Here’s the most obvious symptom of the problem:

When salespeople make a technical sale, they inevitably become entangled with production. Their involvement in production cannibalizes their (already limited) business-development capacity – leading to the boom-and-bust problem that plagues so many businesses.

To explore the source of this problem – and to uncover its solution – let’s consider these three scenarios.

Scenario 1: simple sales environment

In a simple sales environment, the relationship between sales and production is, well, simple!

The Coca Cola rep assesses a mom-and-pop store’s requirements and dispatches an order to production from her handheld computer. Production can fulfill that order without any recourse to sales.

That means that sales and production can be situated end-to-end with a perfect hand-off of information between them (per example 1, above).

So far, so good.

Scenario 2: complex sales environment (typical)

So, what happens when we’re dealing with complex sales (in a technical environment)? Can we adopt the same structure?

The software company salesperson discusses his client’s unusual problem, conceptualizes a solution and successfully pitches a custom application. He then carefully completes and submits the specification document provided to him by production.

The $64 question is: can production complete and deliver the application without recourse to the salesperson? Intuitively, the answer is no. Production will definitely need to consult with the salesperson during the production process – and it’s likely that the client will need to do likewise.

Imagine what happens if production attempts to resolve this problem (as they often will) by providing salespeople with a more detailed specifications document to complete. If this document grows from 2 pages to 5 – or from 5 to 50 – do you think the problem will be resolved?

You’re right: it won’t. But to make progress here, it’s critical we understand why.

Complexity versus hand-off difficulty

We’ve already discussed that, in a simple environment (like the Coca Cola one), hand-offs are easy. What happens when environments become more complex?

The thing is that, the relationship between complexity and hand-off difficulty happens to be non-linear.

Specifically, as complexity increases past what I call the complexity threshold, hand-off difficulty goes to infinity! In other words there’s a point beyond which hand-offs are not just difficult; they’re impossible.

I’m not aware of a method to calculate the exact location of this threshold, but here’s a rough rule of thumb:

1.   Make-to-stock environment: EASY

2.   Make-to-order environment: HARD

3.   Engineer-to-order environment: IMPOSSIBLE

So, where our software company is concerned, if perfect hand-offs are impossible, salespeople have no choice but to maintain an involvement in production after the sale is won (example 2, above).

Production needs the salesperson involved to resolve the numerous ambiguities in the specifications. And the client needs the salesperson involved too because they don’t feel comfortable that production truly understands their needs.

The good news is that salespeople’s continuing involvement in production resolves the worst of the hand-off problems. The bad news is that this model has two serious shortcomings:

1. Because salespeople tend to be busy, time spent in production is time that can’t be spent on business development. Of course, this results in a smaller opportunity pipeline; but the really bad news is that salespeople’s limited capacity tends to cause them to engage later in clients’ buying cycles – at the expense of both margin and deal size (read more about this problem here).
2. The resolution of the inevitable tension between sales and production occurs after the sale is made (you promised the client what!!). Of course, this tends not to have positive implications for customer satisfaction (or profitability).

Scenario 3: complex sales environment (optimal)

In identifying the real reason for salespeople’s entanglement in production, at least the direction of the solution to this problem starts to come into focus.

If perfect hand-offs are impossible, the key is not to try and fix them but, rather, to engineer the requirement for them out of the workflow. The third example in the diagram above shows how this can be done. This model introduces a new resource: the project leader.

The project leader is a technical person who is comfortable in the sales environment. This person belongs to neither the sales or the production team. This is because their reason for existence is to manage the interface between these two functions.

The project leader’s primary responsibilities are to:

1. Pre-sale: discover the clients’ requirements and design the solution
2. Post-sale; oversee (but not manage) production to ensure that the project stays true to the client’s (commercial) expectations

The value of the project leader, becomes more apparent when we track a client engagement from start to finish:

Because the salesperson has been disentangled from production, she now has the capacity to engage early in the client’s buying cycle.

This early engagement results in the first one or two meetings being conceptual in nature.

When the client is ready to brief the vendor on it’s requirements, the salesperson introduces the project leader?

The project leader discovers the client’s requirements, designs a solution and generates a proposal.

The salesperson and the project leader negotiate a resolution to the tension between sales and production (the project leader wants a solution that is deliverable: the salesperson wants one that is saleable). They may even involve the client in this discussion.

Once the client is happy with the solution proposed, the salesperson is responsible for negotiating commercial terms and getting the contract signed.

As soon as the contract is signed, the salesperson exists this engagement (although ideally she will continue to engage with the client on other opportunities).

During the production process, the project leader will chair periodic project-leadership meetings. These meetings will be attended by the client, the production team leader and the project leader. The purpose of each meeting is to maintain the fit between the project plan and the client’s commercial requirements. Major projects tend to drift off-track because (a) some assumptions made during solution-design turn out to be incorrect, (b) the client’s business environment changes during delivery and, (c) the client fails to dedicated the expected resources to the project.

Once the project has been delivered, the project leader will chair a formal debriefing meeting to (a) ensure that the client appreciates that the project was successfully delivered and, (b) create an ideal environment for the salesperson to prospect for new opportunities

In summary, then, this new model delivers the following benefits:

1. Salespeople engage earlier with (more) potential clients (as opposed to engaging only when opportunities have degenerated into bidding wars) – which impacts positively on margin and deal size
2. The trade-offs between features and price are negotiated prior to the deal being won – which impacts positively on customer satisfaction and profitability
3. The project leader takes an active role in maintaining the commercial integrity of the project – which also impacts satisfaction and profitability

Cost justification

When we present this (optimal) model to clients, most are excited. The greatest concern, however, is the impact on cost. There are two reasons why cost tends not to be an issue in reality.

1. Most of the activities performed by the project leader in this new model are being performed currently – it’s just that they are shared between sales and production. This means that, in many cases, you can transition to the new model by simply restructuring – without adding personnel. The most common way to achieve this is to convert your more technical salespeople into project leaders – and have your remaining salespeople focus exclusively on business development.
2. If you do choose to add new personnel in order to transition to this new model, you must contrast any increase in operating expense with the current opportunity cost of your salespeople’s lack of business-development activity. The bottom line is that, if your salespeople are not worth more to the firm when they are selling than they are when they are performing production-related activities, then they should not be salespeople in the first place.

In practice, when we are helping our clients to make this transition, we take a hard line on the issue of costs. Specifically, our policy is to never propose a transition plan that causes operating expenses to increase in the short term (you’re welcome to use the comments section to ask why!).

In most cases, we achieve this by dramatically reducing the size of the sales team and converting most of the existing salespeople into project leaders. Because SPE always increases the volume of business-development meetings performed by the remaining salespeople by an order of magnitude, 20% of the sales team will perform 200% of the current volume of business-development meetings.

As I mentioned at the outset, this is the most valuable idea we bring to the table whenever we work in a technical (engineer-to-order) environment. In fact, for many firms, fixing the interface between sales and production represents perhaps the most exciting short-term opportunity to develop a competitive advantage.

And this is an advantage that can be sustained for at least as long as competitors insist in maintaining the traditional approach to the structure of the sales environment (where salespeople operate as autonomous agents).

So you think you’re going to publish a newsletter?

Hey, that’s not a bad idea!

If you make it an e-mail newsletter — like the one you’re reading now — it’s a particularly cost effective exercise. Your distribution costs are nil. Your publishing costs are equivalent only to the time you invest in producing content.

And just think what your newsletter will achieve.

Your newsletter will keep your organisation ‘top of mind’ with your clients, potential clients and centres of influence.

Your newsletter will establish you as an expert in your field.

And your newsletter will enable you to maintain an enduring and intimate relationship with your marketplace.

Or will it?

How do you know that subscribers will actually bother to read your newsletter? They are busy people, after all.

What’s to stop them hitting ‘delete’ each time your periodical arrives in their inboxes? Or worse still, pressing ‘reply’ with that dreaded ‘unsubscribe’ word in the subject line?

It’s one thing to publish a newsletter. It’s another to produce a publication that will be avidly read, respected and even awaited by subscribers.

Of course, when it comes to publishing a great newsletter, content is the key. (The same applies to running a great event.)

But what’s the mark of great content? How should you select this content? How should you package it? And how can you ensure that you can keep producing quality content after the second, the tenth, or the one-hundredth edition of your newsletter?

Religion is the key!

Our belief is that great content is more than simple information, education or instruction.

Great content flows from a higher cause … an ideology.

The presence of this ideology adds an overriding purpose to all of your communications, supercharging their effectiveness.

Ask yourself, would Permission Marketing, Seth Godin’s runaway best seller, have been the hit it was if it had just preached textbook marketing practices?

Would upwards of 25,000 stockholders attend Berkshire Hathaway’s Woodstock-style annual general meetings if it weren’t for value investing, Warren Buffet’s counter-intuitive investment methodology?

Or would CRM (customer relationship management) have ever captured the executive share-of-mind that it has if it weren’t for Peppers’ and Rogers’ long-term one-to-one marketing crusade?

In each case, this higher cause has transformed what would otherwise have been an interesting concept into a religion (at least, in the more general sense of the word).

As a marketer, the notion of a starting a religious movement should be an intriguing one. And there’s a simple reason why.

When a concept becomes a religion it becomes infectious. In other words it self-propagates, like a virus! (It’s interesting to note that Seth Godin’s second book is called Unleashing the Ideavirus — it’s all about what he calls viral marketing.)

