I found Jeff Bezos’s comments about the “billions of dollars” worth of failures he has been responsible for at Amazon rather cavalier. While I get his point that innovation is expensive and can be offset by a few real “hits,” Amazon is under increasing market pressure to turn a profit and is coming off an epic failure with the Fire Phone. I think I expected him to be a little more conciliatory. Here is the article from Business Insider: http://lnkd.in/eF3wFPj What do you think?
All posts by Matt Hottle
The Poor Economics of “Numbers Game” Selling
For almost any growing business, the pursuit of top line revenue is a constant and everlasting pressure on the entire business. While your salespeople feel that pressure acutely, the entire business understands and appreciates the need to always have money coming in the door. This pressure can create behaviors that are productive and behaviors that are detrimental.
Productive behaviors can include increased teamwork in the face of a customer deliverable while detrimental behaviors can lead to heavy discounting at the end of a measurement period to hit a sales goal.
The pressure to generate revenue can also lead to economically irrational behavior. One of the most common examples of this irrational behavior is the propensity to chase every opportunity regardless of its quality or potential to actually turn into revenue. The phrase “sales is a numbers game” has been repeated by so many sales “experts” that people tend to believe it. That phrase isn’t completely wrong- only 90% wrong.
You do need to make contacts and that is a “numbers game.” When dealing with commodity products or transactional selling, numbers play a huge role in success but to distill effective selling down to nothing more than a dial-a-thon is both simplistic and costly. If a prospective lead isn’t qualified, you can waste significant time and resources and generate little revenue in return.
Historically, managers have measured salespeople on two main data points; the actual revenue generated (sold) and the top of their pipeline (how many contacts they have made). They should be obsessing over conversion percentage- how many sales they generate from a set number of potential customers.
Every prospective customer carries a cost to your organization. Those costs can be in travel, entertainment, company resources and opportunity cost. To create a simple illustration, let’s assume every prospective customer costs $1,000 to get to the point of making a decision whether or not to buy. Also, each customer is worth $10,000 if they actually buy. If your sales department makes 10 sales presentations per month and converts three of them into actual sales. The cost to the organization for these overtures is $10,000 and the sales are worth $30,000.
What if you were able to make the same three sales but only conduct seven sales presentations? The cost of the presentations to the company would by $7,000 but the sales would still be worth $30,000. The effective profitability of the closed sales increases from $20,000 to $23,000- or 15%. If this pattern repeated itself for the entire year, the total profitability advantage would be $36,000.
That improved profitability can be the difference in needing 5 salespeople instead of 6 and all the associated resources to support that extra full-time position. It can also help you rationalize your sales effectiveness and capacity.
Despite this economic reality, company managers continue to push the “numbers game,” without thinking about how conversion percentages drive increased profitability.
Are your employees planning to “clunk” or “clink?”
A successful banker goes into the Cadillac dealership and selects the most expensive car in the showroom floor. With every option available, a special paint job and premium price, the banker proudly takes the keys to his new car and drives away from the dealership.
Within 2 miles, the new owner hears a distinct “clunk-clink” coming from somewhere inside the car. Quickly dismissing it, he continues driving down the road. A few minutes later, he hears the same “clunk-clink” sound again. Irritated, he immediately turns the car around and drives back to the dealership.
After some choice words with the salesman, the dealership takes the car around to the shop and pulls every mechanic over to the Cadillac to figure out what is making the sound. After several hours of unsuccessfully replicating the sound, the dealership sends the banker on his way- assuring him there was nothing to be found and the car is in perfect working order.
The following morning, the dealership sales manager arrives at work to find the same customer standing at the front door with a less-than pleasant expression on his face. The “clunk-clink” was still there and if the dealership couldn’t fix it today, the customer was going to demand a full refund.
Again, every mechanic in the shop was assigned the task of finding this rattle. By lunch, they still hadn’t found anything wrong. Exasperated, the sales manager told the mechanics to tear the whole car apart- they were going to find the source of this “clunk-clink.”
