The Fatal Mistake Boards & VP Sales Will Make In 2010 Planning

by aaronross383 on November 16, 2009

Note: I first published this post exactly one year ago. Unfortunately it bears reposting again and again!. I have a feeling this same post will be relevant for another few years until the conventional wisdom evolves.

If you’re looking for help with growing sales, and especially in creating an amazing inside sales lead generation function, I have an overview of my sales consulting practice at www.PebbleStorm.com/cpr.

———–
For companies selling products worth less than $100,000-$250,000, the old school strategy of hiring more feet-on-the-street to drive revenue growth is failing more often. Or just fails.

Let’s take companies in fast-growth periods who are focused mainly on adding new customers (rather than more mature companies who drive much of their growth through their customer base).

The problem: the old bedrock sales principles that usually worked now doesn’t…”if I need to double revenue growth, I need to double my sales force to drive it.”

Wrong.

Salespeople do not cause customer acquisition growth, they fulfill it.

Before you rush on to the next section, really consider that. It’s a HUGE shift in traditional sales thinking. I’m talking about root cause drivers, not correlations. Of course you need more salespeople if you’re getting bigger, but they aren’t what is causing new customer growth.

Lead generation causes new customer acquisition
and sales fulfills it. I see a future in which sales is more and more like account management, and the focus of new customer acquisition responsibility growth falls more squarely on lead generation executives (VP Demandgen/Leadgen and VP Sales Development).

OK, the Sales 1.0 thinkers out there are saying “You’re crazy. I’m hiring salespeople and they’re adding new revenue. And it’s worked for me for 15 years. Without great salespeople, we wouldn’t be closing these customers. Our 9-stage sales process is really cool too.”

Right. That did work in the past. Things change.

Here’s another way to think about it by comparing two competitors.

Competitor A:
* Trying to double from $10m in revenue to $20m.
* 10 salespeople today, growing to 15.
* Generating $3m per month in new pipeline through proven campaigns in leadgen and marketing (40% of pipeline), a cold calling 2.0 team (40% of pipeline), partners (20% of pipeline).
* Their salesperson ramp-time is 4 months (because they create pipeline for the rep to walk into).

Competitor B:
* Trying to double from $10m in revenue to $20m.
* 10 salespeople today, growing to 20.
* Competitor B spends money on marketing, and salespeople cold call, but no one really tracks pipeline metrics. But the VP Sales and the salespeople have had a knack for hitting their numbers each month so far with some scrambling.
* They think their new salesperson ramp-time is 6 months (but really will end up at 9-15 months…if their salespeople ramp at all).

Who would you bet on?

Here’s the ’09 scenario I personally see playing out for too many companies:
1. Board/CEO sets an aggressive 2010 revenue target (mostly based from new customer acquisition)
2. VP Sales/CEO divides revenue goal by expected quota to determine the number of salespeople needed to hit the target
3. Sales reps miss targets after ramping MUCH more slowly than planned
4. Everyone has an extra helping of pain and a side of stress for Thanksgiving next year (if the VP Sales is still around)

Here is the root assumption that causes ‘VP Sales roadkill’ (although the board and CEO are equally responsible): Their false assumption that salespeople will find new business on their own.

No they won’t. Not enough to feed themselves.

(Ok, SOMETIMES, SOME salespeople can. Some people win the lottery too.)

Here’s why:
1. Salespeople are terrible at prospecting
2. Salespeople hate to prospect
3. Even if a salesperson does do some prospecting successfully, as soon as they generate some pipeline, they become too busy to prospect. It’s not sustainable.

Unless all I’m selling is big deals (>$250k), or in industries that truly are relationship-based (like the ad agency world)…there’s no way in hell I’m rolling the dice on my company based on this assumption.

How boards & CEOs exacerbate the problem
As soon as a product is ready for market and there’s some initial customer traction, the board and CEO tend to rush to set 100%+ growth targets. They arbitrarily pick goals (since there’s no data to base predictions on!) and turn the screws on the VP Sales. The VP Sales sucks it up (especially when he had no voice in the goals) and gets busy hiring salespeople…who miss plan. Company misses targets. Executive team is refreshed.