The real significance of this infectiousness is the impact it has on the ROI (return on investment) of your marketing activities. If you can successfully ‘start a religion’, the return on your marketing investment will increase exponentially over time. This is in contrast to the diminishing returns we see from most product-centric sales processes in mature markets.

So now you understand the importance of ‘getting religion’, how do you go about the process of starting a religious movement? And how does this concept of ‘religion’ relate to our Relationship-centric Marketing methodology?

Starting a religious movement

We’ve created a simple six-step process you can follow to start your own religious movement. The starting point for this process is your basis for communication.

If you’ve attended one of our seminars or workshops, you’ll have heard me introduce this concept. Your basis for communication is the content platform upon which the relationship with your marketplace is built. You can find your basis for communication in the area of intersection between your market’s interests and your expertise (and credibility).

Typically, your basis for communication consists of expertise that you have acquired as a by-product of the delivery of your core product or service.

For example, an office furniture retailer may establish relationships with its marketplace by sharing its workplace design expertise with clients, potential clients and centres of influence. (This firm’s market may not have an enduring interest in our office retailer’s range of workstations but it is likely to have an ongoing interest in improving workplace productivity.)

Once you’ve identified a basis for communication, you’re ready to go to work starting your religious movement!

Step one: identify ‘a better way’

It seems there’s always a better way. No matter what industry we consult to, we always hear the same thing: ‘standard practice is fundamentally flawed’.

In fact, one of the special benefits of being a consultant is having the opportunity to learn the truth about furniture design, industrial air conditioning, merchant banking, aerial mapping and myriad other industries.

Your challenge is to look at your basis for communication and describe standard practice.

Once you’ve done that, you can outline your better way.

Godin does this beautifully in Permission Marketing.

Godin refers to traditional marketing as interruption marketing. Every advertisement or promotional campaign is an unrequested intrusion. The marketer views the potential customer as an opportunity for a short-term relationship (a one-night-stand).

The permission marketer views the potential customer as an opportunity for an ongoing relationship. While she may use interruption techniques to initiate this relationship, she then attempts to exchange value for increasing levels of customer permission. (Godin refers to the highest level of permission as intravenous permission — that’s the kind of permission you give to a surgeon when you submit to general anaesthetic!)

Your better way can describe the optimal process. Alternatively, it can describe the process that should be followed in order to design the optimal process.

Step two: create an ideology

For your better way to be converted into an ideology, it needs good packaging.

And the first step in packaging a concept is to assign it a name.

It’s interesting to note that, neither Ricardo Semler (Maverick) nor Michael Gerber (The E-myth) gave their management methodologies names. I suspect their methodologies would have been more infectious had they taken this next step.

As well as naming your better way, you should also assign a name to the standard practice. (You can see how Godin has done this in the example above.)

You’ll find that it is easier to sell your better way if you position it against standard practice.

While it may seem manipulative to use polarisation as a selling tool, the reality is that you are selling only an intellectual position. (You may have noticed how ideological arguments tend to assume extreme opposing positions: ‘pro life versus pro choice’, ‘political left versus political right’, ‘salvation versus eternal damnation’, etc.)

Once your ideology has a name, it needs a model. A model is a simple diagram that provides a portal through which complexity can be viewed.

Your model can be a decision-making tool like a two-by-two matrix or investors’ economic clock. It can also be a process diagram, like our own Relationship-centric Marketing model.

It’s also worth developing your own terminology (when appropriate). When I attend meetings with potential clients, I often notice that they use Relationship-centric Marketing terminology. They do this because they have become sold on our ideology as a result of their exposure to AdVerb and our events.

We once received a request for a proposal from a potential client where the project brief was sprinkled with our own terminology. This document had been circulated to two or three other consultancies. Our potential client was kind enough to provide a link to our Website to enable our competitors to decipher the brief! Needless to say, we won the work.

Step three: write a manifesto

Now that your ideology has a name, a model and its own set of terminology, it’s time to commit it to print.

Your manifesto can be as simple as an eight-page discussion paper or as complex as a traditional book.

The purpose of your manifesto is to argue the case for your ideology. Nothing more, and nothing less.

Your manifesto should build a bulletproof case by contrasting standard practice with your better way. It should then present evidence in the form of real-life case studies. While it’s nice if the subjects of your case studies are your own clients, it isn’t absolutely essential.

If you do a good job of producing your manifesto, you will find that it rapidly becomes your most valuable communications tool. In fact, we often recommend that our clients produce their manifestos in place of a corporate brochure. The fact is, your manifesto will do a much better job of selling your organisation than a traditional corporate profile ever can.

While the first evolution of your manifesto is likely to be a discussion paper, it’s well worth ultimately turning it into a book. If you can get your book onto the shelves of bookshops around the country, you have just created a self-liquidating, perpetual promotional machine!

One of the best manifestos I have ever come across is a book called The Goal, by Eliyahu Goldratt. The Goal is a gripping ‘business novel’ about manufacturing process design. It does a superb job of selling Goldratt’s contrarian process design methodology, the Theory of Constraints. The Goal has sold over two million copies, a remarkable feat for any business book — particularly one about manufacturing process design.

Step four: start a movement

Now that you’re armed with a manifesto, it’s time to start spreading the word.

In reality, this undertaking isn’t as ominous as it may sound (no, you’re not required to don a suit and spend Sundays knocking on doors!)

You simply need to redirect your promotional resources from the promotion of your organisation to the evangelism of your ideology.

And there are three good reasons to do this:

• It’s easier to sell an ideology than it is to sell a product or service.
• If you can sell your ideology, you end up selling your organisation by default.
• Each time you sell your ideology you have an opportunity to recruit a disciple — an assistant in the propagation of your ‘religion’. (Of course, this is the key to the viral growth of religions.)

If you’re familiar with our Relationship-centric Marketing methodology, you’ve already got a pretty good idea of how to go about evangelising your ideology.

Step one is to attract ‘followers’ with the offer of your manifesto. And step two is to build an intimate relationship with ‘followers’ by subscribing them to an automated communications program (consisting of regular newsletters and seminars).

Acquiring ‘followers’

You’ll find that a magical thing happens when you begin promoting your manifesto. People actually respond to your promotional campaigns!

While campaigns that promote your organisation are unlikely to yield much of a response, an advertisement for a discussion paper that advocates a new, better way can easily generate one hundred or more replies.

Accordingly, your advertisements, direct mail and other relationship-acquisition campaigns should be re-configured to offer respondents a complimentary copy of your manifesto.

Now, if you’re worried that this promotional approach will fail to deliver the brand building benefits of traditional campaigns, you shouldn’t be. The reality is that the promotion of your ideology will do more for your brand than traditional self-congratulatory advertisements ever could!

Turning ‘followers’ into ‘disciples’

Your ongoing communications should offer your subscribers assistance with the application of your ideology to their businesses (or their lives).

Each communication should focus on one facet of your ideology and explore its implementation in detail.

As previously mentioned, the presence of an overriding ideology will multiply the effectiveness of your communications. Rather than being isolated points of contact, each communication with your subscribers will be a part of an ongoing dialogue.

If you can succeed, over time, in converting interested subscribers into ardent believers (or even activists), you win in two ways:

• Your subscribers are almost guaranteed to turn to you for assistance with the implementation of your better way.
• Your subscribers will join you in your efforts to spread the word!

It’s interesting, isn’t it, that your search for compelling newsletter content has lead to the development of a complete marketing program. You could call this marketing program an ideology-based marketing strategy — or you could simply call it getting religion!

Before I leave you with your quest to identify an ideology worthy of religious fervour, let me briefly introduce you to the two final steps in starting your own religious movement.

Step five: make your ideology the industry standard

The idea of making your ideology the industry standard seems counter-intuitive. This is because I’m advocating that you give it away!

Specifically, I’m suggesting that you encourage channel partners — and even competitors — to join your religion.

In practice, as long as you’re recognised as the originator of your ideology, you will always have the most to gain from its growth.

Ask yourself, would Stern Stewart & Co have ever been able to make their Economic Value Added (EVA) the financial standard that it is today, if it was the only consulting firm to advocate it?

Step six: extend the standard

This last step isn’t really about starting a religious movement; it’s about extending the life of your movement.

You can extend your standard by showing your followers how your ideology can be applied to other areas of their businesses or lives. I mentioned the Theory of Constraints (TOC) previously. Although this theory initially related just to production, Goldratt has subsequently applied it to finance, project management, marketing, management and other business functions.

It is important not to extend your ideology until it is firmly entrenched as an industry standard. To do so would be to divert resources from what should be your number one marketing objective.

Have you ever wondered whether the long-term success of a business really does rest in the hands of grinning bellhops, airline stewards who forward-guess your every need, and receptionists who answer telephones religiously on the third (no not the second) ring?

I guess, on the surface, it all makes perfect sense. Happy customers return and tell a friend or two. Unhappy customers spend their money elsewhere, infecting all around them with their tales of discontent.

My argument is not that customer service is unimportant – I’m sure horrendous customer service would, given time, kill any business. I do believe, however, that it’s unwise to regard customer service as a panacea. Furthermore, I question the contribution that pep talks and endless customer service training actually make to customers’ ultimate perception of service quality.

For some companies, customer service is a key component of their competitive advantage. If you are selling a product that has been commoditised by market forces, you cannot compete on product attributes. Your competitor, after all, sells the same product. Your only option is to convince the market that you offer the lowest ‘total cost’.

