that trap. We’ve fleshed-out our understanding of the new environment by starting with the design of the model, then the resourcing, and then the economics.

Now, it’s time for us to turn our attention to the transition. I’ll provide some detailed guidance in a moment but it’s important that we start with the most critical rule of all.

Start at the factory door and work backwards

You heard me right! Yes, this initiative is all about improving sales. But, no, we are not going to start with sales or promotional initiatives.

We’re going to start by making sure that we have a firm base to build upon – by fixing customer service! As was discussed earlier, insufficient capacity and poor operating procedures in customer service can do enormous damage to customer service and, consequently, repeat order flow.

And, in most organizations, customer service is not an exciting place to work. Typically, these teams are under-resourced, ill-equipped and poorly treated. While their name would suggest that they are responsible for customer service, in most organizations, customer service representatives are second-guessed by salespeople multiple times each day.

All this has to change.

If you are going to transfer absolute responsibility for customer service to the customer service team, this team needs to be properly resourced and properly equipped. They need information at their fingertips about job status and production capacity. And they need the authority to make decisions on the spot.

If you make the mistake of pushing forward with the reengineering of the sales function without, first, fixing customer service, you will discover that an increase in sales activity results on a greater load on customer service and a marked decline in service quality. This in turn will damage customer relationships and disenfranchise salespeople.

With that understood, let’s walk through the notable steps in the overall transition.

Step 1: appoint a project champion

An undertaking of this magnitude needs to be recognized as – and managed as – a project. In most organizations this project will need a dedicated champion for it to have a real chance of success.

You can either allocate a senior executive or you can identify an up-and-coming team member and provide it to them as a way to demonstrate their readiness for management. Either way, it needs to be a full-time responsibility.

Step 2: sell the direction of the solution

It’s unlikely that you will be able to plan this initiative without people in your organization getting wind of the fact that change is afoot.

In most cases, it makes more sense to come clean with your team as soon as you have a plan, than it does to allow team member’s perceptions to be shaped by the rumor mill.

A broad overview is sufficient – with the promise of more detail as each stage of the transition comes into sharper focus. The key points will look something like this:

1. The current model has scalability (and possibly quality) problems (here’s the evidence)
2. We’ve taken inspiration from production and project environments and planned a new approach (based on division of labor)
3. We plan for the customer service team to take full responsibility for customer service tasks – and we intend to add capacity to customer service and work closely with that team until their capability is proven
4. We plan to simplify the sales role and, specifically, to separate the responsibility for:
   1. Pure business development
   2. Opportunity management
   3. Opportunity origination (promotion)
   4. The processing of repeat transactions
   5. Technical experts, who support salespeople (pre-sale) and who facilitate the execution of projects (post-sale)
5. In practice, this will mean that:
   1. The existing sales team will be split into pure salespeople and dedicated project leaders
   2. Salespeople will be provided with executive assistants
   3. We will increase our investment in the generation of sales opportunities (promotion)
   4. Customers will interact directly with customer service where repeat transactions (and transactional issues) are concerned
6. We don’t have more detail than this right now, but we commit to the following:
   1. We’ll involve you in the detailed planning as each phase draws near (customer service is obviously phase 1)
   2. No one will get demoted or earn any less as a result of this project
   3. While the reality is that the new direction may not be a perfect fit for all team members, we have no intention to decrease overall headcount

Step 2: fix customer service

It’s time to go to work now and fix customer service. Because this is phase 1 of the transition, it’s important that you succeed quickly and conspicuously!

The good news is that fixing customer service, relative to the rest of the transition is quite easy. Remember the problems with customer service are more likely to be the result of neglect, than they are any real failure to execute.

While a detailed exploration of customer service is outside the scope of this book, there is an article on our general approach to process improvement in Appendix 1.

Step 3: recruit sales coordinators and provide basic training

The selection of capable candidates for the sales coordinator positions is critical. In particular these individuals need to be savvy enough to be able to schedule a salesperson (who sits above them on the organizational chart).

It’s possible to fill these roles by recruiting experienced executive assistants – however these individuals are hard to find and (consequently) expensive.

Our preference is to recruit smart, recent-graduates and train them from scratch. Sales coordinators need basic product knowledge and a detailed understanding of your CRM. It’s very beneficial to send them out in the field for a few days with the salespeople with whom they will be partnered.

