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Shouldn’t Sales Forecasting be Easy? What about Accuracy?
I’m sure that everyone has read articles that state some “facts” for managing your “sales pipeline” or “sales funnel.” Things like needing 10x-30x of your goal at the start of the process, down to needing 2x-3x coverage at the start of a quarter to help increase your odds of achieving your goal. Now, if it was only that easy…
First, what are you measuring? The answer to this question is something that anyone with a sales quota should be able to succinctly answer. For example, are you measuring?
- Bookings – Finalized Sales Orders
- What happens when Sales Operations, Finance, or Legal push back on a deal? You have a PO, but has the deal really been closed?
- Billings – Invoicing Completed
- This includes dependencies that have the potential to introduce delays that may be unexpected and/or outside of your control.
- Revenue – An in-depth understanding of Revenue Recognition rules is key.
- How much revenue is recognized and when it is recognized varies based on a variety of factors, such as:
- Is revenue Accrued or Deferred? This is especially key for multi-year prepaid deals.
- Is revenue recognized all at once – such as for the sale of Perpetual Software Licenses? (even this is not always black and white)
- Is revenue recognized over time – such as with annual subscriptions that are ratable on a monthly basis?
- Is revenue based on work completed / percentage of completion? This is more common with Services and Construction. Combining contracts, such as selling custom consulting services with a new product license, can complicate this.
- Are there clauses in a non-standard agreement that will negatively affect revenue recognition? This is where your Legal team becomes an invaluable contributor to your success.
- Cash Flow – Is this really Sales forecasting?
- The answer is ‘no’ in terms of Accounting rules and guidance.
- But, if you have a start-up or small business, this can be key to “keeping the lights on,” in which case the types of deals and their structure will be biased towards cash flow enhancement and/or goals.
- How much revenue is recognized and when it is recognized varies based on a variety of factors, such as:
My advice is to work closely with your CFO, Finance Team, Sales Operations Team, and Legal team to understand the goals and guidelines and then take that one step further to create policies that are approved by those stakeholders and are then shared with the Sales team to avoid any ambiguity around process and expectations.
So, now the hard part is over, right?
It could be that easy if you only have one well-established product, a stable install base, and no real competitive threats, where the rate of growth or decline is on a steady and predictable path and where pricing and average deal sizes are consistent. I have not seen a business like that yet, but I would have to believe that at least a few exist.
Next, what are you building into your model to maximize accuracy? Every product or service offered may be driven by independent factors, so a flat model that evenly distributes sales over time (monthly or quarterly) is just begging to be inaccurate. For example:
- One product line that sells perpetual licenses may depend on release cycles every 18-36 months.
- A second product line may be driven mainly by renewals and expansion on fairly stable timelines and billings.
- A third product line may be new with no track record and in a competitive space – meaning that even the best projections will be speculative.
- Finally, services could be associated with each product line and driven by more dependent and independent factors (new implementations, upgrades, implementing new features, platform changes and modernization, routine engagements, training, etc.)
Historical trends are one important factor to consider, especially because they tend to be the things you have the greatest control over. This starts with high-level sales conversion rates and goes down to average sales cycle, seasonal trends, organic growth rates, churn rates, and more. Having accurate data over time that can be accurately correlated is extremely helpful. But factors such as Product SKU changes, licensing model changes, new product bundles, etc., increase the complexity of that effort and potentially decrease the accuracy of your results.
Correlating those trends to external factors, such as overall growth of the market, relative growth of competitors, economic indicators, corporate indicators (profits, earns per share, distributions, various ratios, ratings, etc.), commodity and futures prices (especially if you install base tends to skew towards something like the Petroleum Industry), specific events, and so forth can be a great sanity check.
The best case is that those correlations increase your forecasting accuracy for the entire year. In all likelihood, they provide valuable inputs that allow you to dynamically adjust sales plans as needed to ensure overall success. But, making those changes should not be done in a vacuum, and communicating the potential need for changes like that should be done at the earliest point where you have a fair degree of confidence that change is needed.
