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 Looking
at the American news media, you'll notice that a Big Story seems to dominate for a
few days, and then evaporates overnight. It is replaced with the next Big
Story: they come though the news machine in waves, in what somebody brilliant* called "serial
obsessions." It's as if the public can't deal
with two important things happening at the same time, such as an immediate crisis
(flooding) going on at the same time as long-term crises (inability to
prepare for inevitable floods). TV has us stuck in the tyranny
of the present tense.
Somebody else brilliant* once said, "the mind is a serial device." For you
non-EEs, this means that people can't deal with a lot of information at once, and
our thinking is very vulnerable to the sequence of data. Ironically,
it's hard for us to perceive issues of timing and sequence because we're always
"in the moment."
And
so with this month's issue, we're looking at something that is very dependent on
timing and sequence: the revenue engine. We'll try to
give it a tune up, so to speak.
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Hot News
Dave Taber was a featured speaker at Enterprise
Ireland's Internet Marketing day in Dublin.
* Speaking
engagements
Take-Aways
The
revenue engine is a dynamic system -- we implicitly recognize this when we
talk about the sales cycle and a sales team firing on all
cylinders. .
Yet
when the engine isn't working very well, the knee-jerk reaction is to fix just
one part of the engine, with no thought to the balance, sequence and
timing of the engine. We seem to be willing to ignore the harmony and
dynamics of the engine in order to get a quick fix. In doing so, we're
being bad mechanics.
The
key improvements come when you view the revenue engine as a dynamic system
-- a sequence of
events that culminate in signed deals by the end of the quarter. Work
backwards from your quarterly close to understand where the engine is
starved or overwhelmed.
The
timing chain in an engine ensures that the right things happen in the right
order. It also prevents many things from happening.
Understand for your revenue engine things that need not to happen for
proper operation.
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Best Practices
All
too frequently, companies have a mythical sales cycle. Deals happen,
but not with the pacing or regularity execs would like you to believe.
The first step towards best practices is to quantify the stages and sequence of
your real sales cycles.
Strive
for harmony and balance of the revenue machine. This means the
consistency and repeatability of deals. But don't get hung up on
process: incomplete or lost deals don't count. The only deals
that matter are those with a signature.
The
80-20 rule applies. Focus on the few sales reps that drive most of
your deals. Figure out how to make them more effective, and the
other reps can follow.
Know
that the revenue engine is always unstable. Customers, markets, and
opportunities change too fast to allow for perfectionism. Instead, continuously strive for greater efficiency, and be able to
feel when the revenue engine is going in or out of balance.
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The Revenue Engine
Let
me expand on the engine metaphor a bit. The purpose of Sales and Marketing is to
generate revenue -- its output is dollars, and its efficiency is
measured in what I'll call "Revenue System Margin" (gross margin minus
fully loaded sales and marketing costs). The work achieved by this engine
is the propulsion of the corporation.
Following
the auto-engine metaphor, the Sales guys are the sparkplugs, marketing is the fuel
injectors, marketing program
dollars are the fuel, prospects are the air, executives are the valves, compression is the sales cycle, and the
explosion is a signed deal.
So
here's my point: make any part of the engine -- or even all the parts --
perfect in design, materials, and construction, and the engine still won't
work. The secret to the piston engine is the sequence and timing of the actions
of the parts. Go ahead, invest in a huge sales team or an elaborate marketing
program. Revenue will come in fits and starts, and may actually go down
with increased (but unbalanced) investment. Without the right
timing, you'll have to keep
cranking the engine with VC money (the electric starter motor). You'll
hear backfires of angry sales reps or dissatisfied customers. You'll have to rebuild the
engine with new VPs of Sales and Marketing when they get bent out of shape or
become burned out.
An engine is a dynamic system, not a bunch of static
parts.
Firing on All Cylinders
It's
amazing how apt this Wall Street expression of Sales and Marketing success
is. Yet most people ignore it.
