Category Archives: Business Acumen

You Have To Chose The Right Clients and Opportunities

About a dozen years ago my wife and I were seriously exploring IVF or In Vitro Fertilisation. We were finding it difficult to find a clinic that was prepared to accept our case at first.

My wife and I between us had some personal connections that enabled us to be put in touch with one of the foremost fertility consultants in the land.

That person had a phenomenal success rate, something very important to us, less from a cost perspective, and more from a risk to the mother perspective.

The disappointment we ran in to was simple. This consultant wouldn’t accept us because to do so would significantly impact their success statistics. They had such an exceptional success record because they were very careful about who they took on. What we needed was a consultant and clinic that had more experience and knowledge about our particular circumstances. In the end it was not to be, and in time we turned our love & resources to other needy causes.

And so it is with you and your business. You have to be choosy about who you do business with and/or what kinds of opportunities you invest your time, energy, resources and emotions in to. Getting it wrong can spell doom for your business.

For example, one company I have worked with deliberately stays clear of some very big business opportunities, because it has realized that those accounts are very difficult and demanding to work with, especially given the low levels of returns they generate. It would rather work a greater number of other accounts and opportunities, do a great job, as it always does, but get a reasonable reward for the effort.

So take time out to identify the best kind of accounts and opportunities to work on for you, that also align with where you want to take your business. A great place to start quickly, is to look at the best accounts and opportunities you’ve had over the last 2 years, write down what it is about them that you like and value, and use that as a starting point to help you target new accounts and opportunities going forward.

Do you or your sales people truly know how to sell? Honestly?

Do you really have the ability to sell? Does the top candidate for your new sales position have the ability to sell? Or is this ‘ability’ really the result of other factors, such as luck, wider economic factors, market demand greater than supply, etc?

Whether it is you that has to do the selling for your business, or somebody else, you have to be sure you, or they, really have the ability to sell. But how can you be sure?

Selling on a successful and sustained basis is truly about ability – not to persuade and manipulate, but the ability to connect with your client and find out what they really need & want, even if that means you can’t help them out this time, and then connect them with a solution.

Being able to do this on a sustained basis implies the need for some kind of system, or method, that is repeatable, and increases the chance of success with a client, to beyond simple luck and the impact of other factors.

Many sales people will tell you that a true sales person has no time, and no need for studying, adopting and using any kind of structured sales approach. They are wrong. That’s not just my opinion, but an assertion backed up by plenty of evidence.

This chart is pretty compelling! Note that ‘Level 1’ is where there is no discernible sales system in place, ‘Level 2’ is where there are informal sales systems in place and used, at least a little. ‘Level 3’ is where a formal system is in place and used most or all of the time by most or all sales people. CSO Insights, the author of this study, are at https://www.csoinsights.com/ (opens in new tab/window).

So if it is you to do the selling for your business, what is the sales system or approach you are going to use?

If you are going to hand this very critical task off to another, what is the sales system or approach he or she is going to use?

How can you tell it will be effective?

Whatever the system you or your sales people will use, consider the following:

  • Is it structured?
    • Can it be followed as an ordered process?
    • Can it be used again and again in different situations?
    • Can it be taught to other sales people?
  • Does it focus on the client and their buying decision process?
    • Does it really, or is this a cover for really focusing on sales activities?
    • Does it help clients navigate options?
    • Does it help clients avoid pitfalls?
    • Does it help clients get through their decision making process more quickly, and still be satisfied at the end?
  • Does it focus on business issues for the client, what I refer to as “The Big 3”?
    • Does it help the client grow profitable revenue? Does it help the client reduce their ‘time to money’ (the time it takes to make a positive return on any investment in improved products and/or processes)?
    • Does it help the client cuts costs?
    • Does it help the client manage or mitigate their business risks?
  • Is it easy to learn & use by the sales people?
  • Does it help them do their job better?

Lastly, be wary of people selling you sales systems! Look at how they engage with you, and work to help you solve your sales issues. In my role as Global Sales Training Manager for a major global tech company I received around 12,000 emails each year from people and companies trying to sell me sales systems and techniques. Yes, I actually measured it, but that’s another story! In a single 18 month period only 3 potential providers were able to show me they had something worth spending time on to explore further, and that resulted in us doing business together! Remember, this is from people and organisations who claim they know how to sell!