There will always be unexpected events that negatively impact your plans. Changes to staffing or the competitive landscape, reputational changes, economic changes, etc., can all occur quickly and with “little notice.” That is especially true if you are not actively looking for those subtle indicators (leading and trailing) and nuances that place a spotlight on potential problems and give you time to do as much as possible to proactively address them. Be prepared and have a contingency plan!
Forecasting accuracy drives confidence, which leads to the ability to do things like getting funding for new campaigns or initiatives. Surprises, even positive ones, are generally disliked simply because the results are different than the expectations, which begins to fuel other doubts and concerns.
Confidence comes from understanding, good planning, helping everyone with a quota, and the teams supporting them to do what is needed when it is needed to optimize the process and then to have an effective approach to determine whether deals really are on track or not so that you can provide guidance and assistance before it is too late.
It may not be easy, but it is the thing that helps drive companies to the next level on a sustainable growth trajectory. In the end, that matters the most to the stakeholders of any business.
As an aside, myriad rules, regulations, and guidance statements are provided by various sources that apply to each business scenario. I am neither an Accountant nor an Attorney, so consult with the appropriate people within your organization or industry as part of your routine due diligence.
IoT and Vendor Lock-in
I was researching an idea last weekend and stumbled across something unexpected. My view on IoT has been that it provides a framework to support a rich ecosystem of hardware and software products. That flexibility and extensibility foster innovation, which fosters greater use and adoption of the best products. It was quite a surprise to discover that IoT was being used to do just the opposite.
My initial finding was a YouTube video about “Tractor Hacking” to allow farmers to make their own repairs. That seemed like an odd video to appear in my search results, but it made sense midway or so through the video. There is a discussion about not having access to software, replacement components not working because they are not registered with that tractor’s serial number, and that the only alternative is costly transportation of the equipment to a Dealership to have a costly component installed.
I initially thought there had to be more to the story, as I found it hard to believe that a major vendor in any industry would intentionally do something like this. That led me to an article from nearly two years earlier that contained the following:
“IoT to completely transform their business model” and
“John Deere was looking for ways to change their business model and extend their products and service offering, allowing for a more constant flow of revenue from a single customer. The IoT allows them to do just that.”
That article closed with the assertion:
“Moreover, only allowing John Deere products access to the ecosystem creates a buyer lock-in for the farmers. Once they own John Deere equipment and make use of their services, it will be very expensive to switch to another supplier, thus strengthening John Deere’s strategic position.”
While any technology – especially platforms, has the potential for vendor lock-in, the majority of vendors offer some form of openness, such as:
- Supporting open standards, APIs, and processes that support portability and third-party product access.
- Provide simple ways to unload your data in at least one of several commonly used non-proprietary formats.
Some buyers may deliberately implement systems that support non-standard technology and extensions because they believe the long-term benefits of a tightly coupled system outweigh the risks of being locked into a vendor’s proprietary stack. But, there are almost always several competitive options available, so it is a fully informed decision.
Less technology-savvy buyers may never even consider asking questions like this when purchasing. Even technologically savvy people may not consider IoT a key component of some everyday items, failing to recognize the implications of a closed system for their purchase. It will be interesting to see if this deliberate business strategy changes due to competitive pressure, social pressure, or legislation over the coming years.
In the meantime, the principle of caveat emptor may be truer than ever in this age of connected everything and the Internet of Things.
The Value Created by a Strong Team
I participated in an amazing team-building exercise as a Board Member for the Children’s Hospital Foundation of Wisconsin. We were going down a path that led to a decision on whether or not to invest $150M in a new addition. The CEO at the time, Jon Vice, wisely determined that strong teams were needed for each committee in order to thoroughly vet the idea from every possible perspective.
The process started with being given a book to read (“Now, Discover Your Strengths” by Marcus Buckingham & Donald O. Clifton, Ph.D.) and then completing the “Strengthsfinder” assessment using a code provided in the book. The goal was to understand gaps in perception (how you view yourself vs. how others view you) so that you could truly understand your own strengths and weaknesses. Then, teams were created with people having complementary skills to help eliminate weaknesses from the overall team perspective. The results were impressive.
