Selling
The Downside of Easy (or, the Upside of a Good Challenge)
As a young boy, I was “that kid” who would take everything apart, often leaving a formerly functional alarm clock in a hundred pieces in a shoe box. I loved figuring out how things worked and how components worked together as a system. When I was 10, I spent one winter completely disassembling and reassembling my Suzuki TM75 motorcycle in my bedroom (my parents must have had so much more patience and understanding than I do as a parent). It was rebuilt by spring and ran like a champ. Beginners luck?
By then, I was hooked – I enjoyed working with my hands and fixing things. That was a valuable skill to have while growing up, as it provided an income and led to the first company I started at the age of 18. There was always a fair degree of trial and error involved with learning, but experience and experimentation led to simplification and standardization. That became the hallmark of the programs I wrote, and later, the application systems I designed and developed. It is a trait that has served me well over the years.
Today, I still enjoy doing many things myself, especially if I can spend a little time and save hundreds of dollars (which I usually invest in more tools). Finding examples and tutorials on YouTube is usually easy, and after watching a few videos for reference, the task is generally manageable. There is also a sense of satisfaction that comes with a job well done. And most of all, it is a great distraction from everything else that keeps your mind racing at 100 mph.
My wife’s 2011 Nissan Maxima needed a Cabin Air Filter, and instead of paying $80 again to have this done, I decided to do it myself. I purchased the filter for $15 and was ready to go. This shouldn’t take more than 5 or 10 minutes. I went to YouTube to find a video, but no luck. Then, I started searching various forums for guidance. There were plenty of posts complaining about the cost of replacement, but not much about how to do the work. I finally found a post that showed where the filter door was. I could already begin to feel that sense of accomplishment I was expecting in the next few minutes.
But fate and apparently a few sadistic Nissan Engineers had other plans. First, you needed to be a contortionist in order to reach the filter once the door was removed. Then, the old filter was nearly impossible to remove. And then, once the old filter was removed, I realized that the width of the filter entry slot was approximately 50% of the width of the filter. Man, what a horrible design!
A few fruitless Google searches later, I was more determined than ever to make this work. I tried several things and ultimately found a way to fold the filter where it was small enough to get through the door and would fully open once released. A few minutes later, I was finally savoring my victory over that hellish filter change.
This experience brought back memories of “the old days.” In 1989, I was working for a marketing company as a Systems Analyst and was assigned the project to create the “Mitsubishi Bucks” salesperson incentive program. Salespeople would earn points for sales and could later redeem those points on Mitsubishi Electronics products. It was a very popular and successful incentive program.
Creating the forms and reports was straightforward, but tracking the points (which included generating past reports and adjusting activity from previous periods) presented a problem. I finally considered how a banking system would work (remember, there were no books on the topic before the Internet, so this was essentially reinventing the wheel) and designed my own. It was very exciting and rock solid. Statements could be accurately reproduced at any time, and an audit trail was maintained for all activity.
Next, I needed to create validation processes and a fraud detection system for incoming data. This was rock solid, but instead of being a good thing, it became a real headache and source of frustration.
Salespeople would not always provide complete information, might have sloppy penmanship, or engage in other legitimate but unusual practices (such as bundling and adjusting prices among items in the bundle). Despite that, they expected immediate rewards, and having their submissions rejected apparently created more frustration than incentive.
So, I was instructed to turn the fraud detection dial way back. I let everyone know that while this would minimize rejections, it would increase the potential for fraud and the volume of rewards. I created a few reports to identify potentially fraudulent activity. It was amazing how creative people could be when trying to cheat the system, and how you could quickly identify patterns based on similar types of activities. By the third month, the system was trouble-free.
It was a great learning experience from beginning to end. It ran for several years after I left – something I know because I was still receiving the sample mailing with new sales promotions and “Spiffs” (sales incentives) every month. My later reflection made me wonder how many things are not being created or improved today because it is easier and less risky to follow an existing template.