Now total cost is an amalgam of ‘ticket price’, ‘lifetime cost of ownership’ and ‘convenience’. Assuming you have limited control over the first two factors (and we all know the dangers of competing on price), the only component of total cost that provides you with room to manoeuvre is ‘convenience’. And this is where customer service is important.

The primary objective of customer service should be to provide your customers with an efficient and dependable interface with your products and services – to make doing business with you as effortless as possible. Every facet of your business should be designed with this efficient and dependable customer interface in mind. Customer service should be built into your product, your distribution process, your operational procedures and even your promotional activities.

Because customer service is of strategic significance, its delivery should be systemised and actively managed – just as your manufacturing and accounting processes are. Pre-programmed, system-driven service initiatives will add more value to your relationships with customers than the random acts of extreme benevolence around which customer service folklore is based!

Now, consider this. What if your company does not sell a commodity? What if your product or service is differentiated to the point where it is not available elsewhere? Consider Pfizer with its much-acclaimed drug, Viagra. Intel with its latest Pentium microprocessor. Or Porsche with its lovable Boxster convertible. What role does customer service play in a customer’s decision to purchase these products? That’s right, next to none. (Remember how Telecom thrived for years inspite of appalling customer service – until deregulation was forced upon it.)

If your product or service is differentiated, your primary focus should be to keep it that way. Don’t spend too much time worrying about whether your telephone is answered on the second or third ring. (Just make sure it is answered!)

And if you’re selling a commodity, yes, customer service is important. But you’ll get better results building systems that ensure an efficient, dependable customer interface (McDonalds-style – would you like fries with that Madame?), than you will locking your front-line staff away with a guru to chant the ‘awesome customer service’ mantra!

That’s right. If you have a cost advantage, flaunt it. Cut your prices, build marketshare, consolidate that cost advantage and annihilate your competitors.

So what’s the catch?

Well, to successfully compete on price, you need to be able to manufacture, market and distribute your product more cheaply than your competitor can. Plus you need the resources to win the price war you inevitably start.

If you’re a small business, you probably don’t have a cost advantage – let alone a sustainable one.

A far better strategy is to exploit your larger competitor’s Achilles’ heel and compete on customer intimacy.

Focus on a niche too small to attract the attention of your competitor, customise a product-service offering specifically to fill the unique needs of that niche, charge a premium for your ‘total solution’ and thumb your nose at your price-obsessed competitor!

So can a small business ever compete on price?

Sure. If, and only if, it can develop a cost advantage that can’t be emulated by its competitor.

Case in point: Dell Computers. Selling direct provided Michael Dell with lower distribution costs than Compaq, HP and IBM. The big three couldn’t emulate Dell’s distribution strategy for fear of disenfranchising their reseller networks. Last quarter, (for just one quarter) 14 year-old Dell pipped Compaq to become the world’s largest seller of personal computers.

Can price competition be a valid strategy? Yes it can. But tread carefully.

Today, however, he is particularly animated.

He’s relating the story of how, with the assistance of Justin Roff-Marsh Advertising (now Ballistix), he has shifted his business’s growth into overdrive.

"Consider this," he says – in an effort to justify his excitement – "it took me 22 years to build my business. Come June 2000, it will have taken Justin Roff-Marsh Advertising just 12 months to double it in size."

As Gavin’s story unfolds, it’s easy to understand his enthusiasm. The last six months have seen Gavin replace an unsuccessful advertising campaign with one that generates more new clients than he can possibly handle. He’s replaced an unstructured, labour-intensive sales process with one that operates virtually on autopilot. And he’s replaced a comfortably uncluttered diary with one that’s booked solid – two full months in advance!

An unconventional investment methodology

Gavin Ross is a portfolio manager.

His clients are high net-worth individuals (they must have a minimum of $500,000 to invest) who wish to enjoy the higher returns of direct share investment, without having to make buying and selling decisions themselves.

Gavin provides these clients with an alternative to a managed fund. Unlike a managed fund, Gavin manages the shares in his clients’ private accounts. His clients benefit from lower fees, as well as from a more personalised management service.

Gavin’s clients also benefit from his unconventional management methodology. Gavin classifies himself as a ‘value investor’. Value investing is a method that has been popularised by America’s hugely successful Warren Buffet (the world’s second-wealthiest man).

While many traditional fund managers would like to be regarded as value investors, the quarter-to-quarter reporting requirements (and, in many cases, the sheer size) of their funds makes this longer-term and (more selective) method of investment management impractical.

After a long history in the financial planning industry (he was one of the original founders of the Australian chapter of the International Association for Financial Planning), Gavin launched his portfolio management service 22 years ago.

His business grew steadily, fuelled by a steady stream of referrals from satisfied clients – as well as by regular media exposure. As his clientele grew, Gavin increased his minimum initial investment from $50,000 to its current level of $500,000.

Reluctant advertiser

When Gavin asked Justin Roff-Marsh Advertising to take a look at his newspaper advertisements, he had just about given up on advertising. "I was like most business people," Gavin explains, "I figured that advertising was something you did in expectation of some immeasurable longer-term benefit. I ran ads reluctantly, but I had never known an advertisement to generate more than one or two telephone calls.

"I spoke to Justin Roff-Marsh Advertising because I was intrigued by their editorial-style ads. I had no idea whether or not they worked – I just knew I liked reading them!

"What surprised me about Justin Roff-Marsh Advertising was that, unlike other advertising agencies I’d spoken with, they didn’t seem to place much importance in ads. Their attitude seemed to be ‘sure we’ll fix your ad, now let’s talk about your sales process’.

"I’ve got to admit, their seeming disinterest in advertising unnerved me at first. I couldn’t see much sense working on my sales process when I was coping quite comfortably with my current referral business. I simply had no idea of the level of activity their advertising was about to unleash."

A success story waiting to happen

Justin Roff-Marsh, from Justin Roff-Marsh Advertising, explains that Gavin Ross & Co. was a marketer’s dream come true.

"When we met Gavin, we met a man with a remarkable story to tell. He had an invaluable brand in Melbourne. (He had received regular media attention for years – including once being featured on the cover of Personal Investment magazine.)

"His unconventional investment methodology was exciting. (America has a number of popular value investors, including Warren Buffet and Peter Lynch – but no one has taken ownership of that category in Australia.)

"And his enthusiasm for share investment was infectious. (Invariably, when Gavin visits our office, our entire team gathers in the boardroom to ask his opinion on shares, and to marvel at his down-to-earth explanations of otherwise unfathomable economic principles.)

"Gavin was a success story waiting to happen. He’d already done all the hard work – all we had to do was press the ‘start’ button!

A whole new sales process

The Justin Roff-Marsh Advertising team proposed a three-step sales process. First, advertise to generate responses from qualified potential investors. Second, send respondents a comprehensive information pack to pre-sell Gavin’s service – and invite them to invest. And third, plug respondents into an ongoing communications program – to continue to nurture a relationship with those who don’t invest immediately.

Justin Roff-Marsh Advertising designed Gavin’s lead-generation advertisement to appeal to those Melbournians who already knew Gavin from his regular media exposure. The advertisement mentions his $500,000 minimum initial investment, to avoid generating information pack requests from those who cannot afford his services.

Click to enlarge

Justin Roff-Marsh Advertising then created a high-quality, eight-page booklet to replace Gavin’s existing ‘corporate’ brochure. Justin explains why. "Gavin’s existing brochure wasn’t a bad looking document. The problem was, its four pages of unemotive bullet points really undersold Gavin’s unique service offering. We wanted to sell Gavin by empowering the reader with a rudimentary understanding of his unconventional investment methodology.

"Furthermore, we wanted to make Gavin’s sales process less labour-intensive by ‘institutionalising’ much of the information he was disseminating to potential clients in face-to-face meetings."

The resulting document explains the shortcomings of traditional managed funds, and then teaches the reader Gavin’s ‘five laws of value investing’. It details Gavin’s investment management service and helps the reader to determine whether or not Gavin’s service will be appropriate for his or her situation. The document also contains a detailed biography of Gavin Ross.

To facilitate ongoing communication with those respondents who don’t invest immediately, Justin Roff-Marsh Advertising converted Gavin’s existing quarterly report into an ‘open letter to high-net worth investors’. Like his new brochure, this open letter adds value to Gavin’s relationship with potential clients by continuing to teach them about his investment methodology.

The results

At time of writing, Gavin’s new sales process has been operating for around five months.

But Gavin is still having trouble coming to grips with the results it is generating.

He winces a little as he relates the numbers – almost as if he suspects he’s dreaming, and he’s terrified this introspection will jolt him awake!

"The first time the ad appeared in the Melbourne Age, it generated 186 information pack requests. I just couldn’t believe it. I’ve never seen the phone ring like that before!

"When I sent respondents their information packages, I was confident that we would get one or two new clients – just one new client would have more than paid for the ad.

"Nothing happened for about a week, and then the phone started ringing again – with people requesting appointments. In total, I got five new clients from that first advertisement. Between them, these new clients placed just over $3 million dollars under my management.

"The amazing thing is that subsequent advertisements have yielded similar – if not better results."

Gavin currently has a queue of potential clients, waiting up to two months to meet with him. He’s employed additional staff and had his computer network rebuilt – but, for the moment, he just can’t grow any faster.

Gavin concludes, "The future looks exciting. By June next year, I will have easily doubled my funds under management. Once I’ve done that, I’m going to close-off my service to new clients, so I can concentrate on looking after my existing clients – and my new project, of course."

