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

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

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

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

Suspects, prospects and opportunities

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

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

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

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

Probability

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

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

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

Incremental effort

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

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

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

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

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

Implications for technology (CRM)

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

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

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

Inactive prospects

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

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

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

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

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

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

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

The solution is to:

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

Converting prospects to opportunities

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

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

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

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

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

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

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

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

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

The (grisly) end of qualification

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

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

Nothing could be further from the truth!

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

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

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

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

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

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

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

David shrugs and returns to his lunch.

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

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

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

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

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

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

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

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

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

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

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

The answer is no!

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

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

The opportunity-management process

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

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

A standard workflow

Each of the words in the heading above is significant.

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

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

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

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

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

1. Sales coordinator
2. Salesperson
3. Project leader

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

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

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

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

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

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

Step 1: let’s go swimming

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

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

Step 2: a simple, linear flow

You can now start to add entities and connectors.

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

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

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

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

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

Step 3: complexity, be gone

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

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

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

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

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

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

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

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

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

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

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

Step 4: Solution design

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

The solution-design workshop

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

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

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

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

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

The exercises are likely to include the following:

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

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

Proposals, estimates and quotations

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

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

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

The solution-design workshop proposal

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

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

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

Proposals for complicated (but not complex) products

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

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

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

This is simply not true.

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

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

Demonstrations

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

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

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

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

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

It’s the latter, isn’t it?

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

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

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

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

Continuous improvement

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

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

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

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).

The Sales Process Engineering method recognises this assumption as erroneous.

In most all sales processes, opportunity flow (volume) is the primary driver, not conversion.

It’s quite easy to see why.

Imagine a typical salesperson who processes about 10 opportunities a month and assume that this salesperson wins 50% of those opportunities. Now, consider how much potential there is for this person to increase sales by improving conversion.

Perhaps, with significant effort, this person could increase conversion rates by a percentage point or two. Let’s be generous
and assume 10 points. Now, this person is generating 6 sales a month.

Now, consider the potential to increase sales by improving opportunity flow. If this person divests of low-yielding activities
and dedicates their time to business-development appointments they will easily process 10 times the volume of sales opportunities each month (yep, that’s 100).

Let’s assume conversion rates drop by half (to 25%). Obviously, this person is now generating 25 sales a month.

So, opportunity flow should have primacy over conversion. Or, to express the relationship in TOC terms, opportunity flow is the goal and conversion a necessary condition.

But the relationship between conversion and sales is even more complex than this.

The reality is that small increase in conversion is likely to actually come at the expense of a *huge* decrease in opportunity
flow.

The traditional approach to conversion improvement is for the salesperson to assume responsibility for more and more activities. The salesperson schedules and conducts every appointment; prepares every document; designs the solution; walks the client’s job through production; supervises implementation; and even manages the account on an ongoing basis.

Obviously, as the salesperson assumes responsibility for an increasing activity load, more and more of their capacity becomes unavailable for business-development activities.

It’s not just that the activities themselves consume the salesperson’s capacity, the fact that the salesperson has to
synchronise numerous disparate tasks across multiple opportunities adds a significant overhead (one of the evils of multitasking).

So the relationship between conversion and opportunity flow is non-linear. An incremental increase in conversion will result in a geometric decrease in opportunity flow.

All the more reason to shift your focus from maximising conversion to maximising opportunity flow.

If we were to classify the potential causes of low sales into three categories:

1. Market and offer mismatch (wrong market, wrong offer or both)
2. Lack of appropriate channels for customer to hear about us (promotional channels) or to buy our products (sales channels)
3. Sales management (managing the sales pipeline)

Which do you think tend to be the major cause of lack of sales?

Answer

Well, I’d say (1) has the greatest influence. Even with limited visibility and a poorly managed sales process, clients will find a way to buy from you if your offer (product) is good enough.

However, poor performance in (3) tends to mask problems in (1) and (2). In other words, management often assumes that poor sales are automatically the consequence of a sales capability problem and investigates no further.

You may be interested to know that we address these problems in the reverse order (3,2,1). The reason is that good sales management (particularly in the environments we engineer) generates both management information and the demand for sales opportunities.

We free up massive capacity in salespeople’s diaries and then make a commitment to fill this capacity come hell or high water. The resulting ‘pull’ forces the organisation to address the other issues.

I can’t stand it anymore.