Are Your Sales People Skewing Your Funnel?

Picture the situation.

Your sales are not where they need to be – they may even be down…

So being the good sales people they are, your sales team gets on the phone – “dialling for dollars”…

It’s well intentioned.

But it’s also bad instincts…

“Hi. I’m Julie from XYZ Company. We are a 30 year old company with a gazillion customers, locations, products, awards, etc etc etc…blah blah blah blah….

…. would you like to see if we can do better than your current supplier?”

Now, some prospects would just hang up, politely or otherwise.

Some would say “send me your details” just to be really polite and, well, you never know when you might want to change your supplier…

And some would agree, perhaps reluctantly, to a bigger call or even a meeting.

And what has the sales person done? Put the details of those who didn’t hang up, in to their sales funnel… because the customer hadn’t said “No!”

But was the customer really looking at that time to buy? Probably not.

So you now have a funnel that’s filling up.

And initially you get excited because you know your conversion rates historically… so you’re now forecasting 25% of these opportunities just added to the funnel, will close. Hooray.

Except your conversion rate is about to drop through the floor…

Why?

Because unwittingly, your sales people have MANUFACTURED a sales cycle by forcing an event!

Many of these opportunities will just stall – sales people are reluctant to call any opportunity as lost, so they’ll languish in your funnel, not going anywhere. And if you ask about any of them, you’ll get the standard “they’re just waiting on budget approval” or some other excuse… and the trouble is, the sales person may be right, up to a point.

So now YOU begin to look a little ropey because you forecasted an upturn, which isn’t materialising, your funnel data is contaminated, and you can no longer be sure what’s really going on.

Many of these opportunities are stalled because they are FAKE! The prospect was nowhere near ready to buy, until your sales person came along. The prospect is perhaps still nowhere closer to buying, but your funnel is skewed, and your salespeople may be burning their reputation, or building the wrong one, as they push on an unready set of prospects…

What are you going to do about it? What directions and guidance are you going to give your sales people? Is your incentive programme actually contributing to this?

 

Do You Talk Price Or Value?

Price and value.

Value and price.

They are almost always not the same thing.

In these times of economic downturn, one of the most frequent questions sales people hear from customers is a request for a cost reduction.

One of the most frequent responses I hear of from sales people is “ok”.

It is NOT ok!

Not until you, the sales person has looked deeper in to what is going on with the customer.

If you give a cost reduction, several things are going to happen:

  1. Your revenue will drop, assuming all else stays unchanged. If you’re a company listed on the stock market, that means your share price, EPS and other key metrics will take a hit. The kind of hit that, if too big, or goes on for too long, tends to end in layoffs. I’m just saying…
  2. Your profit will drop even quicker – cost reductions all come out of your profits, if you have any left.
  3. The customer knows that you are their ‘go to person’ next time they need a cost reduction. Giving a cost reduction without getting something in return breeds – it breeds more cost reductions. And while you’re giving away your business (because that’s what it is), your competitors are potentially stealing your other customers…

So stop doing it!

I’m NOT saying you can’t give cost reductions.

What I AM saying is… Get something in return…

For example:

A customer comes to you asking for a cost reduction. You have a price agreement that matches volume to price – more volume means less unit price – standard stuff. So you could respond with something like this…

“Hmmm. I know the economy is tough, and your volumes are down like almost everybody else’s. I understand the situation you are in. With your lower volumes our pricing agreement calls for a price increase, and I was thinking about that. How about we keep the price as it is for the moment, even though your volumes are down?”

Or how about this:

A customer comes to you demanding improved/shorter delivery times. They’ve been ordering less so they carry less inventory during the down turn, and reduce the cash tied up in inventory – very common. Now they’re seeing the beginnings of an up turn, and are concerned they won’t have enough inventory on hand to meet demand, and they want to maximise their ‘take’ on this upturn to balance the bad few quarters they, like so many, have experienced.