Why is it easier for people and companies to do more of what doesn’t work than to take some time to figure out what does?
By Q2, when the sales people aren’t making their 2010 numbers, there will be the push (from the board, CEO or VP Sales themselves) to hire more! “We’re behind on our goals, we need to hire more salespeople!” How does that make sense?!

I think people, when under too much pressure or stress, tend to retreat to the safe place of what they know rather than taking the risk of trying new things. It’s safe, it’s less scary than what’s unknown. It doesn’t make logical sense; it must come from the reptile part of the brain.

Some answers, kind of
Unfortunately, there aren’t any quick fixes to this lead generation problem today. In fact, if you don’t have any repeatable leadgen programs yet, you’re already behind in getting ready for ’08. Despite your investors’ demands, it takes 12-18 months to get leadgen cranking. What can work is a mix of, for example:

  1. Trial-and-error in lead generation (requires patience, experimentation, money)
  2. Patience in building great word-of-mouth (the highest value leadgen source, but hardest to influence)
  3. Cold Calling 2.0 (by far the most predictable source of pipeline, but it takes time and focus)
  4. Building an excited partner ecosystem (very high value, very long time-to-results)
  5. PR (great if you’re great at getting it!)

Start with more awareness on how much pipeline you’re generating
Not sure what works today, or where to start? Begin with awareness.
* Does your executive team and board know how much new (qualified) pipeline the company needs to generate per month?
* Is that tracked at the board level? (At least while customer acquisition is a primary focus.)
* Is there a common language, common definitions, for “prospects”, “leads” and “opportunities”? One of the biggest problems is usually mis-communication and misunderstanding of terms and metrics between executives and directors.

Email me with your rants
, or comment here
Are you skeptical of this? I could use some good email or comment threads to flesh out the ideas and issues around this. Email me at aaron at pebblestorm dot com.

{ 15 comments… read them below or add one }

Darren December 11, 2008 at 7:53 pm

Very useful info Aaron. It really highlights the importance of having the right metrics to track and measure performance.

I wrote a post on some of the types of reports that LucidEra customers use in their board meetings that your readers might find useful:

Sales Analytics for Board of Directors

LEADSExplorer December 15, 2008 at 9:38 pm

Usseful.
Still the size of the company defines also what the number of tasks are for sales people.
A small company cannot afford additional people for lead generation.

In order to cold call more efficiently: cold call on those companies that have visited your website. These company names you have obtained from a website visitor identification service.

Bryan Big Game Hunter December 18, 2008 at 1:27 pm

Aaron, this makes sense as far as how it works for sales of things with a <200k value, but how does this map to the organization that is selling all $200k+ stuff?

Aaron Ross December 18, 2008 at 7:57 pm

@ Bryan: actually, the structure doesn’t change much, but it is more likely (though not always), that reps selling big deals can generate business on their own, especially if they’re targeting a smaller set of really big accounts (say under 30).

Still, at salesforce.com, by having an inside Cold Calling 2.0 team supporting the big-deal field reps by generating leads for them, we made the field reps much, much more successful.

So, you might be able to generate business at big accounts by adding reps, but I would still heavily emphasize creating a leadgen team to support them in their efforts.

Perry December 19, 2008 at 12:46 am

I believe in one of your points. It’s a classic mistake of businesses to not track their leads at all even if they have the chance to do so. Others seem to wait for the “right time,” only to realize that such had already passed by. By the time they call their prospects, they are no longer interested with their products and services.

Anonymous December 21, 2008 at 11:21 am

I like how you think 🙂

Mike
http://www.wannadevelop.com

Neil Sequeira December 22, 2008 at 2:39 pm

Very insightful post Aaron. The 5 points in the mix of what can work is spot on.

