- September 30, 2014
- Posted by: Javier González Montané
- Categories: Sales, Turnaround
Nowadays, one of the main business issues is how to grow business and “obviously” profitably grow. Therefore, the first task is to identify what is limiting our growth, I mean why we are failing to grow. Thus, we are analyzing the most common mistakes that B2B firms used to make defining and/or executing their growth strategies. Once that we will be able to identify why our firm is not growing healthy, we will be able to know how to turnaround the situation to recover the route to growth.
Being sales minded rather than balancing sales and marketing minded
As Philip Kotler pointed out long time ago there are some industries in which is difficult to find marketers with specific knowledge about those industries and customers’ buying patterns (e.g. service logistics providers). In those cases many CEOs are still taking the decision to put the marketing responsibility under the Sales Director. Those people without enough marketing knowledge and experience continue acting like Sales Managers. Therefore, we will not able to get the benefits of a stable long-term growth that offers us marketing, compare with the less predictable short-term growth that used to produce a sales strategy without a robust marketing strategy. Sales mainly focus on closing deals and marketing on demand generation, so both functions are necessary and complementary to achieve a sustainable growth. Furthermore, the lack of a powerful strategic marketing function used to reduce the firm profitability importantly, because sales used to focus on volume and marketing on profits. Thus, firms facing profitability issues should review urgently their marketing strategy rather than just look for a solution in the sales area.
Sales minded vs Marketing minded
- Is your company sales-minded?
- Do you have the right person managing of marketing function?
Being unable to uncover the full marketing potential
Marketing is a powerful tool and as we have mention before is a necessary discipline to growth profitable and sustainable. Unfortunately, there are still many firms that limit marketing to communication or promotion of their selling products and services. It is easy to identify the organizations that have not realized the marketing potential because they used to have very few people on marketing (even just one person) that used to be the most inexperienced person in the Sales & Marketing department. Global firms used to invest in marketing, but some of them mainly invest in a global marketing team. Unluckily, those people used to be too far away from the local and customer reality. Thus, they should invest in local marketing teams in the same way that they are investing in local direct sales force. That investment in local marketing not necessary means increasing the expenditure in Sales and Marketing, it means to reallocate the budget of Sales and Marketing in a more efficient way.
- In which marketing stage is your company?
“Just” a good Sales Rep in the position of Sales Director
Sometimes firms assume that functional competence of a sales rep is enough to lead a sales department. The leading competence is assumed too because some people think that if they are able to lead customers, they should be able to lead a team. Indeed, being a good sales rep is a necessary condition for leading a sales department but not sufficient. “Weak” Sales Directors used to underperform in the important task of coaching and motivating the sales team. It is impossible to growth with a not well trained and motivated sales force. I would suggest asking the sales reps:
- When was the last time that the Sales Director visit a customer with them?
- When was the last time that they learnt something from the Sales Director?
- Does the Sales Director show how to achieve the results or just set objectives?
Do we have a really compelling value proposition? How to grow business?
It is very difficult to find good compelling value propositions. For instance, the global market players trying to escalated positions to the top market positions used to adopt a similar value proposition than market leaders (we are global, customized solutions, etc.) It is very difficult to reach the market leaders using the same weapons that they used. Moreover, many of the value propositions are not based on what the company can offer today rather than on what they would like to offer in the future. That approach used to rest credibility to the value proposition. If we analyze the value propositions of market leaders used to be very similar, it looks that all of them copy to each other.
- Why should customers buy our products/services compared to the market leaders?
- Have you asked any customers about how compelling they believe is our value proposition?
Used a market-segmentation rather than a customer-segmentation
Segmentation is a strategic pillar for growing. Segmentation is going to define where and how to grow. Nevertheless, many organizations are still segmenting based on market segmentation like size of the companies or industries what offers a poor direction to the sales force compared with customer segmentation (attitudes and the willingness to do business with them, how important is the supplier in the buying decision, service needs, different degrees of value added and so on.)
- What is your segmentation strategy?
Sales obsession for large accounts
A few global large accounts with a good margin can make growing a company a lot. However, this is just the “nice” part of the story. Indeed, large companies used to delay buying decisions (bureaucracy of large firms), take advantages of their buying power, and “ignores” our solutions because they have consultants and their own well-trained staff. Moreover, the cost to attract those accounts are usually prohibitive unless a competitor makes an important mistake. Competitors are going to fight very hard to retain those huge accounts.
- Have you thought about focusing in mid-market companies?
Failing to decide when to approach customers
There are “sweet times” to approach customers successfully. For instance: a few months before the current contract is expiring, or when there are changes in the buyer management team, or when the buyer firm is underperforming, etc. In order to take advantage of those “sweet times,” we need a process in place to manage sales notifications.
- Do you have a customer database with contract expired date?
- Do you search in daily basis on business newspapers or/and Internet for relevant news?