A shorter delivery cycle clearly means something to them – they attach some value to it. So what are they prepared to pay for it? Are they willing to pay extra in revenue terms? Possibly, but usually not. AND it’s worth asking…

A shorter delivery cycle might mean challenges for you – it can mess with your own plans, schedules, raw material inventories and so on- there’s a knock on effect, and, frankly, why should you pay for the strategic decisions, good or bad, of even one of your customers? Don’t give shorter delivery cycles away for nothing – otherwise next time a customer needs something, they’ll come to you first, and get it from you, instead of your competition… and you get nothing out of it…

Oh sure, I can hear some of you saying “if I don’t, I’ll lose their business!” – well, maybe you should! Not all business is good business!

OK. So if the customer is unwilling to pay actual extra $ for speedier delivery, what can they give you in return? More backlog – advanced orders, would be good, incentivised through a price/volume agreement… this will help you with your forecasting and planning, which is something YOU value, and maybe enough to offset the hassle you may have of providing shorter delivery cycles.

Here’s a third example:

“We like your solution. If you can beat the solution offered by Competitor X, the business is yours.”

I know. It’s tempting to a lot of sales people.

But beware!

If the statement from the customer is accurate etc, that they really DO like yours over Competitor X, then find out what it is that they like more, before you even think about dropping your price.

Anytime a customer is telling you their selection is now to be decided on price alone, such as in this example, then either the customer…

  • … really is buying on price alone, meaning they have commoditized you, OR, more likely…
  • … you haven’t done a good enough sales job yet, and have failed to connect your solution with enough aspects of what they are trying to fix, achieve or avoid through this purchase. And this means they can’t tell the difference in value between your solution and the one from Competitor X.

Let’s assume it’s the second outcome.

In which case, go back to it, find out more about what it is the customer is trying to fix, achieve and/or avoid, and in the minds of the key decision makers, connect your new and deeper understanding of this with appropriate aspects (features, advantages & benefits) of your solution.

If you can’t do this, OR you really are in the first situation, where you have been commoditised, the customer is unable or unwilling to see your value, and all you do by giving in at the lower price is confirm their view of you – that you are not different and do not deserve a higher price… This is NOT a sustainable strategy!

 

OK, off my soap box! What price/value conversations have you come across, good or bad, and what happened? Let me know!

Price Negotiation Is Not Sales Negotiation…

(This is a post I originally had ready to go in August 2011 – no idea why I didn’t post it – but here it is!)

Don’t give anything to the customer, without getting something back in return!

Selling can be defined as achieving a ‘mutually satisfactory exchange of value’.

My mother is in the final stages of selling my grandfather’s home – he passed away recently, having had, as we Brits are fond of saying, a “good innings”. A few weeks ago she was approached by a prospective couple who wanted to buy my grandfather’s home, and they made a fair offer which my mother accepted.

A few weeks down the line, and things are getting a little bit frustrating for my mother, as she shared with me today by Skype. The lawyers for the buyers were getting just a little bit picky with several aspects, and my mother saw this as the precursor to a revised and lower offer.

“I’m not dropping the price – I’m going to stand firm!”

I was intrigued at my mother’s strong position, so I asked her what led to taking this position. Now, my mother is retired, and has never been involved in sales or in running a business. This is what she told me…

“They came to me – they want the home. And they made a fair offer. There’s no mortgage outstanding on the home, so I’m in no hurry to sell it other than to close this final chapter off. I know the lady involved has put her furniture in to storage and moved in with her partner, and it’s only a small place – they want to move. Plus one of your grandfather’s neighbours has expressed genuine interest in buying it too. I want to close all this before we go away, but if they’re not serious, well, I’ll tell them the deal is off… I can always rent it out over the winter…”

So many sales and business people that I know make one or more classic mistakes when they get to start closing with the customer.

First, they’re not sufficiently aware of the customer’s situation. For example, what sense of urgency, if any, does the customer have for making the purchase? What’s driving this sense of urgency? Without this, it’s difficult to know if you can and should stand firm, or if adding further value to the deal (either through lower pricing and/or adding in additional elements for the same price) is needed.

Secondly, they often aren’t aware of the financials involved – either for the customer in terms of the value of this purchase to the customer (NOT the same as purchase price!) or in terms of what the lowest acceptable price is to the seller – if you like, the ‘walk away’ point – it’s not true that any business is better than no business…

Thirdly, they don’t know what the alternatives are – for example, spending time and effort on a customer that is either eventually going to walk away, or insist on a low price represents lost opportunity – that time and effort could have been spent on a customer who is more, shall we say, ‘aligned’ with your values and desire for ‘win-win’.