Step 4: centralize opportunity management, repeat transactions and project leadership

There’s really no way of avoiding the fact that the stars need to be in alignment when you centralize the management of sales opportunities (and salespeople’s calendars).

This transition is an all-or-nothing proposition. Sales coordinators must take full ownership of salespeople’s calendars. Salespeople must hand-off all repeat orders and issues to customer service. And project leaders need to be capable enough to ensure that salespeople have no active involvement in technical activities.

Furthermore, in most cases, the entire sales team needs to be transitioned at the one time. If you expect salespeople and project leaders to work together productively, there can be no period where there’s an overlap of responsibilities.

Step 5: scale-up opportunity flow

You should do no special promotions until opportunity management has been centralized and the environment has adjusted to this critical change.

When sales coordinators first take ownership of salespeople’s calendars they should simply focus on scheduling the activities associated with existing open opportunities.

Once existing opportunities are under control, the next step is to generate business-development meetings from within the existing client base. As with all meetings moving forward, each of these meetings will be associated with an opportunity – and each opportunity will have an explicit business-development objective (even if, from the clients’ perspective, the purpose of the visit was a cup of coffee).

You should only consider cold-market promotions once you are sure that the new model is operating effectively and that you have sufficient protective capacity in sales support. If you have done a good job of planning this promotion, you’ll likely be surprised by how easy it is to maintain salespeople at full utilization without special promotional initiatives.

The organic increase in opportunity flow you experience will be a consequence of:

1. An improvement in customer service quality
2. An increase in the volume of visits with existing clients
3. The elimination of qualification (remember, your salespeople will now engage with anyone who has a non-zero likelihood of purchasing within a reasonable time horizon)

Client communication

You may have been surprised that client communication does not feature in this plan.

There’s a good reason for that. If you do a good job of this transition, there’s no requirement to sell it to clients. From your clients’ perspective, the only thing that will change is that they will hear some friendly new voices on the other end of the phone from time to time.

You should avoid any attempt to directly influence your clients’ behaviors. If they want to ring your salespeople to place repeat orders or report service issues, that’s their prerogative. Your salespeople should welcome their calls and then organize for the appropriate person to call them right back. Once your clients discover that it’s easier to communicate directly with customer service representatives (and with salespeople’s coordinators), your salespeople’s cell phones will simply stop ringing.

* * * *

You now have a plan. Or at least the skeleton of a plan. Let’s push forward then, and see if we can’t put some meat on them bones!

The problem is that they are creative entrepreneurs, brilliant at starting businesses – and launching new initiatives within existing ones – but challenged when it comes to building sustainable and scalable machines.

Because our expertise is the inverse of theirs you’d think we’d work together fabulously well.  But, more often than not, we don’t!

It’s not that we don’t appreciate the synergy. We do.

It’s not that we don’t both want the same outcomes. We do.

And it’s definitely not a personality thing – over the last 10 years a few of these individuals have become close personal friends of mine.

The issue (I’m starting to realize after reading Predictable Success) is that businesses must undergo a series of metamorphoses as they grow. Now, the thing is that these metamorphoses are tadpole-to-frog changes (material, not superficial).

And these changes require that entrepreneurs and their management teams have an exhaustive understanding of the life-cycle of an organization – as well as a tolerance for the collateral damage that inevitably accompanies each of these transformations.

In our case, at least, this exhaustive understanding has been lacking. Fortunately, however, it’s the subject of this new book.

Les McKeown’s Predictable Success presents a model for the lifecycle of the organization.

The right-hand side of the model represents the rise of the organization and, the left, its decline. At the apex of the arc is a place called Predictable Success. It’s here that the organization is operating at its best. It’s efficient, profitable and scalable.

Les argues that it’s impossible for an organization to get to Predictable Success without first undergoing three critical transitions (Early Struggle, Fun and White-water). And he maintains that, unless management is vigilant, the organization will slip out of Predictable Success and visit Treadmill, The Big Rutt, and Death Rattle on the way to its eventual demise.

Of course, the critical question is, what exactly determines an organization’s journey along this arc?

The answer brings me back to our entrepreneurial clients. Les’s thesis is that the journey is determined by the interplay of two critical factors (in conjunction with the overall environment):

1. Entrepreneurship
2. Systems

Les argues that an organization needs a blend of each – but that the ideal blend is quite different at each of the stages in his model.

And for me, this is the critical take-away.

