I know that sometimes it’s hard to figure out how all of this social media stuff impacts business; particularly when you’re involved in a business-to-business enterprise. Do you remember when it was like that with the Internet?  Then it just happened.  I’m certainly not smart enough to know for sure how this is all going to play out, but I do believe it’s an unavoidable tsunami, and something you would ignore at your peril. Here are some stats:

1. By 2010 Gen Y will outnumber Baby Boomers
2. 96% of them have joined a social network
3. Facebook added 100m users in 9 months
4. According to US Dept. Of Ed. Online students outperformed those receiving face-to-face instruction
5. 80% of companies are using LinkedIn as their primary tool to find employees
6. The fastest growing segment on Facebook is 55-65 year-old females
7. Gen Y & Z consider email passe: In ‘09 Boston College stopped distributing email address to incoming freshmen
8. Wikipedia has over 13 million articles
9. 78% of consumers trust peer recommendations; Only 14% trust ads
10. 35% of book sales on Amazon are for Kindle

These are largely compiled from the video included at the end of this post, and whether you trust the source is up to you.  The two key lessons to be learned though are:

1. Successful companies in social media act more like party plannners, aggregators, and content providers that traditional advertisers
2. In the social media world; Listen first, sell second (For more about this, see previous post Why Twitter is best for testing sales or marketing messages)

Last Monday, Geoffrey James over at the Sales Machine wrote an interesting blog about the value of sales forecasting, and conducted a poll eliciting votes on whether sales forecasts are more effort that they are worth. Last time I checked, the responses were pretty evenly balanced, with just a little more than half of the participants saying that sales forecasting was in fact not worth the effort.  You can read the full post here.  Because I believe accurate sales forecasting is fundamental to good business management I commented at length on the blog post.

I’ve added my comment below … but first here’s the ‘usual’ sequence of sales forecasting events that Geoffrey presented.

“Here is the six (6) step process that sales forecasts generally take:

• Step #1: The sales reps provide the forecast
• Step #2: The sales managers adjust the forecast
• Step #3: The sales VP re-adjust the forecast
• Step #4: The marketing VP does his own forecast
• Step #5: The head of manufacturing does his own forecast
• Step #6: The CEO makes up a new forecast”
  

Geoffrey then ask folks for their opinion, and as I said above, the respondents divided pretty equally into those who believed sales forecasting is a worthwhile activity, and those who believe it’s a waste of time and effort.

I’m not sure that the question “Is Sales Forecasting worth the effort?” is one that any business can really afford to ask.  It (sales forecasting) is something that you have to get right. Here’s the transcript of my contribution to the debate, which Geoffrey – in his own comment later – kindly acknowledged as being of value.

ddaly@thetasgroup.com

11/25/09 |

RE: Is Sales Forecasting Worth the Effort?

Hold on now!

Getting a accurate sales forecast is not optional to be able to run a business.

The question should not be “Is sales forecasting worth the effort?”, but rather “How do you make accurate sales forecasting easy?”

The challenge here is that the natural (and necessary) optimism of the sales person, and the human desire to please, usually results in inaccurate sales forecast.

But it does not have to be that way.

If you consider a scenario where the sales team follow a process that’s mapped to the customer’s buying process, then there are identifiable pieces of evidence that should inform the forecast. It seems asinine to me that sales people are asked to enter and update all the details of their deals, how it progresses, expected close date, current pipeline stage etc. into a CRM system, and then the sales person is asked to ‘guess’ whether and when the deal will close.

There’s not a lot of value being delivered to the sales person here.

Consider instead a system that learns about sales cycle, attributes of deals that close, length of time normally taken to progress through each stage, and guidance for the sales person (and sales manager) as to what might knock the deal off track. If those simple elements are tracked and managed, the system will have enough data to provide accurate forecasting for free.

Per Geoffrey’s post, way too much time is being spent by way too many people trying to solve a reporting problem, which should in fact be auto-generated based on objective (not subjective) automated assessment of the health of the deal, its place in the funnel, the typical remaining duration to close and a few other factors.

If you look in your CRM today, it’s likely that you’re going to see two things that are Darwinian in their stupidity. (i.e. they should not survive.)

1. You will most likely see deals that have a forecasted close date that is in the past. Not unless you can perform some pretty unnatural acts – that’s never going to happen. The CRM system should ‘know’ this.

2. Then you will see a forecast based on weighted value or closure probability of the deal. In other words, a $100,000 deal that is 60% likely to close is calculated as being worth $60,000 in forecast value. The truth however is that you never close 60% of a deal. You win it, or you lose it.

I won’t use this forum as a commercial, but the solution I use automatically removes these problems, learns about when deals close, and why they don’t, and automatically gives me sales forecasts that are more than 90% accurate 90 days out. My sales team don’t do anything to generate the forecast. I get it for free. But the forecast is accurate and I can use it to run my business.

As we’ve deployed the Dealmaker Sales Performance Automation software platform for our customers we noticed a few common challenges around the area of Pipeline Management.  In the first instance, customers are often puzzled as to how to create the structure of the pipeline. Then they worry about how to keep the funnel full and whether to focus on pipeline volume or pipeline velocity. Finally we’ve been asked frequently to explain the ‘secret sauce’ that Dealmaker uses to identify pipeline risks or potential breakdown.

Here are four of the best practices lessons that our customers have learned by using Dealmaker.