Fourth, they let slip to the customer just how keen they are to make a sale and make it quick – at almost any price. One sign of this is the excessive keenness to do business. Often the really obvious sign is when such sales and business people lead in with “don’t worry about standard pricing – we can certainly do something there…”

Discounting is a valid part of the sales tool kit.

Just don’t make it the first or second tool you use – make it the last tool you use… else you’ll leave money on the table (get lower price than you could have got) with this deal and get a reputation as somebody who can always be squeezed, especially when times are tough – there’s no safety or satisfaction in the short or long term in getting in to a low margin business…

My call to action is simple:

Prepare and get clear before getting in to a price negotiation. Confirm that you are the the number 1 choice of the customer. If you aren’t, why would you even consider a negotiation? You are unlikely to win what ever you do. If you are the number 1 choice, then talk about value with the customer, not price – remind them why & how you are the number 1 choice!

Let the Customer Say “No!”

For the last couple of weeks my local supermarket has been out of a particular ground coffee. It’s my wife Tracy’s favourite. So we have had to scrabble around for an alternative. Not easy. And every other day when I pop in for milk, doughnuts or what ever, they’ve continued to be out of stock…

I was getting quite peeved. How could such a big supermarket be out of this 1 coffee for weeks?

Today I went in early for bread, milk, doughnuts, and so on. No need for coffee – we have some.

But as I walked past the coffee isle I dismissed even thinking of taking a look for Tracy’s favourite coffee. After all, we have some, and there’s plenty of evidence the supermarket is not great with its restocking – several other regular purchases we make are out of stock for days or weeks at a time…

But a little voice then said “psst! Take a look. It won’t take long!”

So I did.

And guess what?

Yup – they had some.

In fact there were just 2 bags… So I grabbed them both.

Result? the supermarket got an extra $18 out of me today, and because I was feeling a little ‘up’ as a result, bought a magazine for another $6.

And I have a happy wife!

What does this have to do with sales?

How often do we just not offer or suggest something to a customer?

Almost always it’s because we believe the customer is not interested or not ready. Well, until you ask, you’ll never convert that belief into a fact.

And who knows, they might say Yes!

And that could be you with your equivalent of the extra sale of coffee and magazine!

Surely Big Business Isn’t This Dumb?

I see Sony is about to launch it’s own tablet device, the “Tablet S” for about $580 for a 16Gb model, running the Android operating system.

“So what?” you may ask.

So what indeed!

Almost every tablet maker is offering a system based on Android. And for the entry 16Gb models the price is $499 and up. HP was offering theirs with the new WebOS operating system. They pulled out before they barely got started. RiM, the Blackberry people are soon to launch theirs, with an ability ‘soon’ to run Android apps. Windows 8 is a way off, and currently looking like it is suffering from an identity crisis…

So how does looking the same as everybody else help you win business? I thought this was such a simple rule of business…

Buyers who do not want or care about the Apple ecosystem and offering, or avoid Apple on principle, have plenty of choice… For the moment. The current situation is unsustainable and many models, if not companies, will not survive in the tablet business for long. It will cost their shareholders dearly. Then choice will be reduced.

In the mean time the Android ship may be changing course as it recognises the problems having an open ‘standard’ with many different variants and interpretations bring… And that Apple may have been right to offer a controlled and closed ecosystem.

I love Apple stuff AND I want their to by viable competition, so I can get something better if I need it, and at the very least, Apple is kept on it’s toes with innovation…

So come on you big businesses… Offer something useful, viable and DIFFERENT!

If not, well, I look forward to the next firesale of failed tablet devices… It could bring a new dimension to the ‘hackintosh’ people as they work to put iOS and/or OSX on to these defunct tablets….

Are you making these same dangerous mistakes with your business metrics?

Metrics.

A single word, a simple concept.

Or is it…?

A metric is simply a measure of something.

Almost every business I know, big or small, has at least a few metrics that it uses to help it make decisions.

And one of these metrics is sales. How much in sales was achieved yesterday, or last week, last month, last quarter, or for the year to date. We’re talking money here.

Quite a few businesses will also track volume – how many objects, items, or instances of a service, were sold. Here, we’re talking about simple counts.