Obviously, an organization needs both entrepreneurship and systems. But this realization is insufficient. It lures us into imagining that there’s a perfect blend – a kind of golden ratio that management must engineer-into the organization.

But Les paints a picture of a more dynamic reality. Management must fine-tune the blend as it moves from one stage to the next. And, even when the organization is in Predictable Success, management must pay careful indication to the warning signs that indicate the organization is slipping back into White-water or – heaven-forbid – toppling into Treadmill (a scary place, where the seeds of the organization’s eventual destruction germinate without anyone noticing).

How to learn more

If you’d like to learn more about Predictable Success, you can:

1. Purchase Les McKeown’s book
2. Download a free 27-page extract
3. Listen to an interview with Les on the Independent Entrepreneur

Les McKeown interviews yours truly

While it probably should have been me interviewing Les, the tables were turned recently when Les interviewed me for his blog.

It’s a very nice interview so, after you’ve ordered yourself a copy of Predictable Success, you might like to take a listen. If nothing else, you’ll be surprised to learn what exactly I did when I graduated high school!

The interview is here.

But I wanted to wait until we had a few miles under our belt with this new model. I also wanted to make sure that this story is more than show-and-tell! (Although, the positive response I got to the post on our experiences with Social Media indicates that many people so see value in these kinds of updates.)

The big news is that we are backing away from projects as our primary offering and, instead, favoring the delivery of an ongoing service.

The service is called Outsourced Sales Operations and it consists of us taking over the supervision and the ongoing improvement of our clients’ sales support teams – and providing the necessary technology and marketing communications.

I’ll explain what this means in more concrete terms in a second, but first let me tell you how we got here.

Great idea, no business model!

About 15 years ago I left a start-up (the Hudson Institute) to found Ballistix with a cool idea.

The idea was to apply division-of-labor to the sales function and to centralize almost everything: the origination of sales opportunities, the management of sales opportunities (and salespeople’s calendars) and all customer service and production-related activities.

This idea had paid dividends for Hudson. The year I left, we put 45,000 people through public seminars and generated tens of thousands of sales opportunities. A phone-based team, managed these opportunities and channeled prospects into salespeople’s offices, where they queued (like patients in a doctor’s surgery).

We started Ballistix with a focus on the promotional component of this model (initially, Ballistix was a direct-marketing agency). However, it quickly became clear that the real problem faced by organizations had nothing to do with promotion. The fundamental problem was that division-of-labor thing.

I was travelling the country (just Australia, at the time) evangelizing the concept of sales process engineering. We sold thousands of tickets to seminars and workshops every year – business people absolutely loved the ideas – but virtually no one implemented them!

As the direct-marketing industry became more competitive, we were faced with a choice, hunker-down and focus on direct marketing or figure out a new model that would enable us profit from sales process engineering.

From direct marketing to consulting projects

When we transformed ourselves into a consulting firm, my total knowledge of this new industry was what I’d read in the The McKinsey Way.

Initially we sold my time: every minute of it!

We then added some structure – we sold audits and delivered comprehensive reports. For starters, we sold these engagements for $6,000. As we gained confidence, we increased the price – and the size of the reports. (Our $35,000 reports were so heavy we had to monopolize an elevator for an hour or so before a presentation to send them aloft!)

Sadly, this upheaval in our business model had zero impact on the results we were producing for our clients. Executives loved their reports. But virtually no one implemented!

Ideas are chump change: the money’s in the implementation

The decision to sell implementation (instead of advice) was not an easy one.

But the implications for us (and our clients) were significant. Implementation projects were just as easy to sell as audits – and we were able to sell them for five-times more! And, at last, organizations actually started to implement sales process engineering.

I should add that it took a long time for us to learn how to deliver projects effectively. I could write a book on the challenges associated with internal politics and technology. And I’m sad to report that some of our more elegant intellectual constructs failed spectacularly upon contact with reality (for example, we quickly discovered that writing a manifesto for each client was not such a great idea).

We’ve spent the last five years or so fortifying our (implementation-based) consulting offering. We’ve standardized and codified everything, we’ve built a significant management-information system (which we integrate with each of our client’s CRMs) and, of course, we’ve expanded into North America.

And now, we’re changing everything again!

Why sell projects when you can sell services?

The truth is that we’ve been dreaming about selling services instead of projects for years now.