If I hear one more (otherwise intelligent) person mention the concept of a ‘profitable customer’, I’m going to scream!

The concept of a ‘profitable customer’ is as big a nonsense as that of a ‘profitable sale’, or a ‘profitable product’.

Customers — and I hope you don’t find this revelation too shocking — are NEVER profitable. Any more than sales are. Or products.

Only businesses make profits. Customers don’t. Sales don’t. And products don’t.

The implicit suggestion that the profitability of a business is equal to the sum of customer profits is too silly for words . . . and I’m happy to explain why (the same logic applies equally to sales and products).

Let’s see if we can unravel the logic behind the notion of customer profitability. We’ll start with the conclusion (the one I’m contesting) that some customers are more profitable than others. And — for the sake of this exercise — we’ll assume it’s true.

So we have a profitable customer. What does that mean exactly? Well, I guess it means that when you take the gross profit generated by that customer’s transactions over a period and subtract the operating costs that can be attributed (directly and indirectly) to that customer, the result is positive.

That customer is profitable, right?

If you were to perform the same exercise across every customer your organisation has, then you would undoubtedly discover that some are more profitable than others. You may even discover that you are making a loss on some customers!

If so, you can increase the profitability of your organisation by eliminating the non- (or less-) profitable customers, right?

Wrong!

Let’s say that you start with 100 customers. Some are very profitable. Some are marginal. And some are unprofitable. In order to increase your business’s profitability, you eliminate your 12 unprofitable customers (you send them to your competitors). Now, to determine if your profitability has increased, let’s repeat the analysis above.

Take the portion of operating expenses you allocate to customers. Now subtract the cost savings associated with your reduction in customer numbers. For a quick estimate of those savings, subtract your current organisation-wide payroll
expense from your previous organisation-wide payroll expense. Obviously, the difference is due to the number of staff you laid-off when you reduced customer numbers.

But what if your organisation-wide payroll expense didn’t change? What if you didn’t lay anyone off? Or what if you just shifted a few staff to other departments? Well, in this case your cost base didn’t change, did it? So, in performing the new analysis, you should attribute exactly the same operating expense to your, now reduced, customer base.

Now, a funny thing happens. When you allocate those same operating expenses to a smaller number of customers (88), the overhead burden — per customer — increases!

Now, all remaining customers are less profitable. Worse still, 23 of the remaining 88 customers that were marginal previously are now quite unprofitable.

We’d better send those customers packing now.

I guess you can see where this logic is leading us. If we eliminate ‘unprofitable’ customers without decreasing operating expenses in *direct proportion* to our decrease in customer numbers, we will have, before long, no customers. And — believe it or not — with no customers, our business will make no profits. None at all!

So, will operating expenses ever decrease in direct proportion to decreasing customer numbers? Of course not! There will always be some operating expenses that are not directly associated with customer numbers (head-office costs). Furthermore, there will always be some infrastructure that cannot be disposed of in neatly divisible units (ever tried sacking three-quarters of a customer-service representative?).

So there’s the flawed assumption (costs are directly linked to customers) and the damaging consequences of applying this assumption to our decision-making process:

1. We eliminate customers that perhaps we should retain
2. We send those customers to our competitors, and — in the process — potentially increase their profitability and, consequently, their ability to compete more aggressively with us for our remaining customers

Now, here’s the challenge.

I wonder if you’d like to suggest answers to the following questions:

1. Does it ever make sense to dispose of customers?
2.  If so, what method should be used to (a) arrive at this conclusion and (b) to choose the customers to dispose of?

Here’s a massive hint (for those of you who are still not familiar with the Theory of Constraints): the output of a process is determined *only* by the resource with the lowest capacity (think of a chain’s weak link).

If you’re struggling to answer these questions, I have one more suggestion. Send this e-mail to your accountant and ask for his or her response. After all, the accounting profession is one of the biggest proponents of the notion of customer profitability! Of course, your accountant is welcome to join this list and participate in the debate.