We used to align fields and columns in byte order to minimize record size, overload operators, and other optimizations to maximize space utilization and performance. Our code was optimized for maximum efficiency because memory was scarce and processors were slow. Profiling and benchmarking programs brought you to the next level of performance. In a nutshell, you were forced to understand and become proficient with the technology used out of necessity. Today, these concepts have become somewhat of a lost art.
There are many upsides to being easy.
- My team sells more and closes deals faster because we make it easy for our customers to buy, implement, and start receiving value from the software we sell.
- Hobbyists like me can accomplish many tasks after watching just a short video or two.
- People are willing to try things they may not have tried before if getting started were not so easy.
However, there may also be downsides for innovation and continuous improvement, simply because ‘easy’ is often considered ‘good enough‘.
What will the impact be on human behavior once Artificial Intelligence (AI) becomes a reality and is in everyday use? It would be great to look ahead for 25, 50, or 100 years and see the full impact of emerging technologies, but my guess is that I will see many of the effects in my own lifetime.
It’s not Rocket Science – What you Measure Defines how People Behave
I previously wrote a post titled “To Measure is to Know.”
The other side of the coin is that what you measure defines how people behave. This is an often forgotten aspect of Business Intelligence, Compensation Plans, Performance reviews, and other key areas in business. While many people view this topic as “common sense,” based on the numerous incentive plans you run across as a consultant and compensation plans you submit as a Manager, that is not the case.
Is it wrong to have people respond by focusing on specific aspects of their job that they are being measured on? That is a tricky question. This simple answer is “sometimes.” This is ultimately the desired outcome of implementing specific KPIs (key performance indicators), OKRs (objectives and key results), MBOs (Management by Objectives), and CSAT (Customer Satisfaction), but it doesn’t always work. Let’s dig into this a bit deeper.
One prime example is something seemingly easy yet often anything but – Compensation Plans. When properly implemented, these plans drive organic business growth through increased sales, revenue, and profits (three related items that should be measured). This can also drive steady cash flow by closing deals faster and within specific periods (usually months or quarters) and focusing on models that create the desired revenue stream (e.g., perpetual license sales versus subscription license sales versus SaaS subscription sales). What could be better than that?
Successful salespeople focus on the areas of their comp plan where they have the greatest opportunity to make money. Presumably, they are selling the products or services that you want them to based on that plan. MBO and OKR goals can be incorporated into plans to drive toward positive outcomes that are important to the business, such as bringing on new reference accounts. Those are forward-looking goals that increase future (as opposed to immediate) revenue. In a perfect world, with perfect comp plans, these business goals are codified and supported by motivational financial incentives.
Some of the most successful salespeople are the ones who primarily care only about themselves (although not at the expense of their company or customers). They are in the game for one reason—to make money. Give them a well-constructed plan that allows them to win, and they will do so in a predictable manner. Paying large commission checks should be a goal for every business because properly constructed compensation plans mean their own business is prospering. It needs to be a win-win design.
However, suppose a salesperson has a poorly constructed plan. In that case, they will likely find ways to personally win with deals inconsistent with company growth goals (e.g., paying a commission based on deal size but not factoring in profitability and discounts). Even worse, give them a plan that doesn’t provide a chance to win, and the results will be uncertain at best.
Just as most tasks tend to expand to use all the time available, salespeople tend to book most of their deals at the end of whatever period is used. With quarterly payment cycles, most of the business tends to book in the final week or two of the quarter, which is not ideal from a cash flow perspective. Using shorter monthly periods may increase business overhead. Still, the potential to level out the flow of booked deals (and associated cash flow) from salespeople working harder for that immediate benefit will likely be a worthwhile tradeoff. I pushed for this change while running a business unit, and we began seeing positive results within the first two months.