Gavin is reluctant to reveal details of his new project just yet, although he admits it will be in the financial services industry. And, like his portfolio management service, he claims he will be pioneering an investment concept never before seen in Australia.

He is less reserved, however, in his praise of Justin Roff-Marsh Advertising. "You guys took a good business and you transformed it into an absolutely outstanding one. I just can’t thank you enough."

America Online (AOL) is the Internet service provider that recently acquired Time Warner – the world’s biggest media company – in a $US165 billion deal.

And Body Express is a boutique gymnasium, in Sydney’s Bondi Beach.

Look behind the scenes, however, and you’ll discover that these businesses share one common feature – their promotional strategy!

In 1993, AOL embarked on a promotional strategy that was to see its subscriber base grow from 300,000 to the 24 million subscribers it has today.

This promotional strategy was deceptively simple. AOL gave away free computer disks containing start-up software and free time on the AOL service. (Our own OzEmail has subsequently emulated this strategy.)

Initially, these start-up disks were given to readers of computer magazines, but the response was so favourable that AOL began distributing them in all kinds of magazines, and even inserting them in cereal boxes and frozen steaks. Between 1993 and today, AOL ‘carpet-bombed’ the United States with a total of 250 million start-up disks!

Our own Justin Roff-Marsh had just returned from a US trip when he met with Jamie Hayes to discuss the promotion of his gym. As the two talked, it dawned on Justin that there were similarities between Body Express and AOL.

Gyms had, in recent years, become a commodity item – as had Internet service provision. Body Express was selling an 18-month membership, with fees debited monthly to members’ credit cards – as was AOL. And Body Express was in a position to provide valuable added services to lock-in members once they utilised them – as does AOL. (AOL uses services such as e-mail and it’s instant messaging and calendar services to provide member lock-in.)

Considering the similarities, it made sense for Justin to suggest that we borrow AOL’s promotional strategy.

A free 30-day membership

Fortunately for us, Jamie Hayes is a contrarian. He hadn’t survived 22 years and seven gym start-ups by playing by the rules! Accordingly, when Justin suggested that we might promote his gym by ‘carpet bombing’ Bondi Beach (the suburb, not the strip of sand) with offers of free 30-day memberships, he just managed to retain his composure.

We proposed a classic sampling campaign, with a twist. While we would give away free 30-day memberships, we would ask respondents to join as permanent members – and register for Body Express’s monthly billing program ($49 a month for a minimum of 18 months). However, we would not charge them for their first month’s membership – and we would allow them to opt-out of their membership at any stage during that month without penalty. (This is exactly how the AOL offer is structured.)

Jamie quickly got excited about this strategy. He could see that the offer of 30-days’ free membership was an irresistible one. But he could also see that the offer was structured in such a way that it would attract only those people who were prepared to at least seriously consider Body Express membership.

He also quickly realised that, if he could compel new members to visit regularly over their first month of membership, they would be highly likely to stay on as members. And, while those new members who didn’t make use of the gym were unlikely to stay on, they would incur minimal service costs during the 30-day trial period.

Gym visits: about as enjoyable as body piercing!

Gyms have been trying to make sampling campaigns work for years. In fact, prospective gym members expect to be given a handful of free visit vouchers prior to joining.

Unfortunately, as Jamie had already discovered, traditional sampling campaigns do a very poor job of signing-up those members who haven’t already made up their minds to join!

The reason why is deceptively simple. A sampling campaign will fail if the people who trial the product on offer have an unsatisfying experience.

The nature of the gym industry is that one visit (or even a handful of visits) to a gym seldom constitutes a ‘satisfying experience’ for anyone other than a committed exercise buff.

The fact is that a first-time gym goer will tend to notice results only after two or three weeks’ worth of gym visits. And, until these positive results become noticeable, gym visits are about as enjoyable as body piercing.

Gyms have developed two techniques for coping with the problem of ‘delayed gratification’. Some gyms ignore the less committed, and focus on serving only hard-core exercisers (body builders). Others provide distractions to ease the short-term pain (cafes, audio-visual entertainment, child-minding services and a calendar full of social events).

Each of these techniques has its own shortcomings. The body builder niche is a very small market. And, non-core services tend to distract gym goers from the activities that will ultimately yield results – which further delays the positive reinforcement that these health results provide.

Adding (relevant) value – and creating lock-in

Jamie had already developed his own theory on the best way to handle the problem of ‘delayed gratification’.

We suggested that our sampling campaign might be an acid test for this theory.

Jamie explained that, in the main, people join gyms to lose weight. (Not to pack-on muscle or expand their social networks.) "Exercise is an essential component of an ongoing weight-loss program, but it’s easier to get quick results from dietary modification."

"Unfortunately, most gyms don’t bother to give their members dietary advice. In fact, most gyms simply don’t recognise that they are in the weight-loss business."

Jamie’s suggestion was to provide new members with a personal coach during those all-important first 30 days of membership. This coach would have two areas of responsibility. The first would be to provide new members with dietary assistance. And the second would be to provide the training and the motivation required to ensure that new members commit to regular exercise regimes.

We agreed that the combination of the 30-day trial period and the personal coaching program would provide the lock-in that this sampling campaign needed.

We also acknowledged that personal coaching sessions and a free eating program would make Jamie’s offer all the more compelling!

Spreading the news

Justin suggested that we promote the Body Express sampling campaign with a simple three-fold, envelope-size brochure.

He insisted that this brochure should feature a punch-out membership card. He explains, "A free 30-day membership is one hell of an offer. I felt that a punch-out membership card would provide believability and a sense of immediacy."

And, to our delight, Jamie asked if we could emulate the bright, high-energy feel of the AOL campaign.

As well as a punch-out membership card and a lime and orange colour scheme, the resulting brochure featured a detailed description of Body Express’s five-step weight-loss program and clear explanation of the conditions of the offer. (We wanted to be sure that prospective members understood that they would need to provide their credit card details to qualify for their free month’s membership.)

The results

In April 1999, 10,000 of these brochures were distributed into Bondi Beach letterboxes.

Jamie remembers, "We had eleven new members join that very day. Within seven days, your campaign had provided us with exactly 68 new [trial] members!"

"Of those, half survived that critical 30-day period – providing us with exactly 34 paying members."

He explains that this result was remarkable for a number of reasons. "For a start, I’ve done a lot of letterbox drops – some more successful than others – but I’ve never experienced a response like this before. I doubt many gym owners would believe that it is remotely possible for any kind of campaign to provide an established club with 68 [trial] members in one week. Furthermore, to have 50% of trial memberships convert into paid members is just incomprehensible!"

A glimpse at the numbers behind Jamie’s campaign provides an insight into his happiness. It cost Jamie $1,694 to print and distribute 10,000 of these brochures. If we amortise 25% of our creative costs on this first distribution, that provides us with a campaign cost of $2,432.

Because this investment yielded 34 new members, Jamie’s cost per new member was $72. Each new member committed to a minimum of 18 months’ membership at $49 a month (debited to his or her credit card). This means that each member provides Body Express with a minimum of $882 revenue. (This does not include income from personal training, drinks and accessories, or future membership renewal fees.)

Dissecting success

Jamie makes it clear that there was a lot more to the success of this campaign than simply distributing 10,000 brochures and waiting for the new members. "I worked closely with the JRMA team throughout the creative process. In fact, when Monique provided me with a mock-up of the finished brochure, I took a trip to the local shopping centre – clipboard in hand – and asked shoppers for their feedback.

"I also resolved to treat new trial members as we would all other members. We exchanged their temporary membership cards for real ones on their first visit, and we even banned the use of the ‘T’ [trial] word!"

The future

Jamie is committed to rolling out his new campaign as fast as his internal systems (and his cashflow) will allow. Our next step will be to test his offer in other media –starting with newspapers and broadcast fax.

He’s also committed to his relationship with JRMA. In addition to regular strategy sessions with Justin, he’s already had Monique Lewis redesign his corporate identity.

Jamie now keeps a close eye on America Online’s promotional activities. After his success with their subscriber-acquisition program, he’s keen to see what clever ideas they come up with next!

He rarely gets out of bed before 11:00 a.m.

He seldom visits his office — and when he does, his only brush with any activity that even resembles work is a noisy tour of his troops, exchanging high-fives and boasting of market victories to come.

He’s loud, opinionated and confrontational — with the attention span of an agitated gnat.

And he leads a lifestyle so decadent that few rock stars would be capable of keeping up!

But Peter isn’t in the market for a job.

The fact is, he’s preoccupied with Naturopathica, a $20 million a year pharmaceutical business he’s built from the ashes of a previous venture!

If the fact that a man with Peter’s unusual work ethic can build a $20 million business surprises you, what you’re likely to find all the more remarkable is that Peter Nicolas only launched Naturopathica two years ago!

Peter’s wild lifestyle has been surpassed only by his business career’s wild ride from poverty to success and back again, followed by his recent meteoric rise to riches.

At JRMA, we’re proud to have shared this eventful journey with Peter, his long-suffering business partner, Sonia, and their team.

Along the way, we’ve learned business lessons we could never have learned elsewhere — and we like to think we’ve made at least some contribution to Peter’s success.

Down but not out

When Justin Roff-Marsh first met Peter, he had only two valued possessions — his telephone account (both the electricity and the gas had been disconnected from his dilapidated Surrey Hills terrace house), and his sizeable library of direct mail books and magazines.

Peter and Sonia had acquired a taste for direct mail from their first business venture. They had been selling ‘little black dresses’ from full-page advertisements in a popular women’s magazine. When the magazine decided they wanted to dissolve their joint-venture arrangement and take the business in-house, Peter and Sonia were left looking for another business opportunity.