The benefits for our business are obvious:

1. Clients relationships become annuities – rather than one-off transactions
2. A larger number of open-ended engagements allow for more efficient scheduling (and more aggressive pricing)

But we’ve been starting to suspect that most (not all) of our clients would be better served with an ongoing relationship too:

1. With ongoing contact, we can continue to optimize the performance of our clients’ sales environments
2. An ongoing relationship will enable our clients to eliminate a number of redundant expenses (design and other creative services, inbound marketing (SEO, PPC, etc) and even executive coaching).
3. An ongoing relationship will enable us to provide a total (hosted) technology solution, including CRM, business intelligence (MIS) and even web hosting.

Outsourced Sales Operations: the nuts and bolts

The scariest part about the transition to services was thinking about it!

When we put our team together for a day to brainstorm the new offering, we were amazed how appealing the proposition turned out to be – and how good the economics were (obviously, the short-term was our biggest concern).

Since then we’ve offered both project and service options to all of our potential clients – and been delighted that almost all have accepted the service option.

Here’s the basic proposition:

We will reengineer your existing sales function – in line with SPE principles – and supervise the operation of the critical sales-support team on an ongoing basis.

In addition, we will provide all promotional services required to generate the necessary volume of sales opportunities (including traditional promotional collateral and web-based promotion (inbound marketing, web video, etc).

We’ll also provide all sales-related technology on an on-demand (SAAS) basis, including CRM (if required), business intelligence and event- and lead-management.

Furthermore, we (well, yours truly, actually) will host a quarterly strategy review meeting, at which we’ll review the general operation of the sales function and plan (and monitor) special ongoing-improvement initiatives.

The great news is that the monthly fee for this service is almost half the monthly fee for our projects.

And, what’s more, in most cases, our clients reduce their payroll costs (by downsizing their field teams and moving many sales-related activities inside) – and they eliminate recruitment, promotional and technology expenses too.

Homework: thought experiment

If you are currently selling projects, maybe it’s worth evaluating the shift to services?

The economic advantages are obvious but there are many hidden advantages too.  One thing we’re already discovering is that our new service model allows us to match the cadence of our change initiatives to our clients’ ability to absorb those changes. (Where previously the cadence was determined by a contract!)

If you’d like to know more about this service offering – or even if you’re curious how we’re packaging and pitching it – please use the contact form on this site to request an overview. (Just put the words “Service Overview” in the Message field.)

By the way, we are still offering projects on those (few) occasions that it really make sense to do so, but our intention is for projects to become the exception, rather than the rule.

His full name was Dr Eliyahu Goldratt but the world knew him as Eli.

He burst onto the world stage when his first book (The Goal) became a runaway best seller.

The Goal went on to become one of the most-read business books of all time and Eli established himself as one of a small number of big thinkers in the area of business.

Eli developed an interest in business shortly after earning his PHD in Physics. He recognized that a manufacturing environment is a complex system – ill-suited to the standard plant-scheduling practices at that time.

A radical new approach to plant scheduling was baked-into OPT – the production planning software produced by Eli’s first company. But Eli grew frustrated with the slow uptake of OPT and set to work writing a book that would dramatize his production-planning method.

The Goal was an unusual book. It was a fictional story about a plant manager and his journey of discovery. It was also a love story!

As The Goal became required reading in every business (and business school) in the developed world, Eli noticed that managers who read the book and applied his ideas without software were seeing dramatically better results than his company’s software customers were.

With that realization, he turned his back on software development and devoted the rest of his life to writing, consulting and teaching. Eli named his body of knowledge Theory of Constraints (TOC).

He first packaged his plant scheduling approach into a formal method called drum-buffer-rope.

He then launched a new approach to project management with a book called Critical Chain and a method of the same name.

In subsequent years, he turned his attention to management accounting, distribution, strategy and general problem solving.

I first encountered Eli when Brian Menzies (The CEO of Flair) showed me a video of Eli sharing his thoughts on the development on what he called a Mafia Offer. I was captivated by Eli’s reasoning and insight, and purchased The Goal that weekend (about 8 years ago).

I spent all day Saturday reading. I started reading over breakfast in a café and when I couldn’t drink any more coffee I shifted to a sunny park bench. I finished reading as lunchtime ran into dinnertime and I was beginning to overstay my welcome at my regular luncheon haunt.

As I think is the case with most people who read The Goal, the book had a profound effect on me. But its message was especially important because it contained the solution to two problems that were constraining the growth of Ballistix at the time.