What about motiving Services teams? What I did with my company was to provide quarterly bonuses based on overall company profitability and each individual’s contribution to our success that quarter. Most of our projects used task-oriented billing, where we billed 50% up-front and 50% at the time of the final deliverables. You needed to both start and complete a task within a quarter to maximize your personal financial contribution, so there was plenty of incentive to deliver and quickly move to the next task. As long as quality remains high, this is a good thing.
We also factored in salary costs (i.e., if you make more than you should be bringing in more value to the company), the cost of re-work, and non-financial items that were beneficial to the company. For example, writing a white paper, giving a presentation, helping others, or even providing formal documentation on lessons learned added business value and would be rewarded. Everyone was motivated to deliver quality work products in a timely manner, help each other, and do things that promoted the growth of the company. My company prospered, and my team made good money to make that happen. Another win-win scenario.
This approach worked very well for me and was continually validated over several years. It also fostered innovation because the team was always looking for ways to increase their value and earn more money. Many tools, processes, and procedures emerged from what would otherwise be routine engagements. Those tools and procedures increased efficiency, consistency, and quality. They also made it easier to onboard new employees and incorporate an outsourced team for larger projects.
Mistakes with comp plans can be costly – due to excessive payouts and/or because they are not generating the expected results. Backtesting is one form of validation as you build a plan. Short-term incentive programs are another. Remember, without some risk, there is usually little reward, so accept that some risk must be taken to find the point where the optimal behavior is fostered and then make plan adjustments accordingly.
It can be challenging and time-consuming to identify the right things to measure, the proper number of things (measuring too many or too few will likely fall short of goals), and provide the incentives to motivate people to do what you want and need. But, if you want your business to grow and be healthy, it must be done well.
This type of work isn’t rocket science and is well within everyone’s reach.
Profitability through Operational Efficiency
In my last post, I discussed the importance of proper pricing for profitability and success. As most people know, you increase profitability by increasing revenue and/or decreasing costs. However, cost reduction does not necessarily mean slashing headcount, wages, benefits, or other factors that often negatively affect morale and cascade negatively on quality and customer satisfaction. There is often a better way.
The best businesses generally focus on repeatability and reliability, realizing that the more you do something – the better you should get at doing it well. You develop a compelling selling story based on past successes, develop a solid reference base, and have identified the sweet spot from a pricing perspective. People keep buying what you are selling, and if your pricing is right, money is available at the end of the month to fund organic growth and operational efficiency efforts.
Finding ways to increase operational efficiency is the ideal way to reduce costs, but it takes time and effort. Sometimes this is realized through increases in experience and skill. But, often optimization occurs through standardization and automation. Developing a system that works well, consistently applying it, measuring and analyzing the results, and then making changes to improve the process. An added benefit is that this approach increases quality, making your offering even more attractive.
Metrics should be collected at a “work package” level or lower (e.g., task level), which means they are related tasks at the lowest level that produce a discrete deliverable. This project management concept works whether you are manufacturing something (although a Bill of Materials may be a better analogy in this segment), building something, or creating something. This allows you to accurately create and validate cost and time estimates. When analyzing work at this level of detail, it becomes easier to identify ways to simplify or automate the process.
When I had my company, we leveraged this approach to win more business with competitive fixed-price project bids that provided healthy profit margins for us while minimizing risk for our clients. Bigger profit margins allowed us to invest in our own growth and success by funding ongoing employee training and education, innovation efforts, and international expansion, as well as experimenting with new things (products, technology, methodology, etc.) that were fun and often taught us something valuable.
Those growth activities were only possible because we focused on doing everything as efficiently and effectively as possible, learning from everything we did – good and bad, and having a tangible way to measure and prove that we were constantly improving.
Think like a CEO, act like a COO, and measure like a CFO. Do this and make a real difference in your own business!
The Importance of Proper Pricing
Pricing is one of those things that can make or break a company. Doing it right takes an understanding of your business (cost structure and growth / profitability goals), the market, your competition, and more. Doing it wrong can mean the death of your business (fast or slow), the inability to attract and retain the best talent, as well as creating a situation where you will no longer have the opportunity to reach your full potential.