Peter was spending his afternoons devouring every direct mail publication he could find, and every night he would sit on the phone to the United States speaking to anyone who was anyone in the direct mail industry.

It wasn’t long before Peter approached Justin with details of a product he claimed was destined to reverse his fortunes. Justin was more than a little concerned when he discovered that Peter was planning on risking money he didn’t have on an advertisement for, of all things, grass seed!

Grass seed grows into multi-million dollar mail order business

Despite Peter’s assurances that CanadaGreen was no ordinary grass seed, Justin remained unconvinced. He could understand why CanadaGreen was popular in Canada (where much of the country is buried under snow for months each year), but he just wasn’t convinced that Australians would be prepared to purchase any kind of grass seed by mail order — particularly at $39 a bag!

Peter’s convictions couldn’t be swayed. Justin agreed to let our team create a mail order advertisement for him, as Peter went about convincing Sydney’s Sun Herald to extend him $11,000 credit for a half-page advertisement in its television supplement.

Fortunately, this first advertisement exceeded even Peter’s wildest expectations. By lunchtime on the Sunday that first advertisement appeared, Peter had sold $47,000 worth of grass seed. He was now officially in business!

Peter wasted no time purchasing space in television supplements and women’s magazines around Australia. And he immediately converted our print advertisement into a two-minute television ‘infomercial’.

Within four months, Peter and Sonia had turned their half-page grass advertisement into a $150,000 a month mail order business. Peter followed the success of CanadaGreen with a bevy of similarly innovative garden, household and personal products, and in the process built his annualised sales to above $5 million.

[click to enlarge]

Success bites!

The mail order business can be a bit like the property development business. If you want to grow fast (and in order to survive, you need to) you invariably gamble your entire business on each project.

When Peter ‘rolled the dice’ on an electronic pest eliminator it looked as though he was destined to win big. This product seemed to hit a nerve with frustrated consumers who were eager to rid their homes of rats, mice, cockroaches and other crawling nasties.

His initial advertising campaign set his phones ringing as they’d never rung before. Peter had limited stock, but he knew that if he didn’t keep advertising, there was a danger that a competitor would buy-up the limited media and mine the rich vein he’d exposed.

Peter’s US suppliers promised to airlift product to him as it rolled off the assembly line — but it never arrived. Still, the orders tumbled in and customers became outraged when their orders failed to materialise.

Peter held off requests for refunds for as long as possible by offering customers credit vouchers as compensation for their late orders. But when it became clear that the product that Peter had ordered (and paid for) was never going to arrive, he had to begin writing refund cheques.

After issuing tens of thousands of dollars’ worth of refund cheques each day for almost three months, Peter’s business was insolvent. He narrowly escaped bankruptcy by convincing his largest creditors to excuse his debts in return for an assurance that he would place his business with them when he bounced back. By this stage, none of Peter’s creditors (ourselves included) had any doubt that Peter would rise from the ashes of his failed business.

New paradigm: new business model

Peter’s new business combined his talent for picking winning products, with his direct marketing expertise, along with a new ingredient — retail distribution.

A post-mortem of Peter’s failed business revealed that his most profitable products could be characterised as ‘ailment-specific skincare and nutricutical products’.

Products like VeinAway, HairNoMore and ProSlim had been consistent performers. Even with no advertisements on television, Peter was receiving a constant stream of telephone calls from customers, asking if they could re-order.

Peter was also receiving hundreds of telephone calls each month from pharmacists, asking if they could stock his products.

These telephone calls helped to crystallise Peter’s thinking. He resolved to start a pharmaceutical company, specialising in ailment-specific natural remedies. He would use mail order to ‘make a market’ for his products and then extend the life of these products by distributing them through pharmacies.

Onwards and upwards

This year, as mentioned previously, Peter and Sonia’s new business, Naturopathica, will do $20 million dollars in sales.

But as well as a strong cashflow, Naturopathica has a strong balance sheet. Its assets include its brands (it has more than 20 brands — including the best-selling Menoeze, which is endorsed by Rowena Wallace), and its distribution network (Naturopathica’s products are now available from almost every pharmacy in Australia and New Zealand).

Peter’s new business model is as effective as it’s unique.

Most pharmaceutical companies wouldn’t dare to sell direct for fear of disenfranchising their reseller network. However, Peter’s pharmacy clients understand that his direct sales activity finances the enormous cost involved in ‘making the market’ for new products.

And rather than providing pharmacists with line-extension after line-extension (each of which consumes valuable retail space and diminishes the return on originally successful brands), Peter delights pharmacists with best-selling brand after best-selling brand.

Furthermore, all of Peter’s products are supported by powerful point-of-sale campaigns — and, of course, with the spin-off benefit of his newspaper, magazine and television advertising.

Recently, we suggested to Peter that we build an ecommerce-enabled Website to complement both his mail order and his retail distribution channels.

Within weeks of its launch, this site (www.naturopathica.com.au) was generating over $50,000 a month in sales. Naturopathica’s online presence is styled after Amazon.com — with strong emphasis on cross-selling between related products.

Australia’s largest ‘nutricuticals’ company

For a man who has long resisted traditional business practices, his business is now looking surprisingly business-like!

Naturopathica now has a staff of 45. It has its own warehouse (although Peter recently admitted that he has no idea where it is!) And it even has a General Manager (thank goodness).

Peter is obsessed about building Naturopathica into Australia’s largest ‘nutricuticals’ company. He conceptualises new products daily, he motivates his UK- and South African-based employees with telephone calls from outside Kings Cross nightspots, and he argues regularly (and noisily) with Justin about the intricacies of his business model.

Peter might not have what it takes to get a job with any of his competitors, but he does have what it takes to build a serious business. He is driven. He has an uncanny understanding of what makes people tick. And he has absolutely no fear of failure.

"Yep, that’s the best word for it", concedes Phil McGann.

Phil is struggling to describe the reaction of fellow financial planners when he explains how things work at the Hudson Institute.

"When they find out that our financial planners perform 8-9 consultations a day … that these consultations are all conducted over the telephone … that our small team in Brisbane services 8,000 members all over Australia … and that almost all of these members have paid upwards of $1,500 just to access this service … well, they just don’t believe it!

Phil goes on to explain why this doesn’t make sense to a traditional financial planner.

"Even the busiest of traditional financial planners has time to conduct only one or two consultations a day. The rest of his day is consumed with clients’ portfolio planning, research and administrative activities.

"Even if this financial planner had time to conduct more consultations than this, he’d have no one to talk to. The fact is, when practice growth is dependent upon word of mouth, it takes years for a planner to build a decent clientele."

Phil concludes by ruefully admitting that if convincing a traditional financial planner that it’s possible to perform 160 appointments a month isn’t hard enough, his next challenge is all but impossible.

"Financial planners assume that, at these volumes, customer service suffers. But, I’ve seen both environments, and the Hudson quality of service is far superior!

"The fact is, our low cost structure enables us to provide a level of service that a traditional financial planner simply couldn’t afford."

Phil’s dilemma provides a tremendous introduction to the Hudson Institute — a truly incredible business.

In turn, the Hudson Institute provides a great case study of the successful application of our Relationship-centric Marketing methodology.

From publishing company to full-service financial planner

It’s generally accepted that paradigm shifts emerge from the fringes of particular industries — and not from the well-established incumbents.

The Hudson Institute may well be evidence of this phenomenon.

Hudson started life ten years ago, not as a traditional financial planning firm, but as a publishing company.

Its First Class Ticket program was a budgeting and do-it-yourself investment toolkit.

To add value to its original paper and ink products, Hudson allowed members to access a telephone support service, as well as regular capital city investment workshops.

Over time, Hudson realised that members were placing more value in these services than they were in their printed publications. As a result, Hudson increased the frequency and the quality of its events, and replaced its unqualified budgeting coaches with a team of fully qualified financial advisors.

To fund the cost of these additional services, Hudson gradually increased the price of its First Class Ticket program from an initial $395 to $3,995. It acquired members by selling tickets to introductory seminars.

In its first eight years, over 100,000 people attended these seminars. Eight thousand subsequently become First Class Ticket members.

Three years ago, Hudson’s sales process began to suffer from rapidly diminishing returns. A number of other financial services providers had begun promoting public seminars (many inspired by Hudson’s very obvious success).

Hudson realised that it could no longer regard the sale of First Class Ticket memberships as its core business. It had to find an alternative source of primary revenue.

The transition to a full-service financial planning firm was the obvious direction to take. Although Hudson had initially felt that independence was its key point of difference, many members actually resented the fact that they had to visit other providers to purchase financial services.

To make the transition, Hudson suspended its public seminar program and set about compiling a suite of financial services. Today, these services include managed funds, finance, direct property and personal insurance (general insurance is outsourced).

Hudson’s marketing manager, Noeline Packham, explains that sales of these new services came thick and fast. "When we mentioned in our newsletter that we could now provide financial services, our phones started ringing off the hook.

"We never had time to consider selling via face-to-face appointments. Members were asking for our financial services in their telephone consultations — and they were quite happy to purchase by remote control.

"The interesting thing is that, from our advisors’ perspectives, nothing much changed. Now, instead of referring members to outside service providers, they simply transfer them to our in-house specialists."

It’s taken Hudson just over two years to make the transition from publishing company to one of Australia’s most productive financial planning firms. In the process, they’ve built a sales process that we hold up as best practice in Relationship-centric Marketing.