A
reciprocating piston engine is a beautiful peace of machinery -- you can see and
feel it in the smoothness of its motion. What makes it beautiful is the
timing of compression, spark, and explosion. When it isn't in balance
and synchrony, it's unpleasant to see, hear, feel, and even smell. How apt
the comparison to a revenue engine.
So
making the revenue engine run smoothly isn't an issue of fixing any one part in
isolation: it's about bringing balance, timing, and correct sequence to
the activities of the engine.
The Timing Chain
For public companies,
it's important to have reliability and predictability of deals closing within
the quarter. Since executives can lose their jobs over this one, this is
the ultimate timing of the revenue engine. What separates success from failure is working backwards
from the end of the quarter, ensuring that the right activities have the
resources at the right time to be completed in sequence. Work backwards through your sales
cycle:
-
Examine
your sales and pipeline waterfall from the perspective of "deals to be
done by week 13." Understand the volume and age of prospects in
the pipeline (as most B2B products have sales cycles that are longer than 3
months, look at your pipeline over two or three quarters).
-
For
those contracts to be signed and booked, what legal and CFO resources need to be
lined up from week 10 of the quarter onwards?
-
To
overcome last-minute prospect jitters and politics, what customer references
and industry analysts need to be at the ready during that same period?
-
To
deal with contingencies and last-minute objections, which executives need to
be available for "Hail Mary" customer visits?
-
When
will your reps need to have understood the "signature loop" for
the contract? When will they need to have identified the decision
makers, the blockers, and the decision process?
-
When
will proofs of concept and detailed technical evaluations need to be
done? When will sales engineers and consultants need to be available?
-
Who
will be doing customer requirements discovery, and when does that need to be
completed?
-
How
will the required quantity and quality of leads be generated, and what are the logistical requirements for
the marketing programs?
Timing Means Not Doing Some Things
From
the list above, it should be pretty obvious that certain things are
counterproductive at certain times. The guiding principle is that
you must avoid putting further strain on any
constrained
resource, and the ultimate constrained resources involve time (and
lead perishability):
-
DO
NOT generate leads in weeks 8-11 of the quarter (because they would generate
requests for appointments during weeks 10-13, when the reps need to be
closing). In the final quarter of
your fiscal year, don't generate leads in weeks 8-13, or even the first
couple of weeks of the new year (to account for reorgs, inevitable vacation,
new territories, etc.) Leads are perishable, so generate them when the
organization is ready to work with them.
-
DO
NOT let
telesales
/ telemarketing take vacation during weeks 1-8 or 12-13 of the quarter.
-
DO
introduce products at a relatively consistent time of the quarter, hopefully
in weeks 3-6 (to give yourself time to train reps), but DON'T introduce a product without sufficient inventory
for the channel's immediate needs.
-
DO
put in "anti-hockey-stick" incentives, but DON'T expect them to
move more than 20% of the deals (because customers have their own reasons
for doing deals at the end of the quarter).
-
DO
look for shortages at critical times (not enough appointments in weeks 2-8?)
but DON'T confuse symptoms with root causes. You may not have enough
appointments because you're going after the wrong customers or, worse, your
product isn't complete for any customer.
-
DO
look for surpluses at critical times (too many things for someone to do?),
but DON'T assume the only solution is more resources. Could the
surplus be moved in time, or be handled in a different way?
Of FIATs and Ferraris
Some
of the finest specimens of auto engine design (if not manufacture) are Italian. At the low end of the food chain, a FIAT is an
efficient and inexpensive design for a light-duty engine. For the high-end
set, it's hard to find a work of mechanical art more beautiful than a Ferrari
engine. But you'd never confuse the two: a FIAT design does not
scale to 12 cylinders and 550 horsepower, and a Ferrari can't be made cheaply.
So
it is with revenue engines. Everybody knows that what works brilliantly
for a small startup won't work at $100 M or $1 B sales rates -- yet when things
are going wrong people still make recommendations for marketing programs or
sales personnel that are appropriate only for the other end of the
spectrum. Be mindful of
scalability
issues, both large and small.
Digg
This!
__________
*One of them was Al Gore. The other was me. Guess which is which.
Superpowers
-- coming in November
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