These problems apply to companies of all sizes – although large organizations are often better positioned to absorb the impact of bad pricing decisions or sustain an unprofitable business unit. Understanding all possible outcomes is an important aspect of pricing related to risk and risk tolerance.
When I started my consulting company in 1999, we planned to win business by pricing our services 10%-15% lower than the competition. It was a bad plan that didn’t work. Unfortunately, this approach is something you see all too often in businesses today.
We only began to grow after increasing our prices (about 10% more than the competition) and focused on justifying that with our expertise and the value provided. We were (correctly) perceived as a premium alternative, and that positioning helped us grow.
Several years ago, I had a management consulting engagement with a small software company. The business owner told me they were “an overnight success 10 years in the making.” His concern was that they might not be able to capitalize on recent successes, so he was looking for an outside opinion.
I analyzed his business, product, customers, and competition. His largest competitor is the industry leader in this space, and products from both companies were evenly matched from a feature perspective. My client’s product even had a few key features that were better for management and compliance in Healthcare and Union environments that his larger and more popular competitor lacked. So, why weren’t they growing faster?
I found that competition was priced 400% higher for the base product. When I asked the owner, he told me their goal was to be priced 75% – 80% less than the competition. He could not explain why he did this other than to state that he believed that his customers would be unwilling to pay any more than that. His lack of confidence in his product became evident to companies interested in his solution.
He often lost head-to-head competition against that competitor, but almost never on features. Areas of concern were generally the size and profitability of the company and the risk created by each for prospects considering his product.
I shared the graph (below) with this person, explaining how proper pricing would increase their profitability and annual revenue and how both of those items would help provide customers and prospects with confidence. Moreover, this would allow the company to grow, eliminate single points of failure in key areas (Engineering and Customer Support), add features, and even spend money on marketing. Success breeds success!
In another example, I worked with the Product Manager of a large software company responsible for producing quarterly product package distributions. This work was outsourced, and each build cost approximately $50K. I asked, “What is the break-even point for each distribution?” That person replied, “There really isn’t a good way to tell.”
By the end of the day, I provided a Cost-Volume-Profit (CVP) analysis spreadsheet that showed the break-even point. Even more important, it showed the contribution margin and demonstrated there was very little operating leverage provided these products (i.e., they weren’t very profitable even if you sold many of them).
My recommendations included increasing prices (which could negatively impact sales), investing in fewer releases per year, or finding a more cost-effective way of releasing those products. Without this analysis their “business as usual” approach would have likely continued for several years.
Companies are in business to make money – pure and simple. Everything you do as a business owner or leader needs to be focused on growth. Growth is the result of a combination of factors, such as the uniqueness of the product or services provided, quality, reputation, efficiency, and repeatability. Many of these are the same factors that also drive profitability. Proper pricing can help predictably drive profitability, and having excess profits to invest can significantly impact growth.
Some customers and prospects will do everything possible to whittle your profit margins down to nothing. They are focused on their own short-term gain and not on the long-term risk created for their suppliers. Those same “frugal” companies expect to profit from their own business, so it is unreasonable to expect anything less from their suppliers.
My feeling is that “Not all business is good business,” so it is better to walk away from bad business in order to focus on the business that helps your company grow and be successful.
One of the best books on pricing I’ve ever found is “The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making” by Thomas T. Nagle and Reed K. Holden. I recommend this extremely comprehensive and practical book to anyone responsible for pricing or with P&L responsibility within an organization. It addresses the many complexities of pricing and is truly an invaluable reference.
In a future post, I will write about the metrics I use to understand efficiency and profitability. Metrics can be your best friend when optimizing pricing and maximizing profitability. This can help you create a systematic approach to business that increases efficiency, consistency, and quality.