Relationships precede sales opportunities

If you ask any financial planner where his sales opportunities come from, he’ll explain that relationships are by far the most lucrative source.

In this respect, Hudson does not differ from any other financial planning firm.

Where Hudson stands apart from its peers is in its scientific approach to the acquisition and management of relationships.

It’s Noeline Packham’s job to generate around 448 sales opportunities a month. These sales opportunities will translate into 1,120 appointments (2.5 per sales opportunity) — enough to keep Hudson’s team of seven financial advisors fully utilised.

Noeline sources every one of these 448 sales opportunities from one location — Hudson’s database of 8,000 First Class Ticket members.

The greater majority of these sales opportunities are inbound — stimulated by Hudson’s automated communication program. The balance are outbound opportunities — customer service appointments, set by one of Hudson’s two member services staff — Aimee and Matt.

Hudson’s communication program consists of a weekly e-mail newsletter The Hudson Report and a program of specialist investment seminars (quarterly evening seminars in capital cities, and twice-yearly, one-day workshops in regional areas).

The communication program also includes occasional special promotions, consisting of offers relating to specific investment opportunities.

Cause and effect

Unlike many organisations, Hudson knows what the key drivers of inbound sales opportunities are. The first is the content of its weekly newsletter. The second is changes in the financial environment.

Tanya Nicholson is the editor of The Hudson Report. It’s her responsibility to monitor the relationship between the content of this newsletter and the volume (and type) of inbound sales opportunities.

When pressed to disclose what content is most likely to make the phone ring, she reveals that, "Specificity sells."

"It’s not so much the subject of an article," she explains. "It’s more how it’s articulated.

"If we present facts and figures and practical guidance, the phone rings.

"Our members do love case studies," she admits. "They love to hear what other members are doing. And currently insurance and property stories are working well."

Right now, Hudson is stimulating readership of The Hudson Report (and accordingly, sales opportunities) with The Hudson Challenge — a competition that asks members to answer questions relating to each issue of their newsletter, for a chance to win a $5,000 managed fund portfolio.

Acquiring relationships

Hudson is not currently running any relationship-acquisition campaigns. It’s having no trouble generating the sales opportunities it needs from its existing member base.

However, it does realise that its continuing growth will require the recommencement of these activities at some stage in the future.

Hudson has two classes of relationship: subscribers and members.

Subscribers are individuals who have subscribed to The Hudson Report (and possibly attended events) but have not purchased a First Class Ticket membership.

First Class Ticket members have unrestricted access to events and, more importantly, to Hudson’s team of advisors.

When Hudson does recommence its relationship-acquisition activities, its first objective will be to convert existing subscribers into members. (Each month, a number of subscribers already discover the benefits of membership from the Hudson Website and become members of their own volition.)

Its next objective will be to acquire subscribers to The Hudson Report. It’s likely to do this via strategic alliances and the re-release of its popular book, How to start with no savings and get rich safely.

In the meantime, Noeline is about to launch an associate membership program. This will enable existing members to add family and friends to their memberships at a steeply discounted rate.

Converting sales opportunities into sales

It’s 8:00am and Scott Adams is reading the Financial Review and sipping a cup of fresh coffee.

His six colleagues are doing the same. Their relaxed demeanour and good-natured banter convey a sense of the calm before the storm.

At exactly 8:45 am, Scott and his colleagues will plug in their headsets and telephone those members who have been scheduled for the day’s first appointments.

At least by way of age, education and character, Scott is representative of a typical Hudson advisor.

He’s 31 years of age. He’s intelligent and well educated. (His qualifications include a Bachelor of Commerce, a Bachelor of Arts, a Graduate Diploma in Applied Finance and Investment, and a Graduate Diploma in Financial Planning.)

And, as is the case with all Hudson advisors, Scott is a member of the Securities Institute of Australia.

Scott is passionate about wealth creation. Like his colleagues, he reads, thinks and talks about little else. And he derives an obvious satisfaction from counselling Hudson members on the formation and execution of their wealth creation strategies.

Prior to these calls, each advisor will have spent 15-minutes engaged in what Hudson calls pre-call planning. Pre-call planning is a rigidly structured planning session that precedes each appointment. Advisors review members’ investment strategies, their histories, and their current financial situations, looking to identify problem areas or opportunities for improvement.

This planning process is streamlined by Hudson’s custom-designed computer system — which presents this information in easy-to-interpret reports — and by Megan Armour.

Megan is a para-planner. It’s her job to maximise the productivity of Hudson’s team of advisors. She does this by confirming that members’ financial information is updated (if necessary) prior to their appointments. Megan also takes responsibility for the routine paperwork, literature fulfilment requests and follow-up generated by advisors’ appointments — as well as for the project-management of the transactions specified by advisors.

At 9:30, Scott saves his contact notes and completes his first appointment for the day. His next appointment is scheduled for 9:45, allowing him the 15 minutes he needs for pre-call planning. With the exception of lunch and occasional stretch breaks, Scott and his colleagues have appointments scheduled back-to-back for the rest of the day.

Operate the process constraint at 100% capacity

"Our constraint is our team of advisors," explains David. "My first priority is to provide our people with the resources they need to keep our advisors 100% utilised. If our advisors are not on the phones, we’re not making money."

David Heffernan is Hudson’s financial controller. But he doesn’t talk like a normal financial controller!

That’s because David manages Hudson’s accounts using throughput- (as opposed to conventional cost-accounting) principles. (Throughput accounting is a derivative of Goldratt’s Theory of Constraints.)

"Fortunately, I studied throughput accounting at university," continues David. "When I got here I recognised that there was no way I could apply traditional cost-accounting thinking.

"If I attempted to manage this business for local efficiencies, I could save money by cutting the excess capacity from the functions that support our team of advisors. But I soon realised that this would be a Pyrrhic victory. Without this spare capacity, any unexpected incident would result in unfilled appointment slots in our advisors’ diaries. And the opportunity cost of these unfilled slots is far greater than the possible savings from these local efficiency improvements.

David devotes much of his time to looking for ways to increase the capacity of the team of advisors (or to elevate the constraint, to use TOC terminology).

"On average, each appointment is worth $255 to us in gross profit," David explains. "The key to making this business more profitable is simply to conduct more appointments.

"We can do that by recruiting more advisors — and we’re doing that now — but there are many other opportunities to increase throughput."

David explains that the appointment of Megan (Hudson’s para-planner) and of Aimee and Matt (their member services staff) were two such initiatives.

He also details a recent discovery that has added another $355,000 a year to the bottom-line.

"We always knew that the advisors had occasional no-shows. Just four a week, on average. We never worried about these lost appointments, until we calculated their opportunity cost. We realised that four no-shows per advisor is actually 28 lost appointments a week, at a total cost of $355,000 a year!

"We now maintain a safety buffer of members who have agreed to go on stand-by (just like the airlines do). These members benefit, because they have the opportunity to speak to an advisor sooner — and we benefit because we no longer have empty appointment slots."

Lessons from Hudson’s sales process

We can all learn a number of lessons from Hudson’s sales process.

Process means process!

The most obvious one is that Hudson has a formal sales process, as opposed to a loose assortment of ad hoc and unsynchronised marketing activities.

As a result, Hudson can measure the cause and effect relationship between the deployment of organisational resources (money and time), and the resulting impact on bottom-line profitability.

This unusual level of accountability is reflected in Hudson’s culture. Without exception, every person I interviewed at Hudson understood the organisation’s key profit driver (their team of advisors). And, everyone understood the direct contribution that his or her activities made to this team’s throughput.

Create an environment that fosters consultative selling

In considering the relevance of Hudson’s sales process to that of a typical organisation, it’s helpful to substitute the word advisor for salesperson.

Even though Hudson’s advisors would no doubt bristle at such a comparison, they provide a fine example of the types of individuals that are well suited to a relationship-centric sales process.

Hudson’s advisors’ key competencies are their product knowledge and their communication skills. They are consultative in their approach — and comfortable to see each point of contact as an investment in a developing (and profitable) relationship.

While they are certainly ambitious, they are not the kind of opportunistic, short-term thinkers that are attracted to a typical sales environment.

Of course, Hudson’s relationship-centric sales process provides the kind of environment where such an individual can flourish.

Advisors do not have to prospect relentlessly. (All of their appointments are provided for them.)

They do not have to be opportunistic, self-starters. (The constancy of their work volume, coupled with salary-based compensation packages, provides the perception of job security that all employees expect.)

It’s also worth mentioning that Hudson goes to some effort to provide all staff with a rewarding work environment. Any job-related education is fully funded by Hudson, and some benefits that are not specifically job related are 50% funded. The latter includes gym memberships and fortnightly massages!

Subordinate all management decisions to the constraint

You don’t have to spend long at Hudson to realise that every individual views himself or herself as part of the advisors’ support team. It conjures up images of a Formula One team, where everyone is fixated on assisting the driver to win the big race.

Marketing personnel see it as their responsibility to maintain what they call the opportunity buffer. The opportunity buffer is an inventory of sales opportunities, established to ensure that advisors never have an empty appointment slot.

Operational personnel see it as their responsibility to maximise the efficiency of the advisors. They do this by setting their appointments, ensuring all members’ financial information is current prior to appointments, preparing all necessary paperwork and project-managing all transactions.