With the entire engine bay, suspension and interior stripped out of the car, the chief mechanic slammed the driver’s door in disgust and finally heard a distinct “clunk-clink.” Opening the door back up and grabbing a flashlight to look into the inner door panel, he saw what looked like a glass bottle. Reaching down into the lowest portions of the door sill, he fished out an empty soda bottle that had a rolled up piece of paper in it.
After removing the paper from the bottle and unrolling it, he started reading a scrawled note clearly written with a worker’s hand. It read, “So, you finally found the rattle, you rich son-of-a-bitch.”
While this story was long-ago proven to be completely fabricated, it is a colorful way of demonstrating the damage a disgruntled employee can do to your product or reputation. Hopefully, you have never experienced an employee going to extreme lengths like this to demonstrate their dissatisfaction. Consider that an employee’s level of engagement or “buy-in” to the company’s efforts is more likely to be somewhere on a continuum between this extreme low and demonstrating complete ownership of their role and the organization’s well-being.
While an employee may not outright sabotage your reputation with a customer, they can make a series of choices that benefit them personally and fall outside of the company’s best interest. Those smaller choices are still damaging and undermine your organization over a period of time.
The days of employees just being happy to have a job and showing that gratitude by working hard and unselfishly are over. Even as job markets stutter, people are looking to work where they can be engaged in ways that go beyond pay and benefits. Increasingly, employee engagement comes from how the job or company makes them feel about themselves.
Are you engaging employees in ways that make them feel valued, respected, even loved? The intrinsic rewards of working somewhere are important and that includes how they feel about the company and their role within it.
Do you have a “Cadillac” story to share? If so, comment below or email me at matt.hottle@redhawkresults.com.
Who owns your strategy?
It is that time of the year when organizations all over the world start holding retreats and offsite meetings to discuss their strategy for the upcoming year. This exercise has become part of the corporate calendar for almost everyone in some form or another and it is an extremely valuable activity if it includes mechanisms to create ownership of the strategy.
In this case, ownership means the comprehension and adoption of these strategies, key performance indicators and business goals by the decision-making members of your organization. You need ownership of the strategy to thrive in the middle management and front lines of your company because that is where all the incremental activities shape your overall performance.
It isn’t enough for them to know the strategy. They need to understand and appreciate not only its significance to the organization as a whole but its practical application to their own goals and responsibilities. More on that in a few paragraphs.
This adoption will be demonstrated in the performance of individuals and the larger team as you see increased autonomy in tactical decision-making. Judgments will start to be made based on the foundation of the strategy and will start passing a litmus test of sorts as people weigh individual decisions against attainment of those strategic goals and measures. In simplest terms, your team starts rowing the boat in the same direction.
The challenge, of course, lies in creating this adoption throughout your organization. At Redhawk Consulting, we suggest starting with the “What’s In It For Me” or WIIFM- for short. If an individual can see the benefit to them personally, they are far more likely to buy into the strategy.
People almost always make good decisions when an owner or senior leader is involved but are they making those same good decisions when no one is around? If they understand the role they play in your strategy and how that strategy benefits them personally, you have a self-perpetuating strategy which your team will own.
Do have something to add to this article? If so, email me at matt.hottle@redhawkresults.com or leave a comment.
If you have a Buzz, you may have a Woody
For anyone who has kids or is a kid at heart, you have probably seen the movie Toy Story. It is a great movie and introduced Pixar’s technology which became the gold-standard by which all other computer animation would be judged.
For the Toy Story uninitiated, Woody is a pull-string talking cowboy and the favorite toy of Andy, the child who owns him and the main human character in the movie. They are inseparable.
Andy has a birthday where he is given a Buzz Lightyear action figure. Buzz has a flip down helmet visor, pop-out wings and a laser on his arm. Compared to the rather mundane Woody, Buzz is wildly exciting. Immediately, Buzz takes Woody’s place as the favorite and as Buzz gets all the benefits of being the “favorite,” Woody goes from denial to depression and then, ultimately, tries to off Buzz. That’s right, Pixar goes a little dark at that point in the movie.