I set to work integrating the key insights from the Goal into our approach to sales management. I sent an initial draft of a whitepaper to Eli, who was quick to offer his agreement and support. Since then, I’ve become closely involved with the global TOC community and I’ve been lucky enough to meet with Eli on numerous occasions and work with many practitioners of TOC across three continents.

Sadly, Eli passed-away last weekend.

His passing is huge loss and a terrible shock to the TOC community. His legacy, however, is so significant that he will never be forgotten. Anyone can experience Eli by reading one of his many books – or by absorbing some of the many audio and video programs that he produced.

I will be forever grateful that I am one of the lucky few who can say, I knew Eli.

I’ve chosen to close Part One of this book with a frontal assault on the juiciest bovine of all: the unassailable belief that salespeople should be paid commissions. And while I’m at it, I’ll take aim at bonuses, targets and other artificial management stimulants.

A litmus test

This discussion is important for two reasons.

First, commissions and their bedfellows will definitely handicap the performance of the reengineered sales environment I’ve gone to great lengths to describe.

Second, this discussion will force us to confront the significant implications of Sales Process Engineering: both locally and organization wide.

If you are brave enough to follow in the footsteps of our quiet revolutionaries it’s critical that you truly appreciate the essence of SPE. It’s not enough to believe that SPE will work; you must also understand – at the most fundamental level – exactly why it will work. (And if you don’t, it almost certainly won’t!)

So, I’m proposing that you use the (emotionally-charged) question of salespeople’s commissions as a kind of litmus test. If, by the end of this chapter, you are comfortable that there is no place for commissions in a reengineered sales environment, it’s safe for you to proceed.

If, however, this conclusion still does not sit comfortably with you, it makes more sense to treat this book as an exercise in creative thinking (and leave your sales function well alone).

When commissions make sense

At its most fundamental level, SPE involves the transitioning of the responsibility for sales from autonomous agents to a centrally-coordinated team.

When sales actually is performed by autonomous agents, it does makes sense to pay these agents on a commission basis (a percentage of the revenue they generate).

So, if we imagine a computer hardware manufacturer that sells desktop and notebook computers to consumers, via big-box retailers; it’s clear that these arms-length retailers should be paid on a commission basis.

And, if we think about this example, we can identify two conditions that accord well with commission-based pay:

1. These retail agents sell from stock – meaning that there is no requirement for them to interact with the hardware manufacturer on a transaction-by-transaction basis (which certainly would not be the case in an engineer-to-order environment)
2. These retail agents are truly autonomous – they march to their own drumbeats (and they own the relationship with the ultimate customer)

But what happens to the case for commission-based pay when these conditions are not in place?

As we discussed in Chapter 2, when we transition from a make-to-stock to an engineer-to-order environment, the case for autonomy becomes weaker. Increasingly, the performance of the organization as a whole becomes more a function of the quality of integration between sales and production.

And, because autonomy and teamwork are polar opposites, as the case for autonomy becomes weaker, we reach a point where we have to make a clean switch from one to the other (there’s simply no such thing as an autonomous team member!).

The wrong question

We now arrive at the critical question. We should not begin this discussion by asking: does commission make sense? Rather, we should ask: should we sell via autonomous agents or via a centrally-coordinated team?

Once we answer this question, our position on commissions becomes obvious.

Commissions: the case against

In order to understand why, let’s briefly revisit the history of manufacturing.

There was a time (before the industrial revolution) when almost all labor was paid on a piece-rate. Piece-rate pay is the manufacturing equivalent of commission. Rather than being paid in units of time, a piece-rate worker is paid in units of output. (A sewer, for example, might receive 20c for each garment processed.)

Today, however, piece-rate pay is almost extinct. (And, I suspect by now, you have a good idea why!)

What happened is that management discovered that, as the complexity of the environment increased, there was a critical threshold beyond which scheduling decisions had to be made centrally.

Of course, beyond this threshold, piece-rate pay had to be eliminated because it drove workers to work as fast as possible and not to subordinate to the schedule. (Remember, because of the combination of dependency and variability you never maximize the output of a system by maximizing the rate-of-work of each system resource.)

Commissions (or any kind of performance pay) are inappropriate in the reengineered sales environments described in this book for exactly the same reason that piece-rate pay is now inappropriate in manufacturing environments.

And this conclusion does not just apply to the sales function in isolation. As we discussed in Chapter 4, in many organizations it is not healthy for sales to be the organizational constraint. So, in these cases, irrespective of the structure of the sales function, the organization as a whole will perform better when sales is not operating at 100% utilization.