Contrast this with a typical sales process, where salespeople are left to fend for themselves — operating, as a result, at a fraction of their possible productivity. When you consider that a salesperson is almost certainly a sales process’s most expensive and highest-leverage resource, it’s a lunacy to allow salespeople to operate at anything other than 100% of their possible productivity.

To use Theory of Constraints terminology, your salespeople should most likely be your process constraint. This means that everyone else in your sales process should focus on keeping your salespeople fully (and productively) utilised. It also means that all management decisions should be made with respect to their impact on your salespeople’s throughput — and not with respect to local efficiency measures.

Recognise the true source of sales opportunities

In most organisations, sales process output is constrained by a scarcity of sales opportunities, rather than by salespeople’s capacity.

Most organisations’ attempts at generating sales opportunities are hampered by a failure to recognise their optimal source.

Hudson understands that it is counter productive to expect salespeople to generate sales opportunities (their time is better invested selling). It also understands that it is restrictive to rely solely upon clients as a source of sales opportunities (this results in a self-limiting system — where future sales are dependent upon past sales).

As discussed, Hudson appreciates that relationships under management are its most lucrative source of sales opportunities. As a result, Hudson manages relationships with the sole intent of generating sales opportunities (now and in the future). It also understands that its future growth will ultimately be driven by the acquisition of new relationships.

More than an effective sales process: a sustainable competitive advantage

Hudson’s sales process provides more than just an efficient source of revenue. It’s at the heart of a business model that provides Hudson with a competitive advantage over traditional financial planning firms.

The incredulous response of typical financial planners to this business model provides a clue as to the sustainability of Hudson’s competitive advantage.

Another clue is the reaction of Hudson’s members.

Even though the Hudson model doesn’t enable members to have face-to-face contact with advisors, it does provide far more frequent access than is provided by traditional firms. Hudson advisors talk to members a minimum of two times a year — although, more active members consult with their advisors, on average, six times annually. This accessibility is the service attribute most praised by members in Hudson’s annual member satisfaction survey.

I’m sure you’ll agree that it’s likely that your sales process could benefit from the emulation of some of these relationship-centric principles.

But this case study raises the possibility that this approach could provide you with more than just a more efficient sales process. The relationship-centric methodology, when implemented in its entirety, might well contribute to your organisation’s sustainable competitive advantage — just as it has Hudson’s.

On some occasions, this dogged pursuit of the improbable is understandable, even admirable. But, more often than not, this conduct amounts to a highly unproductive evasion of reality. occasions when you feel as if you’re attempting to push string uphill, you stop and consider whether your current endeavour is, in fact, an appropriate investment of your (or your team’s) scarce resources. To assist in your evaluation of such situations, I’ve compiled a list of danger signs, some guidance on the diagnostic process and some alternate approaches.

It’s important to note that this list is in no way intended to be exhaustive. I’ve simply attempted to prioritise those problems we come across most frequently in the field. I hasten to add that, as a frequent offender, my advice should be regarded more as counsel from the brink than as a sermon from the mount!

Danger signs:

The universe is conspiring against you For whatever reason, Ballistix is frequently approached by inventors seeking assistance with the commercialisation of their inventions. Because we are not the obvious route to market, more often than not these inventors have approached us as a last resort or a wildcard. In these situations, we’re dealing with people who’ve received knock-backs all over town. In such cases, it’s common to be confronted by a person exhibiting an air of desperation and defiance. This person has reversed the law of cause and effect and become convinced that the universe is conspiring against him! He will often cite other successful inventors’ frequent failures as evidence of his impending triumph. (Edison’s thousands of failed attempts to find a suitable material for his light bulb’s filament would have to be the most oft-quoted example).

Diminishing returns Diminishing returns are a sure sign of danger. Unfortunately, because the onset of problems is initially very gradual, this danger sign is often missed. Diminishing returns occur because every system or process has a constraint. (Without a constraint, a system’s output would be infinite.) The constraint might be the capacity of your manufacturing plant, it might be the size of your market or it might be a policy (internal or external). As the volume of your system approaches the constraint, your return on resources deployed tends to drop away exponentially. If we assume that you were manufacturing a product for a very limited market, you would be likely to discover that the promotional cost of sale would increase with each new sale. By the time that you had just a handful of potential customers remaining, you would discover that it would cost more to make each subsequent sale than the value of the transaction.

Your system is unstable Years ago, I worked as a sales manager in the insurance industry. My three co-managers and I each managed teams of 25 salespeople. We believed our responsibility was to motivate our salespeople. Accordingly, over a few years, we introduced a number of sales initiatives, including:

• Weekly sales meetings in a riverside restaurant, where each team sang its team song and challenged other teams to sales duels (loosing typically meant being lined up and tossed ceremoniously into the Brisbane River!)
• Daily (afternoon) sales meetings, where each team member logged her activity from the night before (appointments, presentations and ¡­ sales) to thunderous applause. Of course, these meetings featured more team songs, on-the-spot prizes and hysterical chanting — all designed to send salespeople off to their evening appointments on an emotional high.
• A stepped incentive scheme (on top of standard commissions), where prizes were awarded for different levels of performance. These prizes ranged from clothing vouchers, to mobile phones (you had to pay for them 15 years ago), and weekends away. It even featured a chocolate wheel to ensure that everybody had an opportunity to win a prize!
• Special major sales promotions (on a couple of occasions, we sent entire winning teams on overseas holidays!) Looking back, I can comfortably say that we pushed traditional sales management practices to their ultimate limit. If we’d tried to infuse our salespeople with any more positive mental attitude, we almost certainly would have all been arrested!

The bad news is that the environment we created didn’t actually result in a significant increase in sales! What it did produce was periodic record months. If you were to inspect a graph of our sales revenues over that period, what you would notice is that, as the highs got higher, they became less frequent. Furthermore, you would notice that the lows got progressively deeper and longer. All we were accomplishing with our management antics was to time-shift the emergence of sales to create occasional record months. These record months then provided us with the justification we needed to push our management initiatives to the next level of lunacy! Of course, this lumpy sales curve was particularly damaging to the rest of the organisation. The infrastructure that was required to cope with record months sat around idle for much of the time.

If your system output resembles a triangle wave, with massive highs and bone-crushing lows, you too may be attempting to push string up hill!

The diagnosis

The following questions should help you to evaluate your situation and determine whether or not you are currently pursuing an appropriate goal.

Does the end justify the means? I’ve heard a number of managers justify their crusade by reassuring those around them that the only cost is their time. They figure that the cost of their time is equivalent to their annual salary divided by the time invested. What they forget is that their time is a scarce resource, with alternate uses. The real cost of their time is the highest return that could be earned if it were invested elsewhere. Of course, this applies to all scarce resources.

What are the odds? Inventors assure me that their inventions could net millions. What they fail to grasp is that the usage of the word could infers probability. Statistically, the value of the bucket of gold should be multiplied by the probability of finding the end of the rainbow. Now, if an inventor has dedicated years of his life to a single invention, probability theory will not offer him much useful counsel. However, if he were to approach his craft as a serious profession, he would maintain at all times a portfolio of inventions, each with a different risk/reward profile (as, of course, did Edison).

Will it scale? If it takes you three years and a team of ten salespeople to consummate your first sale, you would have to question how scalable this enterprise is likely to be. If we assume that you are not selling the world’s first fax machine (or some other product where network effect is likely to be a major factor), a slow start may be a leading indicator of an even slower future. My advice to entrepreneurs is that, if your steed doesn’t come out of the gate fast, seriously consider changing horses.

The remedy

Based on your evaluation of your current situation, I think you have four obvious choices.

Invest your resources elsewhere This option should need little explanation. If, after factoring in probability, you determine that you can earn a better return on your scarce resources elsewhere, that’s exactly what you should do!

Re-evaluate your goal I’m sure you can recall situations where you failed to achieve something that you desperately wanted, only to later realise that this was a blessing in disguise. Now, obviously, I’m not suggesting that there’s any cosmic interference at work here. My point is that sometimes it’s easy to get so caught-up in the chase that you forget to confirm periodically whether or not you still want what your’e pursuing. Speaking from personal experience, at Ballistix, we struggled with our previous business model for too long, before re-inventing ourselves as a management consultancy. I wish we had stopped to re-evaluate our goal years earlier. On that note: remember that the goal of your organisation is to make money, full stop. There’s no law that says your current business model (or that the industry standard business model) is the optimal one.

Re-design your process If your goal’s good, you might want to re-design your process. If you are suffering from diminishing returns or if your process is unstable, these are two sure signs that your process needs a re-design. The key here is to remember that these are both symptoms of a process problem. Process problems are management’s responsibility, not team members’. You should focus on reengineering your process — not on exhorting your team members to work harder (or, worse still, smarter). Of course, you’ll find plenty of articles on process design and management listed under our Sales Process Design index.

Muster more resources If your goal’s good and your process is showing no signs of stress fractures then maybe you just need to push a little harder! Throwing more resources at the realisation of your goal should bring forward its achievement — that’s obvious. But putting all the wood behind the one arrow will also speed the arrival of the positive reinforcement that your team needs to stay enthused — and demonstrate management’s unwavering commitment to the attainment of this goal.

I hear this anxious declaration regularly. Particularly from manufacturers and software vendors. I’ve even heard it from a number of musicians!

Manufacturers want representation from agents or retailers. Software vendors want to establish relationships with resellers. And musicians want representation from a record label.

But in each case, this declaration can indicate a potentially dangerous misunderstanding of the dynamics of the distribution channel. And there’s an important lesson in this for all of us – even those who sell direct!