Over my career, I have been involved in many team-building exercises and events – some of which provided useful insights. However, most failed to combine the findings meaningfully, provide useful context, or offer actionable recommendations. Key areas that were consistently omitted were Organizational Culture, Organizational Politics, and Leadership. Those three areas significantly impact value creation vis-à-vis team effectiveness and commitment.
When I had my consulting company, we had a small core team of business and technology consultants and would leverage subcontractors and an outsourcing company to allow us to take on more concurrent projects as well as larger, more complex projects. This approach worked for three reasons:
- We had developed a High-Performance Culture that was based on:
- Purpose: A common vision of success, understanding why that mattered, and understanding how that was defined and measured.
- Ownership: Taking responsibility for something and being accountable for the outcome. This included responsibility for the extended team of contractors. Standardized procedures helped ensure consistency and make it easier for each person to accept responsibility for “their team.”
- Trust: Everyone understood that they not only needed to trust and support each other, but in order to be effective and responsive, the others would need to trust their judgment. If there was a concern, we would focus on the context and process improvements to understand what happened and implement changes based on lessons learned. Personal attacks were avoided for the good of the entire team.
- Empowerment: Everyone understood that there was risk associated with decision-making while at the same time realizing that delaying an important decision could be costly and create more risk. Therefore, it was incumbent upon each member to make good decisions as needed and then communicate changes to the rest of the team.
- Clear and Open Communication: The people on the team were very transparent and honest. When there was an issue, they would attempt to resolve it first with that person and then escalate if they could not reach an agreement and decided to seek the team’s consensus. Everything was out in the open and done in the spirit of being constructive and collaborating. Divisiveness is the antithesis of this tenet.
People who were not a good fit would quickly wash out, so our core team consisted of trusted experts. A friendly competition helped raise the bar for the entire team, but when needed, the other team members became a safety net for each other.
We were all focused on the same goal, and everyone realized that the only way to be successful was to work together for the team’s success. Win or lose, we did it together. The strength of our team created tremendous value – internally and for our customers that we sustained for several years. That value included innovation, higher levels of productivity and profitability, and an extremely high success rate.
This approach can work at any level but is most effective when it starts at the top. When employees see their company leaders behaving in this manner, it provides the model and sets expectations for everyone under them. If there is dysfunction within an organization, it often starts at the top – by promoting or accepting behaviors that do not benefit the whole of the organization. But, with a strong and positive organizational culture, the value of strong teams is multiplied and becomes an incredible competitive advantage.
Good Article on Why AI Projects Fail
Today I ran across this very good article as it focused on lessons learned, which potentially helps everyone interested in these topics. It contained a good mix of problems at a non-technical level.
Below is the link to the article and commentary on the Top 3 items listed from my perspective.
https://www.cio.com/article/3429177/6-reasons-why-ai-projects-fail.html
Item #1:
The article discusses how the “problem” being evaluated was misstated using technical terms. At least some of these efforts are conducted “in a vacuum.” Given the cost and strategic importance of getting these early-adopter AI projects right, that was a surprise.
In Sales and Marketing, you start the question, “What problem are we trying to solve?” and evolve that to, “How would customers or prospects describe this problem in their own words?” Without that understanding, you can neither initially vet the solution nor quickly qualify the need for your solution when speaking with those customers or prospects. That leaves room for error when transitioning from strategy to execution.
Increased collaboration with Business would likely have helped. This was touched on at the end of the article under “Cultural challenges,” but the importance seemed to be downplayed. Lessons learned are valuable – especially when you are able to learn from the mistakes of others. This should have been called out early as a major lesson learned.
Item #2:
This second area had to do with the perspective of the data, whether that was the angle of the subject in photographs (overhead from a drone vs horizontal from the shoreline) or the type of customer data evaluated (such as from a single source) used to train the ML algorithm.