I wish this could be my last word on that subject. However, there’s a number of persistent objections to my position that we must first put to bed:

1. Ours is a mixed environment: salespeople are not fully autonomous – meaning that a mix of salary and commission is justified
2. Even if we don’t need the compensation plan to determine salespeople’s rate of work, we still need performance pay to maximize salespeople’s quality of work (in other words, without commissions, what would motivate salespeople to actually sell?)
3. Commissions enable us to mitigate against the uncertain nature of salespeople’s performance and keep costs under control
4. The theory may make sense, but good salespeople will simply not be prepared to work in an environment without commissions

The fallacy of a mixed environment

I’ve heard many executives argue that it’s beneficial for their salespeople to be partly autonomous. But I’ve never heard anyone argue that it’s beneficial for salespeople to be partly team members.

Perhaps it’s because the latter phrasing exposes the folly of this position!

I’ve already stressed that it is impossible for salespeople to be team members and autonomous agents at the same time. However, an astute reader might argue that this is possible in theory (if not in practice).

Your salespeople can be capable team members and operate autonomously if (and only if) the rest of the organization has the capacity to subordinate to individual salespeople.

At first glance, this condition may not appear to be particularly onerous. However, when we consider the enormous variability in salespeople’s output, we recognize that effective subordination would require a huge amount of redundancy in customer service, engineering and production. (Remember, we’re considering true sales here, not repeat transactions.)

The fact that this is commercially unrealistic in most organization tends not to stop management from pursuing a mixed sales environment. And, the consequences are as unpleasant as they are predictable:

1. Management encourages salespeople to operate autonomously
2. Salespeople proceed from the assumption that more sales is always better (the tacit assumption is that the rest of the organization can keep up)
3. On average, the sales team as a whole sells less than the organization has the capacity to produce
4. However, because new accounts are won infrequently (after all, salespeople spend the greater majority of their time processing transactions), the load on the rest of the organization is irregular
5. On the (not infrequent) occasions that customer service, engineering or production does not have the capacity to honor commitments made by salespeople, on-time performance tends to be compromised (although, the commitments that have been made to new accounts are often met, at the expense of existing ones)
6. Periodically, management attempts to improve the financial performance of the organization with additional incentives and special promotions
7. These incentives tend to increase the lumpiness of the deal flow – meaning that, over time, peak sales increase, at the expense of average sales

The bottom-line is that contradictions cannot persist indefinitely. Your salespeople cannot be both autonomous agents and team members. They cannot be responsible only for sales outcomes and simultaneously be expected to attend sales meetings and maintain the organization’s CRM. And customers cannot belong to both salespeople and to your organization.

Commissions and the quality of work

If salespeople don’t have the opportunity to earn commission, then why would they sell?

I wish I had a dollar for every time I’ve been asked this question by an incredulous executive. You would think the onus should be on the defender of performance pay to present an argument.

After all, receptionists answer the phone when it rings, in spite of the fact that they receive no incremental pay. Your financial controller does a good job of paying bills on time, in spite of the fact that they receive no rebate on each check signed. And even senior executives perform important tasks, absent special incentives (I’m assuming that no one is paying you to read this book!).

Why should salespeople differ from almost every other worker on the planet?

The answer to the question four paragraphs above is simple: absent the opportunity to earn a commission, salespeople will still sell because they are salespeople. (Just as receptionists answer the phone because they are receptionists.)

I often wonder if those executives who ask that question are really enquiring into the motivation of their team members or if they are providing an (unsolicited) insight into their own pathology!

In Drive, his excellent best-seller, Daniel Pink presents a powerful case against performance pay. His conclusion – backed-up by many experiments from the social sciences – is that external rewards retard the performance of knowledge workers and have a positive effect only in situations where workers are performing mindless, repetitive tasks.

In other words, if your team members are responsible for activities any more complex than licking stamps, the work itself is their reward.

Interestingly, Pink’s conclusion points to an interesting defense of performance pay in the traditional sales environment. Consider these two points:

1. In most environments the volume of sales appointments has a far greater influence on sales output than the qualitative performance of the salesperson
2. In almost all environments, salespeople generate their own appointments as a result of mindless and repetitive prospecting activities (internet research, cold calling, etc)

With these points in mind, commissions may be defensible in traditional sales environments, not because they motivate salespeople to sell, but because they motivate them to prospect!