I usually have two comments for those who are having trouble getting distribution:

1. An inability to get distribution is probably symptomatic of a bigger problem.
2. And, if this is the case, it is better to avoid making a commitment to a reseller (I’ll use this as a generic term) – even if such an opportunity arises.

Before we examine this ‘bigger problem’, let’s take a look at the role that resellers play in the distribution process.

Why resellers typically don’t sell

Let’s imagine a typical retailer for a moment. The kind of retailer you’ll find in any shopping centre. Picture, say, a music retailer.

Now tell me this … what contribution does our music retailer make to the ‘value chain’ that stretches from an artist (with a guitar, a microphone and a bad attitude) through to the fan, (who willingly exchanges $29.95 for the artist’s compact disk – and for the rights to play it, only in the privacy of her home or car)?

It would be fair to say that the music retailer’s contribution to this value chain is the ‘sale’ of the artist’s compact disk, right?

Wrong!

The reality is that this music retailer doesn’t add value by ‘selling’, at least in the true sense of the word. The retailer’s most important contribution is the provision of a distribution point – or a ‘point of presence’.

If you’ve ever spent time in a music store, you’ll know that staff members spend most of their time simply operating the cash registers. Even those more progressive music stores, with listening stations and staff with specialities in particular music genres, still generate more revenues from Britney Spears CDs than they do from the sales of CDs from lessor-known artists.

Now this distinction applies to most resellers. They don’t actually sell: they provide a point of presence. The real selling is done higher up the value chain. Or, to put it another way, they don’t sell because they don’t have to. The customer has already been ‘sold’ when she sets foot in the store.

However, there are some resellers that do sell – and who are good at it. And these – believe it or not – are the resellers of which we should be very wary!

Why you should be glad that most resellers don’t sell

If we stick with retailers for a moment, an example of a reseller that does sell is a hairdresser.

Consider, for a moment … which brand of shampoo do you purchase when you visit your hairdresser?

The one he offers you, of course!

You don’t select your favourite brand from a crowded shelf (as you would in a supermarket), do you? Of course not. Your hairdresser makes that selection for you. And, odds are, he provides you with a ‘premium’ (hairdresser-only) brand, of which you’ve never heard.

So far, I’ve managed (at great length) to explain that some resellers sell – and that some don’t. You might be excused for thinking: so what!

Well, here’s the thing: whoever does the selling in a value chain, owns the customer relationship, and …

Whoever owns the relationship with the ultimate customer sets the terms!

That’s right, the participant in a value chain with the most power is generally the one who does the ‘selling’.

Our manufacturer gains distribution and locks-out his competitors

Now let’s return to our anxious manufacturer, software vendor and musician, and examine the real problem each faces — and the opportunity that this problem provides.

We’ll look at our manufacturer’s situation first.

Assume that our manufacturer has developed a technically superior product (a chainsaw, perhaps). He’s trying to convince hardware stores to stock this tool.

To his dismay, hardware stores appear to have little interest in his product’s technical attributes. Even though they seem to be at a loss for any logical argument as to why they shouldn’t represent his chainsaw, they simply fail to write a purchase order.

While this scenario makes no sense from our manufacturer’s perspective, it’s understandable when we consider what we’ve just learned about typical resellers.

Because a hardware store’s primary role in its value chain is to provide a point of presence, it doesn’t have a lot of sales infrastructure. Without the sales infrastructure required to ‘make a market’ for a new product, this new chainsaw isn’t an attractive proposition – regardless of its technical attributes. It’s far easier for our hardware store to simply promote the best-selling brand.

So what should our manufacturer do?

Well, he has two choices:

1. He can look for a retailer with the ability and the desire to ‘make a market’ for his chainsaw.
2. Or, he can accept responsibility for ‘making the market’ himself.

While the first option may appear initially to be attractive, he should approach it with caution.

You see, if he delegates responsibility for ‘making a market’ to a reseller, the contribution he makes to his value chain is limited to his product’s technical superiority. And more often than not, technical superiority is not a sustainable competitive advantage.

This fact is graphically illustrated in James Dyson’s brilliant autobiography, Against the Odds. James Dyson invented the enormously successful Dyson (bagless) vacuum cleaner. In spite of its groundbreaking technical superiority, Dyson struggled for years to get distribution for his vacuum cleaner. In the process, he was almost bankrupted by a long-running court case with Amway Corporation. He had been attracted to Amway by their market intimacy. However Amway backed-out of negotiations at the last minute, stole his trade secrets and designed a copycat product! (Fortunately, Dyson won his court case and was awarded significant damages – including an ongoing royalty stream.)

Our manufacturer’s second choice is to accept responsibility for ‘making a market’ for his chainsaw.

He would do this by running promotional campaigns designed to drive customers to hardware stores, asking for his brand of chainsaw.

If he can successfully accomplish this, he will enjoy the following benefits:

1. If only one or two customers request his brand of chainsaw, retailers will fall over themselves to stock his product. We’ve already discovered that retailers find it easier to supply the brands that their customers request.
2. Once hardware stores sense that this new product is hot, they will start making it easier for customers to purchase our manufacturer’s product than they do his competitors’. They’ll do this by giving our manufacturers’ product premium shelf (and catalogue) space. (Of course, this is the basis of retail ‘category management’.)
3. If our manufacturer uses appropriate direct marketing techniques (e.g. couponing) to ‘make a market’ for his product, he will probably be able to build a database of existing and potential customers. He will then be able to use this database to drive demand (and distribution) for his future products.

So, by assuming responsibility for ‘making a market’, our manufacturer easily gains distribution and locks-out his competitors.

Software vendor discovers that resellers’ dependence is an asset

Our software vendor’s situation differs in only two subtle ways from that of our manufacturer:

1. His resellers are service providers (rather than product vendors). Accordingly, they tend to have a more intimate relationship with their customers (remember our hairdresser example.)
2. Because of software’s rapid development cycle, his product’s technological advantages are likely to be even more transient than those of our manufacturer.

Both of these factors make our software vendor’s contribution to his value chain more tenuous than our manufacturer’s.

Therefore, he should be even more wary of delegating the role of ‘market maker’ to his reseller network.

It would be tempting for our software vendor to consider bypassing this reseller network altogether and sell direct. However, this approach has three shortcomings:

1. Speed and expense. It will take a lot of time and money for our software vendor to replicate the reseller network’s infrastructure (their points of presence).
2. Market access. Existing relationships between resellers and customers are likely to lock our software vendor out of some segments of the market.
3. It’s not his thing. Our software vendor’s stakeholders are likely to take a dim view of his investing their capital in non-core infrastructure. (For an innovator, research and development and market making are core activities. Logistics isn’t!)

Our software vendor’s distribution strategy should be similar to that of our manufacturer.

As well as working hard to maintain his technology leadership, he should take responsibility for ‘making a market’ for his software. He should do this by building the marketing infrastructure required to provide his reseller network with a steady stream of sales opportunities (qualified leads). (You can review our article on Relationship-centric Marketing for an outline of how to go about building such infrastructure.)

Obviously, if our software vendor is in a position where he can provide a steady stream of sales opportunities, he will have no trouble gaining an audience with resellers.

The reality is that resellers are generally strong when it comes to maintaining existing customer relationships — but weak when it comes to establishing new relationships.

If our software vendor can provide resellers with new relationships (in the form of sales opportunities) he will win the (current and future) business from these relationships, but he will also unlock the value resident in his reseller network’s existing client base.

Unfortunately, this thinking is counter-intuitive for many software vendors — and for many other organisations that utilise a distribution channel comprising service providers.

Just recently, I had a conversation with a software vendor who advised me that he was looking for ‘resellers who could generate their own sales opportunities’.

I advised this vendor that, if I were him, I would be encouraging my reseller network to become dependent upon me for sales opportunities. Long-term, this dependence is an asset, not a liability!

Musician must learn to be a ‘market maker’

Whilst it may seem strange to group musicians with manufacturers and software vendors, there are some important parallels.

Typically, musicians (and authors) are keen to delegate the role of ‘market maker’ to record companies (or publishers).

Of course, this is not necessarily in the best interests of the musician’s bargaining position.

Interestingly, both record companies and publishers give preference to talent with existing followings. While this may weaken their bargaining position, they view it as a risk management tactic.

Unfortunately, musicians fail to recognise the opportunity that this provides for them. They complain that it is ‘impossible to gain a following without a record company — and impossible to get “signed” without such a following’.

This is simply not true.

INXS, which, at one time, was one of the world’s biggest selling rock bands, amassed an enormous following prior to being signed to Polygram. In fact, in the year preceding their signing, they played an incredible 300 live performances!

Do you think they came to the negotiating table with bargaining power? I suspect so.

The same is true of many best selling musicians (and authors).

You sell direct?

Organisations that sell direct can also learn from these examples. Too often, we come across organisations where the responsibility for ‘making a market’ has been delegated, in its entirety, to the sales team.

In such a situation, we typically find the following problems:

• Salespeople are difficult to recruit, almost impossible to manage, and difficult to retain.
• Salespeople own client relationships — meaning that, if salespeople leave, clients often follow.

While salespeople should obviously be responsible for negotiating sales, they shouldn’t be responsible for the generation of sales opportunities.

The moral in all of these stories is that you delegate total responsibility for selling (or, as we like to say ‘making a market’) at your expense.

If you’ve been bemoaning the ability of your distribution channel (or perhaps even your salespeople) to sell, stop and be thankful.

Therein lies an opportunity for you to strengthen your strategic position.