And quite a few businesses will also track the average sale price or ‘ASP’ – defined as the financial value of the sales achieved in a given period, divided by the volume for the same period.

And of course there is the sales forecast – an estimate, hopefully based on some intelligence, of the sales and associated volume anticipated in a given, future period.

And that is pretty much it – sure, there will be some metrics relating to a few key processes, such as on-time delivery, waste, and so on.

But these aren’t enough – not from a sales perspective. Not from a business acumen perspective. And some are frankly, dangerously misleading.

I’ll explain why, with examples, and then show you what you can do to avoid the same traps, and so have a more useful and robust set of metrics for your business.

Let me start with a couple of basic principles. You probably know a couple of these, but perhaps not all.

  1. Metrics fall in to one of two types – leading indicators, and lagging indicators. Sales figures for example, are lagging indicators. They tell you about what has happened in the past. Now, this does not mean that sales forecasts are leading indicators because they tell you about the future – more on that in a moment.
  2. Only leading indicators are useful for helping you directly run your business. To be a leading indicator, a metric must meet the following criteria:
    1. It must refer to something that you can change – you can’t change last week’s sales figures;
    2. It must measure a quantity that exists today, and this quantity, what ever it is, correlates strongly with a future situation – e.g. for every 25 visitors who download a free tool or informational paper from your website today, 5 of them will spend at least $30 with you in the next 3 months.
    3. It must be unequivocal, clear – averages tend to hide extremes and concentrations that indicate something deeper at work;
  3. A key metric or indicator relates to things at the business level. You shouldn’t have too many. Any other metric will relate to a specific part of the business. Between them, your key metrics will also reflect the core values of your business.
  4. Have a balanced set of metrics – financial, customer, process and growth/learning/people – with clear definitions and target values.
  5. Regularly review your key metrics and the data that feeds in to them to make sure that
    1. The metric is still useful – you’re not simply measuring it because it’s easy to measure and measuring something is better than measuring nothing – so the myth goes..!
    2. The metric is (still) accurate – it actually does measure what you want & need it to measure.
    3. The people impacted by it (the metric) or whose activities affect it understand its existence and relevance to the business and to individuals.
    4. The metrics together tell the essential story of your business – nothing important at the business level, be it process, results, or values, is left untouched by any of the key metrics.

About my earlier warning that some metrics can be dangerous…

This almost always involves averages – for example, the average sale price. Add up all the prices you get for each individual sale, and divide by the number of sales. You can use this to forecast future income or sales revenue for a given value of volume. But how accurately?

If you have 10 sales people, you may have 2 or 3 who contribute say, 50% of the sales. You wouldn’t know this because averages tend to smooth these features out… so you couldn’t identify which individual sales people would benefit from extra support, or which sales people could help with that. You wouldn’t know who to go to out of these 10 to take their practice & methods and spread this through the others – sharing best practice…

Averages are useful, but not in isolation. If possible, also look at how the data points that go together to make up the average value, are distributed – look at their associated ‘standard deviation’ which is a measure of spread, and use metrics like this to help you target your continuous improvement efforts.

In earlier posts, I listed the core elements of business acumen – your set of key metrics should cover all of these – at the very least, the following:

  • Cash – grouped by the main sources of cash, including sales
  • Margin or profit – before & after taxes etc, with a track on costs, discounts, etc.
  • Return on assets – so you know fundamentally how efficient your business is at turning investments (usually your own money) in to cash
  • Growth – is your business fundamentally able to grow and is it – is enough of your sales coming from new customers and/or new products?
  • Customers – do they pay on time and in full? Do they come back for more? Are they recommending you to others?

So my call to action is a simple one: review your metrics, starting with a blank sheet of paper… and identify, using the pointers above, those few metrics that really tell the story of your business. Identify the data that goes in to forming each one. Make sure people who need to know about these, well, need to know about them – in full.

Then put a note in your diary to review them again in 3 months time – and change them as appropriate.

Just What Is This Business Acumen Thing Anyway?

Business acumen.

It’s a term that is often used in many contexts – and almost always seems to take on a mystical sense of great importance. Yet when you ask people to define it, you often get different definitions.

So what is the big deal?

