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Mixergy: Christmas tip (almost a Christmas present)

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I have a tip for you for the holiday period that’s such an awesome tip it almost qualifies as a Christmas present.

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. Continue reading “Mixergy: Christmas tip (almost a Christmas present)” »


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The Machine > Part 2 > Chapter 8: Converting opportunities into sales

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The next three chapters deal with opportunities: how to originate them and how to prosecute them.

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)!

Continue reading “The Machine > Part 2 > Chapter 8: Converting opportunities into sales” »


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I’ve got a copy of The Machine (sampler) with your name on it!

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If you can help me to spread the word about Sales Process Engineering, I’ll be happy to mail you one of these stunning little books.

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/


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Tech company eliminates salespeople: boosts sales

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Case study: TEBA, Melbourne (Australia)

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!


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The Machine > Part 2 > Chapter 7: Formulating a plan

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Welcome to Part 2!

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.

Continue reading “The Machine > Part 2 > Chapter 7: Formulating a plan” »


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Achieving ‘Predictable Success’ (book review)

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I have a few long-term clients who I love dearly but who are painfully difficult to work with!

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 left-hand side of the model represents the rise of the organization and, the right, 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 attention 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.


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Ballistix backs away from projects: embraces services

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I’ve been dying to tell you what’s probably our biggest news after the launch of our US operations a few years ago.

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.


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In memory of Eli Goldratt

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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.


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The Machine > Part 1 > Chapter 6: The end of commissions, bonuses and other artificial management stimulants

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If it’s true that sacred cows make the best hamburgers, then we’re in for quite a feast!

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.

Continue reading “The Machine > Part 1 > Chapter 6: The end of commissions, bonuses and other artificial management stimulants” »


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