At my company we developed a system where we know how long common tasks would take to complete, and had efficiency factors for each consultant. This allowed us to create estimates based on the type of work and the people most likely to work on the task and fix-bid the work. Our bids were competitive, and even when we were the highest-priced bid we often won because we would be the only (or one of the few) companies to guarantee prices and results. Our level of effort estimates were +/- 4%, and that helped us maintain a 40%+ minimum gross margin for every project. This analytical approach helped our business double in revenue without doubling in size.
There are many causes of poor pricing, including a lack of understanding of cost structure; Lack of understanding of the value provided by a product or service; Lack of understanding of the level of effort to create, maintain, deliver, and improve a product or service; and Lack of concern for profitability (e.g., salespeople who are paid on the size of the deal, and not on margins or profitability).
But, with a little understanding and effort, you can make small adjustments to your pricing approach and models that can have a huge impact on your business’s bottom line.
Doing it like Mike
My son is playing basketball this year (previously, he played football and soccer), and recently we went shopping for new shoes. Each store had pictures of Michael Jordan. I used to love watching MJ play with the Chicago Bulls. He was the epitome of skill and professionalism. To this day, he inspires me.
Some people are naturally talented but must still work hard to achieve their full potential. Hard work is an important aspect of being the best at anything, but it takes more than that. It takes doing things in a manner that allows you to continuously improve, as well as a positive mindset and a commitment to success. Once people reach that high-performance level, their jobs look easy, and they may even appear to be a “natural” – just like Mike. But that is just the tip of the iceberg.
Most of my career changes have been unplanned. Opportunities presented themselves, the job seemed interesting, and before I knew it, I was fully immersed in something related but different. The potential reward outweighed the real risk.
Many of these things have not come naturally to me. Each time I focused on understanding the requirements for doing the job well, then looked for examples of exceptional performance, and finally created a systematic approach that allowed me to measure performance and identify areas of improvement on an ongoing basis. From then on it was analyzing my results, thinking daily about even the smallest improvements, and then trying to do even better the next day.
Good enough was never good enough. Introspection can be challenging, so one thing that I have done is to take time to celebrate wins and intentionally focus on remembering how that feels. Those memories can be motivational in times of stress or frustration and help you get back on track quickly.
Sales have been a large part of my consulting management jobs since the mid-1990s, but it wasn’t until I owned my own company that this became a true priority. I ran across a good book, The Accidental Salesperson, by Chris Lytle. Back then, Chris Lytle had “MAX Training,” and a large part of their focus was increasing your “level” with regard to Prospect and Client relationships. The training was good and was complementary to systems like Miller Heiman.
What each of these systems do is help you prepare, plan, and execute to the best of your ability. And just like basketball, it takes practice to master. With mastery comes success and the illusion that something is easy (or you are lucky). The Seneca quote, “Luck is what happens when preparation meets opportunity,” is so true.
Regardless of the system used, what is most important is that you are trying to be the best at is to look at both positive and negative examples to see what you can learn from them. There are lessons to be learned everywhere! Understanding what makes it good or bad helps you improve as part of an ongoing improvement process.
Incorporating new tools and techniques into what has already been proven to work will help you improve your game. Returning to the sports analogy, this could be part of what made Michael Jordon so good. He would see something interesting, improve it, and then make it his own.
For example, I get many horrible sales calls and emails. The people have obviously not done any preparation, do not know anything about me or the company I work for, and often remind me of why I stopped listening to them by referring to the number of times they have tried contacting me. On the other hand, some talented sales professionals have done their homework, understand their products and the competition, and understand why what they are selling should matter to me – and can articulate that quickly and confidently. I will speak with them and occasionally buy from them. And in either case I provide my team with real-life examples of good and bad sales techniques.
So, think of the best example of whatever it is you do, and see what you can do to become more like them. This isn’t about imitation but rather about uncovering the secrets of their success and learning from them. And have some fun doing it!
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