Ignore the channel management competitive advantage
Leading companies has built the channel advantage using the full potential of the direct sales force and other channels like business partners, tele-channels and even Internet. I mean they have been able to cut the selling cost, increase market coverage, customized customer approaches, and growth faster using their channel advantage. On the other hand, we have companies which growth strategy is based just only in one channel, the direct sales force which is the most expensive channel. Those organizations argue that they are selling complex customized solutions mainly for large accounts, so the correct selling channel is direct sales force. Nevertheless, I would like to point out that using a channel management strategy does not necessary mean that closing deals are performed for example for a tele-channel. A well-trained tele-channel could perform prospecting tasks perhaps more efficient that direct sales force. Moreover, many customers are demanding easy and inexpensive solutions that could be sold from several channels rather than complex customized solutions delivered by direct sales force. For instance, Dell selling customize solutions using call centers or Internet, or Verti.com selling insurance using call centers or Internet. In the past, selling computers or insurance was defined as complex and critical sales that had to be performed by sales reps, but nowadays that assumption has changed.
- Could any of your products be sold for other selling channels?
- Have you explored the possibility of accelerating revenue generation creating a network of business partners?
- Do you have any activity like leads generation that could be performed more efficiently for other channel like tele-channel?
Managing distributors as competitors rather than partners
There are organizations that just move complex and low margin activities to distributors. That situation could create financial viability problems in the distributor side, and indirectly create service problems in the end customers (the distributor could not have resources to invest in stock and/or services). We should be aware that customer service is one of the building blocks to achieve customer loyalty and profits from referrals. There are firms that rather than support distributors compete for the same business. We should be aware that most times killing our distributors is killing “the goose that lays the golden eggs.”
- What is your margin and your distributors’ margin?
- Do you perform distributor satisfaction surveys?
- Who is managing distributors’ complaints and suggestions?
- Do you have clear and fair rules to differentiate opportunities to be managed for your company or for your distributors?
Chaotic and desperate growth strategy
There are Sales Directors even at global level they are still thinking that sales initiatives have an additive effect. I mean as many initiatives and in many fields, faster growth is generated. Indeed, trying to be all things to all customers all of the time used to produce chaos, confusion and very poor results. For example, a company growth strategy based on new customers, AND new products, AND new markets, AND more Sales Reps, AND increasing prices all of the time. I am not suggesting that those growth initiatives are not good, although I suggest that those initiatives need time and excellent execution in order to deliver the expected results. The point is that the faster and most profitable way to growth used to be based on growing with the current customer base and the current product portfolio. Thus, the suggestion is not losing the main focus on the very fast growing opportunities, and “limit” the resources for other much slower and riskier initiatives. Be aware that most times trying to implement at the same time many complex initiatives could create some important chaos into the direct sales force (approaching new and existing customers, small and large accounts, selling new and well-stablished products, selling in several industries, and so on). Let’s go to review the issues with the main growth initiatives that look for “new landscape” rather than growth mainly with the well-known customers and products base.
The cost to acquire new customers is between three and six times the cost to retain. We must be aware that new customers are increasing revenue, but in the short-term will probably be unprofitable due to acquisition and implementation costs. Without any doubt companies have to invest in acquire new customers, but we have to decide wisely what portion of time and budget is for developing new customers and what for existing ones.
Those are harder to sell than actual products and sales cycle will be longer which means that we are not increasing our sales in the short-term. Furthermore, those products would be likely unprofitable in the introduction stage due to sales force training, customer education and other introduction costs. Again investing in new products is something desirable, but we have to decide wisely what portion of the budget is for developing new products and what is for existing ones.
Imagine a logistics service provider which main experience is in the automotive and high-tech industries trying to entry in the pharma market. That company is probably building its pharma capabilities and the direct sales force does not have the selling expertise for that market. Thus, in the short term we should not expect fast growth and even profit generation. Be aware that entry in new markets has the risk to fail. How much should we invest in new markets?
More sales reps
We could think that hiring more sales reps, we are increasing our revenue and profits proportionally. In that case, we would be underestimating some key factors affecting sales reps performance. First at all, new sales reps likely need some training at least in our specific company and products what is going to delay the delivery of results. Second, it is well known that usually sales force spent just around 37% of their time selling because the rest of the time is spent on meetings, admin tasks, aftersales service, etc. Third, direct sales force is the most expensive selling channel. Fourth, I would say that the ROI of the direct sales force is heavily conditioned as we have reviewed for: the marketing strategy and implementation, segmentation, compelling value proposition, having the right Sales Director, and so on.
Increasing sales prices above normal prices’ adjustments
This initiative is one shoot initiative because we cannot perform special sales price increments in regular basis. Furthermore, customers are well informed and it is difficult that they accept price increases above the market. But even if we get the approval of some customers, it is likely that those customers are going to be the small accounts with low buying power because large accounts would face an important impact what they are unlikely going to accept. Thus, this financial initiative used to fail to improve company profits because the success relies on applying for price increases in the key largest accounts. At the same time, that unexpected and unusual price increases used to annoy customers and deteriorated relationships. It is essential to mention that some companies’ face problems of profitability because sales department manages prices rather than discounts. Modern management to avoid compliance issues in the sales area and increase profit focus suggests removing the sales price activity from sales.
While some managers blame to market and commoditization forces for the low growth rate and sales margins. In this post, we have tried to show the principal pitfalls to growth and some suggestions to overcome those issues proactively.