Of course, in our case, this argument is moot because we are definitely going to free salespeople of the requirement to generate their own sales meetings.

Commissions as a hedge against non-performance

The obvious problem with the argument that performance pay provides management with a hedge against the costs associated with salespeople’s non-performance is that the same argument could be applied to everyone in the organization.

But, then sales is a special case for a couple of reasons:

1. The performance of salespeople is highly variable
2. It is easy to isolate the contribution that a salesperson makes (this would not be so easy in the case of a line worker)

As we’ll discuss shortly, SPE inverts these two reasons:

1. The output of the sales function ceases to be highly variable
2. While it’s easy to measure the capability of a salesperson, it is difficult (if not impossible) to isolate the contribution that person’s activity make to the organization as a whole

First, however, let’s consider the wider (and more terrifying) implications of performance pay.

Management abdicates

We’ve discussed earlier that you cannot manage an autonomous agent (these two concepts are antagonistic). Performance pay makes this contradiction explicit! In other words, when a significant component of a salesperson’s pay is performance based, management has formally abdicated its responsibility for sales.

In so doing, management has telegraphed to salespeople that selling is optional! It is now up to individual salespeople whether or not they generate sales – and in what quantity.

If a salesperson is capable of selling, the real cost of their non-performance is not their salary, it’s the profits that the organization does not earn when production is sitting idle!

If a salesperson is not capable of selling, the real cost of their non-performance is still not their salary, it’s the sales opportunities that are lost that could have been won if they were attended to by a more capable individual.

Variability diminished

If sales appointments are the primary driver of sales (and it’s rare that they are not), we can significantly reduce the variability of sales by:

1. Fixing the volume of sales appointments (the same number of appointments, week after week)
2. Increasing the volume of appointments (as the appointment volume increases, the variability of the entire sales function reduces)

Of course, our standard model does this by ensuring that salespeople do nothing other than sales appointments and by ensuring that each salesperson performs ten-times the volume of appointments they would perform in a typical sales environment.

Capability

Many of our silent revolutionaries report an increase in salespeople’s capability. There are three contributing factors here:

1. Predictably, when organizations reduce the size of their sales teams, they retain their more capable salespeople
2. When salespeople do nothing other than sell – four appointments a day, five days a week – they get good at it (or they rapidly conclude that sales is not the right career for them)
3. With control over salespeople – and with accurate and current data – sales management finds it easy to institute a process of ongoing improvement

Salespeople’s position on commissions

If there’s one thing I’ve learned in the last 10 years or so, it’s that sales managers are uniformly terrible at predicting their salespeople’s reaction to our standard model.

Almost without exception, sales managers predict outrage from their team members – perhaps even a mass exodus of talent! And the one component of our model sales managers predict will be the most offensive is the elimination of commissions.

In reality, salespeople’s reaction to this proposition tends to be shocking for exactly the opposite reason. It’s shocking how comfortable salespeople are to give up both their autonomy and their variable compensation plan!

The reason salespeople tend to be so compliant is very simple.

Salespeople (contrary to popular opinion) do not live in a parallel universe. They are a part of the same dysfunctional reality that is causing the rest of the organization (including management) so much pain.

Salespeople may have different theories about the source of their particular set of issues – and they may propose different initiatives as a remedy to these issues – but, when presented with the evidence, salespeople recognize (often faster than management) that a significant number of sales problems, production problems and management problems can be tracked back to the same root cause (their autonomous mode of operation).

And make no mistake; salespeople have more than their fair share of complaints:

1. They hate the volume of clerical and customer-service work that prevents them from engaging meaningfully with potential and existing customers
2. They don’t enjoy spending their evenings in hotels entering data in the CRM, generating expense reports and writing proposals
3. The resent the continual conflict over the allocation of commissions (particularly when accounts span multiple territories)
4. They hate having to advise clients that their promises will not be met – and they resent the fact that they have to live with the continuous uncertainty over production performance
5. They don’t enjoy the underlying – and constant – conflict in their relationships with production, customer service engineering, management and even finance

It may be true that salespeople are in love with the notion of the salesperson as a lone crusader, but salespeople are also realists. They quickly recognize that, on balance, the proposed environment will be infinitely more rewarding to work in.

Sure, they sacrifice their autonomy but, so what? They each get a dedicated executive assistant (sales coordinator) who will free them to do nothing but sell.