That was interesting because assumptions may have played a part in overlooking other aspects of the problem, or the teams may have been overly confident about obtaining the correct results using the data available. In the examples cited, those teams figured out those problems and took corrective action. A follow-up article describing the process used to determine the root cause in each case would be very interesting.
As an aside, from my perspective, this is why Explainable AI is so important. Sometimes, you just don’t know what you don’t know (the unknown unknowns). Understanding why and on what the AI is basing its decisions should help with providing better quality curated data up-front, as well as identifying potential drifts in the wrong direction while it is still early enough to make corrections without impacting deadlines or deliverables.
Item #3:
This didn’t surprise me but should be a cause for concern as advances are made at faster rates, and potentially less validation is made as organizations race to be first to market with some AI-based competitive advantage. The last paragraph under ‘Training data bias’ stated that based on a PWC survey, “only 25 percent of respondents said they would prioritize the ethical implications of an AI solution before implementing it.”
Bonus Item:
The discussion about the value of unstructured data was very interesting, especially when you consider:
- The potential for NLU (natural language understanding) products in conjunction with ML and AI.
- This is a great NLU-pipeline diagram from North Side Inc. in Canada, one of the pioneers in this space.
- The importance of semantic data analysis relative to any ML effort.
- The incredible value that products like MarkLogic’s database or Franz’s AllegroGraph provide over standard Analytics Database products.
- I personally believe that the biggest exception to this assertion will be from GPU databases (like OmniSci) that easily handle streaming data, can accomplish extreme computational feats well beyond those of traditional CPU-based products, and have geospatial capabilities that provide an additional dimension of insight to the problem being solved.
Update: This is a link to a related article that discusses trends in areas of implementation, important considerations, and the potential ROI of AI projects: https://www.fastcompany.com/90387050/reduce-the-hype-and-find-a-plan-how-to-adopt-an-ai-strategy
This is definitely an exciting space that will experience significant growth over the next 3-5 years. The more information, experiences, and lessons learned are shared, the better it will be for everyone.
Apollo 11 50th Anniversary – Interesting photos & article link
I still remember my parents letting me stay up late to watch the first moonwalk. It was 9:30 pm, I was 5 years old, and we were huddled around an old “black and white” television with a circular viewing area. My parents tried to convey how important and monumental that moment was – telling me I would tell my children this story someday.
What I remember most was being amazed at seeing the astronauts hop around easily 
and not understating how that could be. We had watched the launch on TV and were getting updates nightly from Walter Cronkite on the evening news. Normally my dad would sit at a TV table to eat dinner and watch the news as my mom sat with my sister and me at our kitchen table, but this week was different.
With all of the news this past week on the 50th 
Anniversary of the first moonwalk, it triggered a couple of memories. One of them was that I purchased a collectible item in 2005 at the annual Children’s Circle of Care leadership conference in San Diego, CA. A luncheon was held on the USS Midway Museum deck, and afterward, I took a tour. It is an incredible place to visit if you are ever near San Diego.
Before leaving that day, I went to the gift shop to get my wife and children a few trinkets. What I found was a beautiful display, which I immediately purchased and shipped home. This display was taken to school a couple of times for “show and tell.” It hung on my office wall for 3 years and then went into storage with other artwork. It then sat for the past decade, and I almost forgot it.
To me, this display is both beautiful to see and very inspirational as well. Human creativity is an incredible thing! As an aside, I have never seen anything like this display, so I thought I would share it with you.
Today I also ran across a good article regarding this event that provided information I had not seen before. It is very interesting and can be found here: https://go.usa.gov/xyVGh
Edit: This was another good article that discusses the advanced flight control computer used at the time – https://www.linkedin.com/pulse/apollo-11-moon-landings-fourth-crew-member-computer-far-fishman/
This anniversary is a great reminder of the power of individuals, teams, and partnerships when they are mission-focused. I find people like the men and women of NASA to be extremely motivational, and the few I have met have all been very friendly people. They are the humble heroes!
Where Ideas, Experiences, and Lessons Learned Intersect 