Well, you can have 2 sales people that seem to do the same things, seem to do the right things, yet one is a lot more successful than the other. Why?

The more successful sales person – let’s call her ‘Sara’, is more likely to have made an explicit connection for the customer, between the customer’s current situation and the actual ‘pain’ it’s causing now, and/or could cause in the future. The less successful sales person – let’s call her ‘Una’ – is less likely to make that connection explicit for the customer. Where Sara wins out further over Una is in describing those connections in terms of 1 or more key business issues.

And because Sara has a better understanding of these key business issues, which, by the way, are the same in any and every business, she is able to get a higher overall sales price. She can use her business acumen – a combination of this knowledge of these key business issues, and the experience to know where, when and how to apply this knowledge.

So what are these core business issues? Ram Charan, in his book “What The CEO Wants You To Know”, listed them simply as

  • Cash – more so than revenue in the form of sales not yet paid for – a business fails usually when it runs out of cash – which it can do even with a strong order book
  • Margin/profit
  • Return on Assets – how much cash can be generated per unit of asset… related to velocity or turns…
  • Growth
  • Customers

But in practice it’s often thought of more as

  • Reducing costs
    • Development
    • Manufacturing
    • Sales
    • Servicing
  • Managing risk
    • Including reliability, quality and product lifetime
    • Agreement amongst key staff/managers
    • Other risks
  • Producing differentiated/innovative products
  • Efficiencies (time to market/lead time)
    • Development time
    • Manufacturing time
    • Logistics

By helping the customer understand the true nature of their situation, Sara shows clearly how she adds value for her customers. For Una’s customers they don’t see things so clearly, and so selecting Una can often feel too risky… and reducing the price can sometimes feel to the customer that they’re now taking on a less risky proposition… after all, risk is usually perceived as a product of how bad the situation can be (e.g. cost), and the likelihood this bad situation will actually arise.

So my call to action for you today is to help your clients at every opportunity to clarify their understanding of their situation, and have them tell you (i.e. make explicit) in terms of some combination of the list above, and in their own words, just what their situation is and how they’d like things to be in future. Help them by asking about the items in the list above – just translate the terms in the list in to the equivalent phrases/terms used in your client’s industry.

What does the US debt ceiling crisis have to do with business, specifically, your business?

What does the US debt ceiling crisis have to do with business, specifically, your business?

Well, there is the usual stuff you read on news sites, such as interest rates could go up, yadda yadda yadda.

I have something else in mind.

I was watching the address made last night by President Obama, and then the response immediately after by Speaker Boehner. The Speaker is from Ohio and observed that, when he was running a small business, you could not have expenditure that was greater than income – not for long, anyway!

Now in his address, Boehner suggested that you cut your expenditure – makes sense. Up to a point. The other thing you do is look for ways to generate more cash.

Almost every business that fails does so because it ran out of cash – even though it may have had a full order book…

Now this may sound pretty bloody obvious, but I’m amazed at how many businesses, big and small, seem to lose sight of this, claiming they have made a ton of sales. Like many others who have been in business, sales are good – cash is better! I’d rather have $10, or £10, or €10 in my hand, cash, than a purchase order for $20, £20 or €20…

The President suggests that there are some expenditure that shouldn’t be cut. That what is cut or not in essence defines the nature of society. And so it is for any business. What you choose to cut and what you choose to continue to invest in says a lot about your values as a business, and that will both attract as well as repel customers.

Continuing to invest in sales activities is clearly critical. How you go about these sales activities is also critical.

For example, discounting is neither good or bad in itself. But discount without getting something of similar value is not sustainable – yet I see it all the time…

…”I gave that customer 6% discount to keep his business, and keep him satisfied.”

Fine – except you now have to bring in more than 6% just to get back to where you were. That extra effort could have grown your business – brought in more cash, if you hadn’t given the discount.

So what did you get for your investment in that customer? Because that is what it is… an investment… will it be a good one or a bad one? What is the value you bring to your customer? Does he or she know? Do you know?

My call to action is simple – with each decision you make, just remember that sales are good, but cash is better.

Gently remind your customers next time you can, just what value they are getting from doing business with you, what you have invested in them in the past, and what value you can bring in the future. It’s OK to give a discount. Just get something of suitable value in return – more than a simple promise, too!9