And sure, they have to transition from commission to a salary but, what of it? Salespeople understand that the dynamics of the environment in which they operate rob them of the financial upside they signed-on for. And, the truth be known, salespeople have never been entirely comfortable with the notion that they are innately lazy: prepared only to do the right thing on the promise of an incremental financial inducement.

The new compensation plan

So, it’s out with commissions and in with a new compensation plan.

But there’s not much to the new plan. The idea is simple: we pay people what they are worth (perhaps a little more).

And that’s it!

In practice, you should pay salespeople enough to ensure that compensation is no longer a regular topic of conversation – and then insist that they perform the activities required for the organization to achieve its objectives.

So here, from management’s perspective, is the fundamental difference between the two compensation plans:

With performance pay, we make optimal performance optional – and then we attempt to exert control through a compensation plan that underlines salespeople’s autonomy with every pay check!

With salaries, we take the discussion of money off the table. Salespeople willingly subordinate to a central schedule. And they perform necessary activities because they are asked to (and, because those activities are congruent with both salespeople’s job descriptions and the reasonable interests of the organization).

This new plan, then, is not even new: it’s exactly the same plan we use to compensate everyone else in the organization!

And when it comes to calculating salespeople’s salaries, there are no surprises here either. As with all employees, there are two considerations:

1. Replacement cost (how much would you have to pay for another person with a comparable set of capabilities?)
2. Asking price (how much will you have to pay the current candidate to ensure that the compensation plan is no longer a regular topic of conversation?)

It should go without saying that it would be foolish to propose that salespeople (or any team members, for that matter) take a cut in pay when you transition to this new model.

Most of our silent revolutionaries shift their salespeople to a salary that is equal to, or slightly greater than, their average total earnings (typically judged over a three-year period).

If you think about it, both parties are getting a terrific deal here.

1. Salespeople are receiving a not-insignificant pay rise. Obviously the potential to earn a figure is worth nowhere as much as the same figure, guaranteed.
2. Management is increasing the volume of effective work performed by each salesperson by ten times. To achieve the same increase in a typical sales environment, management would have to add nine more salespeople for every one they currently employ! In the new model, the cost is limited to an incremental increase in the salesperson’s compensation and the cost of a sales coordinator.

The other artificial management stimulants

This debate about commissions is like Hydra (the many-headed monster). You successfully lop-off one head and another appears.

I fear that, even if I’ve done a reasonable job of convincing you that there’s no place for commissions in the reengineered environment, your very next question might be: but, what about bonuses.

My observation is that bonus plans have a couple of problems:

1. Because the bonus is remote from the positive behaviors that drive the desired outcome, the first installment of a bonus is a pleasant surprise and subsequent installments are viewed as entitlements
2. Bonuses suggest to team members that they are responsible for outcomes when, in fact, managers should own this responsibility – accordingly, they tend to dis-empower managers

It is certainly true that some degree of variability is required where compensation is concerned. However, my position is that standard salaries provide the necessary flexibility. As your team members become more capable, their market value increases, meaning that you are obliged to grant them pay rises when (or ideally before) they request them.

I suggest that there is absolutely nothing wrong with the traditional contract between employers and employees. Employees want to be able to perform rewarding work in a secure environment. If they were really seeking uncertainty and boundless riches they would not have signed-on to be employees in the first place.

The other stimulants (targets and quotas) are problematic for the same reasons as commissions and bonuses. They tend to suggest that team members own outcomes.

In a team environment, the team cannot own the responsibility for anything! There is no collective consciousness – only a group of individuals. It is critical, therefore, that the manager owns the responsibility for the desired outcome and that team members own the responsibility only for the activities assigned to them.

Here, a military example is illuminating. Imagine, rather than allocating discrete responsibilities to each of his units a commander were simply to assemble all his troops and exhort them to take Berlin!

Reinventing management

On the subject of management, it’s important to recognize that the transition to a reengineered sales environment is extremely difficult for sales managers.

As a result of this transition, sales managers find themselves in a position where down is up and up is down. If sales managers were to refer to a list they had compiled before the transition of everything they know for sure about sales, almost every statement on that list will now be false.

Consequently, it is not sufficient to reengineer the general sales environment. You must also rebuild from scratch the sales manager’s method of operation.

* * * *

You now have a sound understanding of the theory that underpins Sales Process Engineering. Part Two of this book will show you how to convert all this theory into practice.