CHAPTER 1
The Destructive Power of Boom–Bust Cycles
Is it possible to create a perpetually growing, evolving, improving sales organization, in which the alchemy of the talents and strategy create eternal gold? Or is this some crazy search for a mythical philosopher’s stone?
Before you answer, read on.
To start, let’s examine the current sales environment. Most businesses suffer from inconsistent sales results, and inconsistent responses to them. On top of the lost revenue opportunity, substantial organizational costs are incurred, including:
An overwhelming burden is placed on a few top performers, putting revenues at risk. Fewer than 25 percent of sales team members produce the largest share of revenue. If just one of those top performers fails to exceed targets, your revenue flow will be undermined. Remember the adage “putting all your eggs in one basket”? When you rely too heavily on a few top performers to produce the entire team’s quota, your eggs are going to start breaking rapidly.
Last-minute deals force concessions that ultimately undermine both top and bottom lines. When a team is in a slump, and needs to win every opportunity it can, discounts are given that erode company margins and sacrifice future profits with those customers. Once customers have tasted your desperation to get the deal done at any cost to your business, they will always demand that discount (or more) for future business. I call this vicious circle of discounting “eating your young.” (Clients call it “waiting for the fire sale.”)
Roller-coaster sales results tax an executive’s patience and responsiveness and leave investors with a lack of confidence. When this happens, panicked, expensive, and wrong decisions are made to change markets, pricing, and personnel that are not in the best long-term interests for the company. Sales executives who can’t pull their teams out of a sustained bust are always the first to be fired. Investors who witness booms and busts pull their financing or demand cutbacks to maintain profitability, regardless of the revenue attained.
It doesn’t have to be this way. Sales booms followed by busts are self-inflicted wounds. Perpetual sales booms are sustained, lasting, and replicable periods of organic sales growth. They occur when your team hits every sales target over a lengthy time frame. This has occurred in a wide variety of companies, including in large, publicly traded organizations such as Apple, Ericsson, and the Royal Bank of Canada, and in smaller, privately held companies such as home healthcare software provider Kinnser Software, sales force automation software maker Infusionsoft, and the temporary staffing company The Placement Office.
So why isn’t this the norm for most organizations? Because a fundamental shift in philosophy, moving against the grain, is required. I’m going to tell you how to get there without losing your skin in the process.
KEY CHARACTERISTICS OF BOOMING COMPANIES
Over the last 20 years I have studied top-performing sales teams and companies, and in that research I have noticed that perpetually booming companies share key characteristics. Here are five key characteristics of this very real perpetual boom alchemy at work:
1. They expand the view of the client beyond the current transaction. Perpetually booming companies expand the traditional transactional view of the client to attend to both pre-sale and post-sale activities for client development. They are accountable and measured on all phases of the client life cycle, including lead generation, closing, enablement, growth, and leverage. Think of a process, and not an event.
2. They define and refine performance metrics beyond quota. Businesses experiencing a perpetual sales boom achieve consistent results month after month by setting specific goals for specific periods. They don’t just set one revenue goal but a series of goals that measure both activity and detailed sales results. These refined goals provide the team with valuable information on performance toward targets with sufficient warning to ensure that action can be taken to correct any potential shortfall. A subtle but critical point is that each performance period is treated as stand-alone; there are no “carry forward” credits that can enable the boom and bust behavior.
3. Their sales teams are managed to ensure 80 percent or more are hitting their targets—and poor performers are coached up or out quickly. In most companies, sales leaders have learned to manage a team where less than half of the sellers hit their targets on a regular basis. In a Nonstop Sales Boom environment, on the other hand, leaders build an entire team of top performers. To do this, they get rid of their average sales reps, not merely the underachieving ones. Their tolerance level is far below what most companies will endure. I call this “Find the best, remove the rest.”
4. Their product and service lines are managed consistently. Perpetually booming companies do not fall into the trap of becoming overly reliant on one product at the expense of others. For example, companies that launch new products into an existing market and do not train their sellers effectively on these products run the risk that their sellers will ignore the new products because the older ones are easier to sell; thus they ensure the product launch is a failure. Too often, a seller’s unwillingness to sell both product lines in parallel is used as an excuse to avoid learning about new product lines and stay in their comfort zone. This is particularly dangerous because growth (selling new products to existing clients) is a key strategy for booming companies.
5. They produce results consistent with forecasts. They can reliably predict the revenue flow from their team to within 5 percent accuracy each month, quarter, and year. In fact, it is not unheard of to see a 2 percent accuracy in the forecast for the quarter.
MOVING TO A PERPETUAL BOOM: TALKSWITCH INC.
Thanks to TalkSwitch Inc.’s then vice president of sales, Tim Welch, the organization exemplified the perpetual sales boom characteristic of consistent revenue attainment. Quarter after quarter, Tim was successful in hitting his numbers, with consistent growth of both sales and market share—but it didn’t start out this way. When Tim took over the team, company targets were not being achieved and everyone was performing far below expectations of management. Changes had to be made, and fast.
First, Tim transitioned his sales team from a transaction-based focus to a relationship focus, where the prospect was more than someone with whom to close a deal and move on. Three areas of reseller–client engagement were identified and became the focus of sales efforts: lead generation (cultivating prospects for the channels); client enablement (getting the channels to sell the product); and client growth, including using clients as centers of influence to bring in new prospects.
A second key to Tim’s success was the establishment—for the first time—of a specific growth target unique to each member of his team. The key here was not to establish a single sales target for the company, but to measure multiple variables leading to the required results for the sales team and the company. Specifically, he set revenue goals for:
Each team member
Each service and product line
Each channel partner
Each month and quarter
To track progress toward those goals, Tim established activity-based key performance indicators (KPIs). These served two purposes: to provide an early-warning system so that corrective management activity could be taken in time to impact results, and to provide an ongoing stream of data to refine what activity was precisely required to achieve a particular sale as well as overall sales growth. His KPIs included:
Number of conversations
Number of resellers added
Number of referrals received
Number of new contacts per reseller added
As Tim describes it: “TalkSwitch was your typical high-tech firm run by engineers—an amazing product that needed some sales discipline to get out into the market. Colleen worked extensively with the TalkSwitch sales team as we reshaped the sales process, defined and built KPIs, implemented new tools, and measured our results. Engage Selling even recorded customer calls for us to undertake Quality Assurance and leverage coaching opportunities. Colleen’s firm approach and clear interaction with our teams resulted in a program that once built was easy to maintain and reinforce.” Tim is too kind. (Though I appreciate it!) And what he’s really referring to are the four key principles outlined in this chapter:
1. You must expand your view of the client beyond the current transaction in order to create a Nonstop Sales Boom.
2. The best companies define and refine performance metrics beyond quota to ensure they can estimate current and future revenue attainment on the team accurately.
3. Top-performing sales teams are tightly managed to ensure 80 percent or more are hitting targets (and poor performers are coached up or out quickly).
4. All product and service lines need to be rigorously and evenly managed to produce consistent results.
Yet a third approach that Tim took that few businesses undertake was to involve his sales team in setting up revenue and activity targets, and to show how attainment of these goals affected their earnings. Tim involved the team in setting these goals and ensured they understood their impact—both to each other (e.g., how activity metrics relate to the number of sales) and to the team’s commissions.
With the rollout of these goals, Tim held his team accountable through one-on-one coaching, regular sales meetings, and executive meetings centered on the KPIs and the sales pipeline. The replacement of a sales automation software with an online CRM tool enabled immediate measurements of the KPIs and pipeline. The power of activity-related metrics is that they provide sales management with early indicators so that remedial action can be taken to either improve results or to identify team members who need to be managed out of the organization.
As the team began achieving their KPIs, revenue started to flow and sizable commissions followed. Their success cemented buy-in from all levels of management and the sales team itself.
The result of this transformation was that within a year, Tim’s team consistently achieved their sales targets, month after month, and for two years each successive quarter was their best yet. In short, they had achieved a perpetual sales boom!
SALES BUST CYCLES
Sales busts are defined as sales failures or flops. They happen when sellers—individuals or teams—fail to hit their expected monthly, quarterly, or annual sales target, and in the most extreme cases cause a company to lose money over a set reporting period. And they most commonly happen immediately following a boom period. Why? Because during the boom, sellers become complacent and ignore all activities required to create future opportunities in favor of closing all the opportunities they can immediately. As a result, a great month is followed by a dismal month, or a record period is followed by a dramatic crash, a bust, in revenue.
There are three types of sales bust cycle: sales cramming, the sales trap, and unidentified failing objectives. Every one of them is invidious and potentially fatal.
Sales Cramming
Remember “cramming” in school? You tried to compress three months of preparatory work into 24 hours of nightmarish tension, and you were lucky to scrape by with a barely passing grade. Why would you subject yourself to that repeatedly as part of your career—constant stress to be mediocre at best?
Sales cramming is caused by a sales team habitually closing little to no revenue in the early stages of a reporting period, and slowly starting to bring in more until a steep revenue jump occurs (see Figure 1–1).
This flat period is caused by sales teams that are:
Resting from the busy end of their previous sales period. When members of a team cram in March to make their numbers by overworking, they are exhausted and coast for the first few weeks of April. Plus, they have come to believe that they can “make magic happen” at the end of the quarter, so why work now? These people need an energy drink.
Processing all the clients from the previous month. There are so many clients needing products, scheduling, and services that sellers are distracted by servicing them, rather than by their empty pipeline that needs filling. These people need calm.
Prospecting because their funnel is dry. At the end of the quarter it is common for team members to have nothing left in their sales pipelines because everything has been won or lost or beaten to death. As a result, the first two months of the next quarter are spent finding sales-ready leads to close at the end of the period. These people need a compass.
On vacation! Because you can’t go away at the end of the period. Vacations are more prominent at the beginning of the quarter and often disallowed at the end of the quarter. These people need better scheduling.
Reorganizing, because the start of the period is always a good time to reorganize files, territories, desks, pipelines, sales processes, or compensation plans. These people need organization.
In training meetings, account review sessions, quarterly business review, and all other internal business meetings that were put off because it was the end of the month or quarter the previous week. These people need a break.
As the period lumbers on, revenue trickles in skewing upward as cramming starts.
One year, during a New Year’s Eve dinner party at our house, my best friend was monitoring her email for deals closing until a minute before midnight. Our dinner guests applauded her for being a real trouper. I quietly wondered, “Why weren’t those deals closed two weeks ago?”
Of course, in another minute she was going to be a “loser” again, far behind her goals on January 1!
The Sales Trap
The Sales Trap is a product of a seller delivering inconsistent revenue production through several reporting periods. Characteristically, a great quarter is followed by a dismal quarter (see Figure 1–2).
As you can see, the seller delivered 130 percent quota attainment one quarter, 50 percent the next, 60 percent in quarter three, and finally back at target (100 percent) in the final quarter of the year.
Aside from inconsistency in revenue production (and commissions), the Sales Trap also leads to a more serious issue because record-setting or on-track reporting periods are followed by several poor performance periods. The reason? It’s difficult to dig yourself out of the hole and get forward momentum rolling again.
Quite often in my consulting practice, I see companies deliver a record month followed by a dismal month, a barely surviving month, and a passable month—all before getting back to hitting or exceeding their targets. That inconsistency can be a sales organization killer.
Here’s a classic example of the Sales Trap. The company’s target was $100,000 per month. If sellers hit the goal each quarter, commissions doubled. The results were as follows:
Record January at two times goal
Poor February at 10 percent of goal
Subpar March at 50 percent of goal
Slightly better April at 70 percent of goal
May at goal
June at goal
Look at the results in Figure 1–3 and compare them to the seller’s goals.
For the seller, being behind at the end of June meant the difference between receiving his regular commission and an accelerated commission. Using the numbers above, the seller ultimately earned a 10 percent commission level (i.e., $53,000) rather than the accelerated commission of 20 percent (i.e., $120,000) that would have been received had he achieved his goal for the first six months.
Figure 1–3. The Results of Falling into a Sales Trap
If you’re a seller, you can see why the Sales Trap is troubling. If you’re a sales leader, the Sales Trap is potentially deadly for four reasons:
1. If your team is not hitting its sales goals and making full commissions, neither are you!
2. Goal attainment is linked to voluntary and involuntary turnover. A 2008 Sales Executive Council report (“Improving Sales Performance Through Effective Manager Coaching”) shows that sales reps achieving 90 percent or less of their sales goal have a voluntarily turnover rate that is four times higher than those over 90 percent of goal attainment.
3. If your sales team is failing, or if you consistently allow them to miss quota, then you’re complicit in their failure. And if your boss believes that you are complicit in your team’s failure, you will be replaced. Sales results start at the top. My research shows that the average “nonvoluntary” turnover rate for sales leaders in the United States is 16 months.
4. If your team is not producing consistent revenue results, resource allocation for sales tools, marketing projects, travel, and events will be held back. Companies that experience two months in a row or more of lower than anticipated results will routinely ground travel, cancel client events, and shut down marketing programs. Spending will be held back until the company is confident that it will hit its sales targets.
Unidentified Failing Objectives
We define the characteristic of unidentified failing objectives, or UFOs, as I like to call them, as inconsistent sales performance, reporting period after reporting period, by individual reps or multiple teams. Essentially, everyone is in the Sales Trap, but never in sync with each other.
Having UFO sales performance is a particularly unique challenge because it can occur even when overall revenue is consistently above target. In other words, a high-performing group may make up for losses in another group. That might not sound like a big problem, but if one group or division is thriving while another is suffering, you will:
Never meet your total potential.
Lose sales and market share opportunities in the failing territory or division.
Create a culture of poor performance that eventually migrates to other divisions.
Companies that display UFO symptoms generally allow languishing people or departments to suffer for too long. The reason for that tolerance is often due to focusing on overall results rather than specific performance metrics. As a result, underperformers may be hidden and sometimes protected. This can cause profits to erode, market share to decline, and reputation in the market to be tarnished.
Recently I witnessed the heartbreak of a company discovering too late it was heading for a massive sales bust because of UFO characteristics. The CEO called us in to examine the company’s sales situation because he had a hunch something was wrong but could not put his finger on it. For me, the situation was obvious as soon as I opened up his database and took a deep, thorough look at the pipeline.
The company had two lines of business managed by two sales teams and one overall sales leader. Team One had great long-term prospects with large annuity-type deals that were contracted over multiple years. Team Two provided short-term quick revenue with high profit and repeat orders from existing clients.
Team One closed a two-year deal that provided profit to the company, while also building its sales funnel. Team Two had a sales funnel that was half the size required for moderate success, and had not closed a sale in four months. However, the VP of sales had stopped paying attention to that team’s results because Team One was more or less funding the company.
Eventually, the VP of sales discovered Team Two’s problem, but it was too late to make any progress on the year’s revenue attainment. Even worse, when I began working with the CEO to dig into that team’s pipeline, we discovered that more than two-thirds of the pipeline was outdated or duplicated. That left only 10 percent of the opportunities that Team Two realistically needed to successfully close the year, and it only had three months of selling remaining. In the end, the VP of sales and Team Two lost their jobs and were replaced during a 12-month rebuilding process.
FOURTEEN REASONS WHY BOOM AND BUST CYCLES ARE UNNATURAL AND DAMAGING
Our research and experience has shown that, left unaddressed, boom and bust cycles will negatively impact your company in 14 distinct ways. These cycles are often accepted as “necessary evils,” but there is no circumstance under which a company can remain healthy with the following 14 damaging symptoms:
1. Sales rep stress. Busts are difficult to recover from because a sales pipeline takes time to replenish and this means time with low or no sales (and, of course, no commissions). Filling the pipeline takes half the time of the total sales cycle. So, for a company with a six-month sales cycle, three months are spent filling the pipeline to the point where proposals are sent and forecasts are created. That’s 90 days of prospecting work with no commissions being paid!
2. Sales rep exhaustion. If the team has been cramming, they will be exhausted. As a result, little work is done, or often even encouraged in the first week of the quarter. Vacation time is encouraged and many sales VPs give extra time off in the first few days of the quarter to ensure a team is well rested after a difficult period. Recently, I worked with an inside sales leader who gave his whole team a day off the first day back after an exceptional quarter ended. While this seems like a good reward, it put the team almost $25,000 in a revenue hole in one day due to their highly transactional nature. Of course, that revenue had to be made up at the end of the quarter, resulting in cramming.
3. Administration overload. Sellers who ignore internal meetings, training sessions, or administration tasks during the last month of the quarter will have to make up for them during the first month of the following quarter. I remember once, as a sales director, walking the floor the first week of the month to find my entire team was engaged in nonsales activities, including filling out lost luggage claim forms, in the middle of the day! Every week that goes by without activity is a week that must be made up in order for the seller to hit targets. That week is usually made up at the end of the quarter through cramming—thus creating the same trend the next quarter.
