Software company success is sensitive to sales execution. Having a great product that effectively meets its market’s needs certainly helps. In fact, it’s a pre-requisite, but there are innumerable examples of lesser products beating stronger competitor’s offerings to win ownership of their respective markets. Don’t get me wrong, I’m a staunch advocate of product leadership and the power of strategic product management. In fact, one of my favorite business philosophies from Peter Drucker is that effective product management should make selling superfluous. Drucker wasn’t suggesting at all that selling is unnecessary; rather that effective product management is a success enabler. It sets the stage. Products or solutions create value; sales and marketing execution done right captures value.
It’s at this very point that the discussion often goes awry. Most VP’s of sales would passionately defend their organization’s ability to capture value. And they do, to an extent. They’d point to such things as market share gains, sales growth, reduced customer acquisition cost, improved cost of sales, shortened sales process duration, etc. as evidence. Some may even point to an increased share of target client’s budgets, reductions in discounts or increases in average contract value. Those are all good measures that capture aspects of sales efficiency and effectiveness, but they miss the critical business question: How much of the potential value that was created did they capture? The answer to that question closes the loop between the halves of the business model: Creating value and capturing value.
The path to getting there is two-fold. The key to the first part is highlighted in a research study jointly conducted by Software Magazine and Spencer Stuart several years ago. The two organizations set out to understand why some software companies thrived and others didn’t. The team interviewed CEO’s, GM’s and EVP’s of sales and marketing from 30 software companies that had surpassed $250 million revenue. The companies included in the study cut across industries and software applications and the research team studied their respective industries and the makeup of each of the companies in great detail. As any VC, Private Equity firm, banker or entrepreneur will tell you, the odds are pretty long against any company successfully navigating the journey from start-up to over $250 million revenue. Clearly, there’s something these companies figured out on their way to success. The research team’s results were published in the August 2002 edition of Software Magazine and in a Spencer Stuart Blue Paper and I’ve taken the liberty of summarizing their key points here:
1) The quality of the direct sales team is a differentiator. Multiple sales channels are beneficial, but the quality of the direct sales team matters most.
2) First-line sales management is the key to quality of the team, disciplined execution, and success.
The essence of the study was that these companies succeeded as a result of the combination of a good product and a great sales team. Moreover, and this is the important part, the researchers found that first-line sales management is a Force Multiplier. [A Force Multiplier is an element that when added creates a disproportionate advantage that multiplies the capabilities of a team and enhances the probability of a successful mission.] There are notable examples of the success of this concept including GE’s focus on developing management and leadership capabilities, or the military’s focus on the quality of Drill Sergeants as the focal point for building basic skills and teamwork. GE has a well-deserved reputation for the depth of their leadership talent and its ability to drive superior results in tough industries. Military personnel are highly sought after for their ability to execute and lead teams. By comparison, many sales organizations focus their development efforts almost exclusively at the field sales rep level versus the sales management level. Education and development across the organization is a good thing. However, the research clearly demonstrates the multiplier effect of increased training and development of the sales management team.
The second, somewhat easier part involves “institutionalizing” the discussion regarding value. This takes us back to last week’s discussion regarding the one measure that every technology sales rep should know: Return on Investment. The value that a client expects to gain and ultimately receives can be measured and tracked, but only if it’s discussed and agreed upon. The details and nature of client value, whether its strategic, tactical, financial, political, etc., should be captured as part of the engagement process, and documented in internal systems. Ultimately ROI information should make its way back to the delivery and development organizations. Every CRM system is capable of tracking and reporting this information. Few do. In most cases, it’s likely because value is not typically part of the sales management discussion with the direct or indirect field force. The management adage of “What gets inspected is respected” holds true. It’s incumbent on sales management to make the value discussion part of the sales culture. The best first-line sales managers do. It’s also critical, and highly advantageous, that executive leadership support their efforts by making the value discussion part of the organizational fabric. At that point, rewards can be tied to the organization’s ability to create value, and to the degree of value that’s captured. Imagine the power and competitive advantage that such a value-driven, market-focused organization would possess.