Spoiler alert- the movie has a happy ending.
Most successful and growing organizations, at some point, start to get their pick of the job-seeking candidate pool. Your business has done well and has built a great reputation; enough to attract the best talent and that is very exciting. With the ability to add expertise and fill organizational gaps, access to increased expertise through these new hires can really accelerate growth and success.
It is also very easy to treat a new “high performer” like a trophy for which lavish on-boarding programs are deployed and public recognition of their past success is broadcast throughout the organization. Detailed and thoughtful on-boarding is crucial to a company’s ability to attract and retain top talent. There are reams of white papers dedicated to the short and long-term benefits these programs provide. I strongly agree with them.
So, like Andy in Toy Story, you now have a Buzz. You still have a Woody too.
Chances are, your Buzz partially or completely displaced your Woody.
Your Woody likely has been with the organization for a long time and is loyal and eager. He was, at one point, your Buzz. He has tremendous institutional knowledge and has been consistently successful in the roles for which he has been responsible.
While the arrival of your “Buzz” has been heralded with much fanfare, your “Woody” is not so sure about what this new hire means for him or her. Unrecognized, Woody may start to act in ways that are counter-productive or even engage in outright sabotage.
When hiring new talent, make sure you look at the onboarding process from both sides. Don’t solely focus on how you want the new hire to experience your organization but also that person’s impact to all of your “Woodys.” Do people understand why this person is being hired and how that will affect them directly? Are they being included in the hiring process and if their role is changing because of this new hire, do they understand what that means for their own future in the organization?
If you take a dual-perspective view to bringing on new talent, you can have a happy ending as well.
Have you ever been a “Buzz” or “Woody?” If so, drop me an email. I’d love to hear how you worked through it (or didn’t).
Kick the RFP Habit
People are often shocked to hear I stopped participating in electronic RFPs for new business about two years ago. If it is unsolicited or where I don’t have access to the human beings making the decisions, I won’t participate. Occasionally, I’m forced to participate in one because of an existing business relationship.
It took a pretty direct conversation with Frank Visgatis, Co-Founder of CustomerCentric Selling, to realize how much time I had wasted chasing unsolicited RFPs.
I may represent the most qualified firm for the work but in the effort companies have made to rationalize vendors with electronic procurement, forced stack rankings and onerous vendor qualifications, they have also eliminated your ability to inject specific and meaningful expertise into the buying process.
Consider your own procurement process or one you have just participated in as a vendor.
What percentage of the questions were around “facts” about the business; number of employees, total revenue, sustainability efforts, OSHA compliance, etc? Based on the last few I participated in, this was more than 90% of the information requested. Who is checking all these facts for validity anyway?
How many questions revolved around “proof?” Proving expertise, capability and consistency are key to selecting partners. Proof is usually demonstrated or experienced. I have yet to see a software program or standardized form glean “proof” effectively.
Secondly, what is your win percentage in these RFPs? No padding… no excuses… what is the real number? Chances are your batting average is pretty poor. Now ask yourself how much time each RFP consumes of your organization’s time. In my own case, it was around 12 hours of sales, 2 hours of operations and 1 hour of accounting/ legal for an average and efficient RFP.
Lastly, what was your opportunity cost- the cost of chasing an unqualified RFP instead of opportunities where you could actually interact with your potential client?
I actually spent a layover figuring this out on the back of an envelope. Once I totaled it all up, it came out to $2,200 per hour.
Assuming 12 hours per RFP, that translates into $26,400. If you really want to give yourself the cold sweats, multiply that by the number of RFPs you “participated” in last year. Chances are that grand total is a gut-wrenching number.
Take heart though, there are ways to qualify your opportunities and improve your conversion percentage. At Redhawk Consulting, we work with clients that have successful sales operations but are straining their organizations to hit their numbers. In future posts, I will discuss some ways to qualify opportunities. If you have some of your own techniques to share, send them to me at matt.hottle@redhawkresults.com.