Neil
ReadyContacts

Anonymous February 7, 2009 at 12:00 am

Hey Aaron,
I kinda disagree with your points here. I am a CEO of a small B2B software company (just under 10 MM in Rev in 08) and we invested heavily in a Lead Gen strategy last year. Here are some steps we took:
(a) hired and trained a team – using CC2.0 strategies and positioning ourselves towards being a thought leader / educator – not a ‘do you wanna buy today’ approach.
(b) we have really invested heavy in SForce automation tools – Sforce.com Enterprise edition – lead scoring, rating, dedicated campaign mgr, marketo style metrics, Brian Carroll best practices, reading blogs like this, the works –

So here’s the issue – so as 2009 unfolds new business (new customer acquisitions) rev has declined as compared to 2008 –

so here’s the question –

(a) do we continue to buy leads (PPC, Trade Pubs, Events, etc – around $75,000/month investment) that aren’t converting now (EVERYONE has a Purchase Order freezes) OR do we go back to the middle of our pipeline – existing customers (who have demonstrated a willingness to continue to come back and buy) and try to get the door opened wider? This seems to be the suggestion on other popular Lead Nourishment blogs I’m reading – which seems to contradict your blog post. Forget about the top of the funnel and invest time and money in bringing on a “traveling Outside rep” (we don’t have any) and use the ‘hall pass’ approach at say 30 target accounts. In other words go and visit with these target accounts until we get another PO.

OR

(b) Just keep truckin, honing, revising, and incrementally improving our LN team each day. Buy more leads, add more LN staff, run metrics, revise, and repeat? – knowing that when the budgets do come back we’ll have that relationship in place?

OR

Other?

PS – We are self funded and profitable – no board – no investors – so as the owner I can do what I want.

PPS- I had to post as anonymous because my competitors are watching 🙂

Aaron Ross February 15, 2009 at 4:32 pm

Hi Anonymous –
You've given me some good grist for another blog post soon 🙂

Here's my quick and dirty take. I realize it won't directly answer your question, but it will give you a framework to think through it yourself.

Almost every company I've worked with relatively overinvests in acquiring new business and underinvests in making current customers successful.

Here's the order in which I'd focus on either plugging holes or investing:

1st) Current customers
Make your current customers more successful! What can you do to help new customers get going, reduce support needs, reduce attrition and enhance word of mouth?
– What is your attrition & renewal rates?
– Why do customers attrit / why don't they renew?
– What are the differences between customers that succeed and renew, and ones that don't? How can you find more customers that will renew?
– What can YOU do to help customers help themselves?

2nd) Streamline the experience for current and past prospects/opportunities
– What is your opportunity-to-close process?
– What are you close rates?
– Why do you lose deals?
– Would a different pricing/product/packaging offer help?
– Would a different sales role of some kind help?

3rd) Generate New Leads
– What is your lead-to-opportunity process?
– Where do leads fall out?
– What kinds of leads generate the best opptys?

Eliot Burdett February 16, 2009 at 9:41 pm

great post Aaron – throwing reps at the sales target is a “brute force” solution and will likely fail. Although I believe you can hire for the type of dna that will make cold calls, I agree it is far more effective for your hunters to call on prospects who have a sense of your offer or already perceive a degree of value as a result of proactive and clever marketing programs.

Eliot Burdett
http://www.peaksalesrecruiting.com/blog

charles February 27, 2009 at 1:32 am

Anonymous-

I see both sides of this argument, and I’d be happy to exchange notes/strategies or just act as a sounding board.

Regards,

Charles Lauller

dave van horn March 10, 2009 at 3:19 pm

Aaron,

I forwarded your article on to everyone I know at a Senior Marketing level. Your analysis could not be more ‘on’ in this new era.

Pulling interested parties ‘to you’ is the name of the game. My Level 5 marketing school of thought holds that 22nd Century marketers will know the value they bring to their customers’ customer. When you know this, you become invaluable. If you don’t know this, you will become extinct.

Further, I believe that by using social networking tools, you can build strong organic channels without the need for leads. We’re here to put the lead industry out of business.

Great stuff.
dave van horn
webwildcatting.com

Aaron Ross March 10, 2009 at 7:00 pm

Thanks Dave, glad you like it! And I agree with you totally on your marketing thinking. The world has moved from “promotion” to “attraction”.

Steve Waterhouse February 15, 2010 at 2:29 am

Great insight into the market changes. Very important concepts for everyone to understand if you want to win in this market.

Steve Waterhouse
http://www.waterhousegroup.com

Jeff Ogden February 18, 2010 at 4:59 pm

Love this article, Aaron. It's spot-on accurate!

I especially loved your 12-18 months to get lead gen going. Probably a bit high, but the point is that patience is needed.

Jeff Ogden, President
Find New Customers
http://www.findnewcustomers.net

Previous post:

Next post: