Putting the Science in Sales Management

Sales management is the only business function where all the research and innovation has been exclusively the domain of businesses and not academics. Selling may be an art, but sales management is a science. Every other business function has extensive academic research and you can have advanced degrees in marketing, psychology and behavioral economics which are arguably less predictable than sales processes especially large scale enterprise selling. Yet there are less than 1% of universities with bachelor or masters degrees in sales management and only 1 of the top 100 colleges (Purdue). There are few Professors of Sales Management and very few PhDs. In fact, a recent Harvard Business School Review article argued for the need to treat sales management with the same scientific rigor as marketing, HR or other corporate functions studying interpersonal processes.

Any of us working with large enterprise sales teams know the level of sophistication, analytics, regression analysis and even machine learning that goes into anticipating human behavior. Not just predicting buying patterns of customers but also anticipating systemic mistakes of the sales force, like overusing certain tactics (product demonstrations) while avoiding others (business case development, board-level selling, etc). Great sales management understands that certain activities have higher correlation to closing than others and work for some customer segments in certain industries in certain economic cycles. They understand and measure the buying behavior of the given group of executives making a decision which would vary account by account. They analyze the recurring bias of overly optimistic or conservative sales teams and normalize based on past forecast performance.

Science of sales management can account for the sales velocity differences given the buyer’s executive power and the industry they operate in. They have big data sets knowing all their customer’s past purchases, competitive landscape, the client’s business pressures and business performance against their peers. All of these factors can provide predictive set of activities as next steps for the sales force with much higher propensity to close.

A scientific sales management team would not tell their sales force to “make more calls” to grow sales. They would tell them to “call customers A, D, F and Z offer to improve their in-store sales by 11% because historically those customers underperform their peers in that area and that they use an old technology that does not allow for sensor based traffic and e-commerce up-sell of in-store customers”. And they would do it based on the data they are tracking about customers, sales and the market.

We as a profession have all the data, analytics and AI we need to operate at this level and beyond. It is time for academia to catch up.

5 Hard Things to Get Right in Business Development

The advantage of attending large tech conferences with a mix of startups and big companies is that the views on business development vary by the experience of the BD team regardless whether the company is big or small. Quite a few enterprises are great at partnerships while many startups fail to successfully pivot from an established play to new ones. Some companies are outstanding at managing current business (sales and incremental product development) but have trouble implementing ideas for growth. Others are in a constant mode of ideation with shifting value propositions for both products and partnerships with inconsistent results.

I noticed some common threads among BD leaders who consider themselves successful by internal or customer standards vs those who do not. This is by no means a research based study, however this evolving shortlist I keep finding as a useful guide. Your insights are welcome.

THE 5 HARD THINGS TO GET RIGHT IN BUSINESS DEVELOPMENT

(1) BD’s primary purpose is to launch new business models

BD teams should only exist for one reason: to develop new business models. A new model is needed when any element of the existing model needs to change.This could be new types of customer behaviors, new influences, new emerging channels or new revenue models that the business cannot effectively address with current capabilities. (A good definition of the elements of a business model can be found in Alex Osterwalder’s Business Model Canvas).

There is a universal confusion about the right role of business development. In some companies they are channel sales teams with non-quota targets, in others they are extensions of marketing teams targeting a new kind of buying influence or behavior. Sometimes R&D teams working on product integration with partners. Unless the current business model does not address customer needs or the external teams are not our usual partners, such responsibilities can be handled by current sales and marketing functions. Introducing new products, pricing or product features to existing customers or current development partners does NOT require business development teams.

However, if new buying influences, channels, revenue models surface that the sales/marketing teams cannot successfully engage, then a new BD team must be launched. At the same time the existing sales/channel and marketing teams should continue maximizing engagement and results from current relationships.

(2) Decide what role partnerships play in your growth

It is surprising how many companies are unclear about what is shifting in their competitive environment that needs new types of partnerships. Given limited resources it is always a key decision. These could be technology partnerships (cloud platform, joint development, licensing etc), marketing partnerships (co-branding, co-marketing) or sales partnerships (channel). Some may assume the product features introduced by the competition is the threat and begin engaging with developers (B2D). At the same time it is possible that the fundamental shift had to do with business model change and the competitor focused its value proposition to CROs (sales chiefs) who your firm does not cover instead of the CIO who your sales and marketing resources are engaging. Whenever CROs have more decision power or influence than your CIO customer over your products your business will be at risk, unless you develop ALL elements of the new business model (a new value proposition, a new channel, new revenue models, new partners, etc).

It is important to estimate the upside and cost of each type of potential partnership and start with the one the business sees highest potential in or the greater risk. For example if all your business relies on your Microsoft platform partnership and your competitors move to cloud or other platforms, how much revenue is at risk? If you make the same change how much more market share can you capture? At what cost? The same is the question for new types of influencers, decision makers. Make your best guess and start piloting. Pursue building the new partnership type with the greatest potential in terms your business sees it, e.g. revenue, risk, cost. Then pivot if needed (point below).

(3) Know when to pilot, when to standardize and when to scale

Most strategic plans and business models will be wrong. Deal with it. Therefore we need to start piloting the partnership option with the highest potential in our current business terms. Measure leading indicators of success like number of partner meetings, MOUs, pilot engagements, proofs of concepts. This is our pilot stage. We need to see some consistent responses from our partners on the pitch, the value proposition, the product/solution and the willingness for them to have POC projects. Set a timeline for our pilot stage. If our metrics do not improve it is time to go back to the drawing board. We need consistent feedback from 8-10 different customers from different  segments of our business before we can move on. But do not wait for 100 confirmations.

Once the partner feedback is consistent, we can move to a Standardization stage. This stage creates the actual business model that is repeatable and can be integrated into the core business. Decide what part of the offering, pitch and product can be standardized and what is not essential. Simplify and retest with the partners and customers. Run a period of tests with the standardized offering and measure the results. For example, standardize your first meeting deck, your pricing, your product APIs, etc.

If the new business model is stable, it can be handed over to the core business and let sales/marketing or R&D integrate it into their own offerings. The core business should be responsible for the Scale phase of any business model.

(4) Measure the right results and pivot often

Business development is NOT sales without quota. There need to be rigorous metrics in place to measure each of the above stages of business model development. There should be continuous improvement in whatever metrics we pick. If it is first meetings, there should be an uptrend. If it is POCs, signed partnership agreements, OEM agreements or API integrations, ditto. If the numbers do not improve then we need to pivot and find out what is happening. Which of our assumptions were wrong? Did something change in the market?

Adjust the game plan and try again. Experimentation and pivoting should have a time-box. If metrics do not improve with 2-3 pivots it may be time to move onto a different kind of partner, value proposition, pricing or product integration. It is key to remember that KPIs will move slower than in the fine-tuned core business. As a rule of thumb, if a core business makes course corrections every 2-3 quarters, business development should have a review cycle that matches that culture no matter how initial executive expectations were set. Prepare to be reviewed at the same cadence for success. Patience and what waiting period is normal for “things to succeed” seems ingrained in the culture. Be ready for it.

(5) Pick passionate teams with sales, product and networking skills

To pilot business models the BD team needs to have good balance of sales, product and networking skills. While a soft skill, networking is the most critical. The team will be working with new types of partners that our firm does not interact with or have a great track record with. Getting sustained access to them as we listen, hone our value proposition and work out our solution requires unique persistence and interpersonal skills. The same skill could be used internally as well. The BD team will need to network broad and deep in the company and its current partners and customers to garner the support for the ideas and suggested changes. The deep sales and product expertise can balance the enthusiasm with the realities of the existing of the core business and the knowledge of how things work and what can be successful.

Passion for the business model design should be a prerequisite. Pivoting a lot until the right model is found can be viewed as many small failures. And they are. It takes a certain team makeup to sustain enthusiasm in the early days to persist. Passion is also critical with partners and customers when we do not yet have all the answers, solutions or ideas. But have the commitment to bring it, no matter what.