4. Emotional contagion. Sellers who are struggling are contagious because they are louder, talk about their struggles more often, and blame others voraciously. Those who are doing well run the risk of being dragged down by those who are not, and even top performers will eventually be dragged down into poor performance when the bottom performers are allowed to stay in their jobs too long.
5. Emotional decision making. Desperate salespeople close desperate business. My first boss in technology sales once said to me, “If you think they are awful to deal with now, just imagine what they will be like after they pay us. Bad prospects do not grow old gracefully!” Most sellers have experienced the gut feeling of “I should not sell to this prospect” at least once in their career but choose to ignore it because they desperately need the business to meet their quota. It is impossible for a seller who is behind to walk away from the only potential close in her pipeline.
Sadly, if the situation is bad enough, salespeople may also lie and cheat the system to get deals done. One of our clients shared with us his past experience:
“One of my first jobs in sales was working as a rep for a large manufacturer of printers. I can still remember the day I made my first sale of a brand new printer to an international organization supporting people with sight disabilities. When I told my manager the particulars of the sale, he ordered me to send the client a used printer instead of a new one because, ‘It’s the only one we have in stock now that can be counted toward a sale this month and they won’t be able to see the difference!’ ”
6. Delayed buying decisions. When sellers are cramming, deep discounts are given to clients to secure deals at the end of the quarter. As a result these buyers know to wait until the end of the next quarter to buy again. You have trained them into this behavior. A vicious and self-inflicted cycle is created because the discounted price becomes the baseline price for these clients in the future. If you offered them 20 percent off for buying now, when they reorder next quarter what do they expect? Exactly! Twenty percent off that 20 percent discount. You have just created an unprofitable customer.
7. Management turnover and firings. Consistent revenue is critical to consistent profits and shareholder value. If the sales manager cannot provide this, he or she will be fired. My research shows that the average retention of sales management in North America is 16 months; you can be sure that senior leadership is scrutinizing every month of revenue to make sure the problem is not at the top. The most likely sales leaders to succeed are those who communicate a plan for consistent revenue, stick to that plan, and hit it with accuracy (or exceed it).
8. Stock price drops. If your sales organization fails to produce consistent revenue numbers, sales management and sales team income may be impacted negatively and the company’s stock price will likely be devalued. A devalued stock price for most companies means reduction in spending to get profits back on track. When this happens, travel is curtailed, marketing budgets are frozen, and client events are cancelled.
9. Internecine conflict. When personal income is cut due to reduced commissions, the team becomes disheartened and frustrated. While they may know that their behavior and lack of activity is responsible for the reduction, they will blame the company first. Internecine conflict erupts when Sales blames Marketing for poor leads, Accounting for bad billing, Customer Services for angering clients, and Shipping for messing up orders. Once communication breaks down between departments, it can take months to rebuild profitability. At a large Canadian company, the marketing department shut off the flow of leads to an inside sales team due to the internecine conflict that started between a poor-performing sales team and a new marketing VP. It took five months, a structural reorganization, and a new sales manager to restart the sales lead lifeline.
10. Decreased client onboarding effectiveness. As customers get stacked up unevenly, it becomes nearly impossible to onboard them smoothly. They “stack up” like logs outside a mill, and often wind up on the same buzz saws.
11. Reduced client leverage. Boom and bust cycles will impact the seller’s ability to leverage client successes as customers are ignored during busy periods. During busy boom cycles, sellers tend to ignore current clients in favor of the new prospects. Ignoring current customers during a boom cycle, though, is a quick way to create a bust. This lack of attention during the boom time is exactly what leads to attrition. When your customers leave, you not only lose the immediate income but your ability to leverage those clients for use in case studies and for referrals.
12. Missed opportunities. During especially busy times, sales reps and their managers tend to bury their heads in the work that feels most urgent. Typically, this means they are solely focused on chasing down leads and closing deals. As a result, they often miss huge future (and longer-term) revenue opportunities.
13. Lack of long-term planning. Because bust cycles make it difficult to understand where a seller’s successes are coming from and when they are going to be successful, it can be very challenging to plan ahead.
14. Incredible inefficiency. Poorly performing resources or team members are often hidden by the top performers. As a result, companies tend to hold on to them, preventing the business from being as efficient or successful as it could be.
Unlike roller coasters, successful sales don’t depend on deep troughs to build momentum to climb the next hill. In the next chapter we’ll take a look at how to generate speed without taking dips.