The importance of specialisation

As I’ve explained many times in the past, if you’re small, it’s better to be different than it is to be better. It’s almost impossible to convince the market that you have a service that’s better than those of your larger competitors. Even if your claim is true, it isn’t believable. The market naturally associates ’big’ with ’better’. If you’re small, it’s a lot easier to convince the market that you’re different. Being different is about being a specialist – and the market naturally associates ’small’ with ’specialist’. You get to be a specialist by focusing on serving a niche market. A niche market is a group of customers whose needs are not adequately met by the cookie-cutter solutions served up by your larger competitors. Now there are three types of niche markets on which you can focus. You can focus on a vertical niche, which is defined by market (a range of services for a specific market). You can focus on a horizontal niche, which is defined by service (a specific service for a range of markets). And, just in case neither a vertical nor a horizontal niche provides the degree of focus you are looking for, you can have both a vertical and a horizontal focus (a specific service for a specific market). Of course, the million-dollar question is: ’upon which niche market should you focus?’

The importance of being expensive

Now, traditionally, in order to answer this question, a team of MBAs will scrutinise your business, your market and your industry, and then prepare a SWOT analysis (SWOT stands for ’strengths’, ’weaknesses’, ’opportunities’ and ’threats’). This SWOT analysis will (hopefully) provide you with a map that will lead you to the buried treasure – your ideal niche market. Unfortunately, my guest and I had just a couple of hours to consider this question (and there were no MBAs anywhere in sight). I suggested we address the problem with a kind of baptism by fire! We agreed that the niche we chose would have to allow my guest to charge a premium for his services. (Because he doesn’t have his larger competitors’ economies of scale, unless he charges a premium, his growth will result in margin shrinkage). So, rather than identifying a niche market, designing a custom service offering for this niche and then setting a price, I suggested we work backwards. I challenged my guest to take the hourly rate charged by a partner in one of his competitor’s firms, add 50%, and *then* go looking for a niche market that would be prepared to pay this higher fee to work with a specialist. Interestingly, it wasn’t until we attacked his problem from this perspective that the question became easier to address. Immediately we were able to disregard some markets that would not be prepared to pay this premium. We eliminated others that were not large enough to provide the growth potential that my guest was looking for. And we identified a couple of niche markets (one vertical and one horizontal) that were worthy of further investigation.

A challenge for you!

My appointment with this insolvency practitioner was just one of 15 appointments I’ve had with owners of small- to medium-sized businesses in the last three days. Over those three days, I discovered nine organisations that are faced with exactly the same challenge. Almost all of these organisations had the good sense to preface their descriptions with the ’boutique’ adjective. But none of them had actually targeted a niche market. None of them was a specialist. And, as a result, none of them was in a position where they could charge enough of a premium for their services to fund ongoing (profitable) growth. Here’s my challenge for you. If you are charging prices that are on a par with those of your larger competitors, program a significant price rise to occur in exactly one month’s time. Over the next 30 days, identify a niche market that will be prepared to pay a premium for a customised service, and then go about designing a service package to serve the unique needs of this market. My guess is, when the pressure’s on, you’ll identify your ideal niche market! It’s easy to defer making this tough decision – particularly if your business is profitable. But if you want to grow your business – and because you’re an AdVerb subscriber, I’m guessing you do – you need a business model that’s scalable. That means, if you can use the word ’small’ to describe your business, you must also be able to add the words ’specialised’ and ’expensive’.

The presumption seems to be that this activity somehow adds tremendous value to the opportunity-management process. I suspect, in most cases, it does the opposite!

From what I’ve observed, ‘qualification’ typically involves a salesperson making
preliminary contact with a list of opportunities to determine which are likely to purchase in the near term.

Those that are are deemed to be ‘qualified’; the balance, discarded.

Now, if this salesperson is also a project manager, an administrator, a clerk, a PA and so on, I can understand his desire to devote time only to those opportunities likely to convert in the very near future.

However, if this person’s time is dedicated to the conduct of business-development appointments — which is what we advocate — the consequences of this approach are scary!

In filtering a list of opportunities to include only those with an acknowledged, short-term interest in purchasing, the salesperson has filtered-out prospects with a problem, but without an awareness of how to go about solving it.

The remaining opportunities will be those that are more likely to be price sensitive (they’ve already written their own prescription).

The salesperson has also telegraphed to all opportunities that the organisation is the purveyor of a commodity product (and, consequently, that his role in the process is to take an order).

As a result of this ongoing ‘qualification’ process, the salesperson will interface *only* with price-focussed customers.

As a consequence he will form the firm opinion that all customers are relentless price shoppers and that the key to maximising the return on his limited time is to filter sales opportunities even more aggressively!