The Art and Science of Managing Business Development

I’m at a global technology conference with hundreds of small and large companies. I connected with many of my business development peers from banks, technology companies and consulting firms to chat about how to run business development better.

BUSINESS DEVELOPMENT’S JOB IS TO PILOT NEW BUSINESS MODELS

Many companies are unclear about the role or the right measurement of business development and miss the opportunities for effectively launching new channels or new types of products. Business development should be the engine of business model development especially in fast moving businesses. No new or transformational strategy can be immediately unleashed on the core business and risk major disruptions in the customer or supplier base. Business development tries out the new channels, invents new sales and delivery processes and scales them until they prove to produce similar or superior results compared to the core business. As the great book, The Other Side of Innovation reminds us, core sales and operations do not develop new types of business and do not innovate. That is not their role. In companies where business development and innovation is well defined, funded and measured, there is a clear swim lane between market development for new solutions and for existing ones. The best innovators can maintain a high performing core business while encouraging an effective product and sales innovation culture. Great examples are Google X and IBM and several other tech companies. In technology the product lifecycles are measured in months vs years in consumer or pharma businesses and even longer in traditional manufacturing. Tech has no choice but innovate business models while shipping products.

BD TEAMS MUST UNDERSTAND THE CURRENT PHYSICS OF THE BUSINESS

Some executives refer to the basic sales conversions ratios, delivery metrics, customer retention rates as the “physics of the business“. Every great executive in any business should know their industry specific metrics like how many customer meetings typically lead to a qualified opportunity, what % of those will convert to revenues, what % of the customers will cancel contracts (attrition) and what percentage of customers have delivery problems. These are the scores to beat to outperform the competition or disrupt an industry. The primary role of new business models and therefore BD teams is to long term improve on the metrics that make up the physics of the business by introducing new products and new customer segments. If you are a startup, your base metrics may be that of your industry, or the industry you are trying to disrupt. If industry metrics do not exist, make some assumptions so you have a baseline.

DIFFERENT METRICS ARE NEEDED FOR THE PILOT AND SCALE STAGES OF BD

Sometimes business development teams gets funded and released without clear goals and metrics. That is a recipe for failure. Superior business development should be measured with the same rigor as the core business but with different KPIs. The Pilot stage is early development of the business model where a lot of experimentation is encouraged. Metrics are purely feedback on the various assumptions the team is making. Scale stage is when the business model is ready to go and the focus is increasing the throughput.

Measuring the Pilot stage: ACTIVITIES

Initially BD will be experimenting in the new channels or solutions and should not be measured against the core business metrics. The scope of experiments will be limited either by customer segment, geography, type of contact, etc to minimize disruption in the core business. Pilot stage metrics should be activity oriented. You need to contact a certain number of target groups, expose them to your new message, prompt them to take a certain action, evaluate how those actions match expected results in the strategy, and many more. The metrics should align with expected steps in the future workflow (physics) of the business and should not be a random list. BD teams should have clear targets for each of these metrics that should be reviewed monthly or quarterly. These are not “performance reviews”. The goal of the review primarily is to pivot to a new set of assumptions and adjust the expectations. The BD team should have an agreement how long these iterations can happen. It typically takes 12-18 months to test a new business model across markets and solutions.

The BD team should stay in pilot stage until the metrics become predictable. For example, the % of leads converting to opportunities or revenues become more predictable. Similarly with other metrics like cost of lead conversions. Once metrics are predictable the team should move into SCALE stage.

Measuring the Scale stage: REVENUES

Once the BD team leaves the PILOT stage, it should expand the scope of the new business model to more customers / geographies. It should introduce metrics from the core business. It is expected that the new BD model will outperform certain metrics compared to the core, typically lead conversion and sales growth while underperform in other areas like cost of sales and customer retention. It needs to be understood that the business model is evolving and will not be as efficient as the core business for a while. However if BD does not outperform in some areas (like growth) it is questionable whether the model is sustainable. There should always be an edge in new business models compared to the core business, otherwise it is not worth the effort to change.