1. Map the Pipeline Structure to a Sales Process

It is often difficult to decide how many stages you should have in your sales pipeline. We have seen different companies with their pipelines segmented into anything between three and 12 stages (we recommend no more than five or six) in the pipeline. Every week, or month, sales managers then ‘manage’ the sales force by working through each individual’s sales pipeline to determine how many opportunities are at each stage, and what probability to apply to each opportunity. More often than not, this is a fruitless exercise for two main reasons.

First, subjectivity plays a large part. In most cases, the interpretation of how to categorize the opportunity is left to the salesperson’s discretion. The buying cycle is often ignored, and there is usually little linkage between the key qualification questions used, and the stage of the process. One of the benefits of a standardized sales process is that everyone in the company involved in the sale adopts a common language. Clear deliverables are linked to each stage of the sale, and overall productivity increases.

Second, it is futile to determine the value of a pipeline by multiplying the value of each opportunity by the probability of it closing. There is no prize for second or third place in selling. You either win the deal or you lose. Having 10 opportunities at 10% probability mathematically may be the equivalent of one full opportunity – but it is not the same as having a signed contract. We are constantly amazed at how seasoned sales managers continue to value their pipelines in this manner. These percentage figures assume a ‘steady state’ economy, no variance in the competitive landscape, and a constant product scenario. Then the numbers often feed directly into company forecasts. Back to the fairy tale! Having a standardized sales process, and a fully-documented and formally-defined pipeline, with well-understood rules, results in everyone having the same, realistic view of the forecast.

You should design your sales process to incorporate stages in the pipeline that reflect the customer’s buying cycle. It seems more logical to us to link the selling cycle to the customer’s buying cycle, than to use other measures that sometimes seem arbitrary. If you take this approach, the selling actions that you have to plan become self-apparent. You understand the concerns of the buyer at each stage of the buying cycle, and, in effect, your pipeline management becomes a summary sales action plan. In addition, you can now link and layer the qualification process to the overall sales process, to help determine which qualification questions need to be answered, at each stage in the process.

2. Keep the Funnel Full

You mightn’t want to do it, but sometimes you’re going to have to generate your own leads. Getting appropriately-targeted customers into the top of your sales funnel is the source of your raw material. Without that raw material, you can’t build a pipeline. When there are gaps in your pipeline, pressure builds on the few opportunities you have. You’re tempted to try to progress a specific deal too aggressively. Your state of anxiety over this quarter’s revenue is heightened by the fact that you are looking into a void for next quarter. It may be the stated role of the marketing department to deliver qualified leads to the sales team, and you might be one of the fortunate few who is adequately served in this manner, but if you don’t recognize the need to look constantly for new opportunities yourself, you lose control over your destiny.

The likelihood of finding a good opportunity is dependent on the type of activity you undertake. If you’ve got your act together, you have a broad network of contacts who are potential customers. They respect you and the value you can bring to their business. Your existing customers can provide you with further business within their company, and referrals to their counterparts in similar companies. Strong relationships with industry consultants and analysts are a good source of recommendations for new business opportunities.

Your own market assessment and development activities will always provide the best quality of sales leads, but be sure that the folks in marketing aren’t working in a vacuum. Make sure they are in lock-step with your needs. Help them understand what’s exciting the customers. Together, you can craft effective seminar programs, social media campaigns, emarketing, or other campaigns for your territory. Marketing often bemoans the fact that they generate leads and the sales team ignores them. Get them on your side by telling them what you need, and then by showing them how you are responding to the good work that they do.

3. Rocks and Stones and Pebbles

If you want to fill a barrel with rocks and maximize the capacity of the barrel, you have to fill the gaps between the rocks with stones or pebbles. Have you ever been in the situation where you’re dependent on that one big deal? Our customers say that having Dealmaker highlight risks in the funnel mix – by identifying when there is an imbalance in deal sizes is one of the features that delivers most value to them.

Experienced sales professionals understand that relying on a small number of big deals is risky, and they will balance their opportunity portfolio with smaller deals in order to keep the numbers moving, in case the big rock falls off the cliff. It is one of the truisms of selling: big deals inevitably take longer to close than originally envisioned. Three months becomes six months – or a year. You need to be working on a mix of large deals and smaller opportunities. While waiting for the big deal, no one is making any money and desperation levels increase if there isn’t a backup plan. Your negotiation position weakens, and that major opportunity turns into a minor profit deal. Rocks and stones and pebbles make for a full barrel.

4. Know How Much you Need in the Funnel

There are four factors that Dealmaker uses to determine the health of a sales pipeline:

• Integrity of data
• Deal value
• Number of deals
• Balance across pipeline stages.

The information in the pipeline system must be pristine, continually updated to reflect progress, wins and losses. Everyone must understand the language being used and the salesperson (in particular) must constrain his normal unbridled optimism and not allow himself to overstate the potential value, or proximity to closure, of a deal. Every person entering, or interpreting, data must have a common understanding of the rules being applied to determine where an opportunity sits. Dealmaker automatically places the opportunities at the appropriate stage of the pipeline.

How long is your typical sales cycle? How much time passes during each phase of the buying cycle? As some customers are working through the Requirements phase of their cycle, you need to have others that you are guiding through the Evidence stage, and more with whom you are finalizing the issues that come up during Acquisition. To keep the pipeline balanced, and maintain a steady deal flow, you need to have an adequate number and value of opportunities at each stage in the pipeline. We use the Pipeline Value Factor, or PVF, to help gauge the value.

To achieve 100% of, say, a quarterly target, consistently over consecutive quarters, PVF is the measure of what multiple of that target number you would need to have in each stage of the pipeline, at any point in time. While PVF doesn’t take into consideration the mix of large and small deals, and it is a blunt tool, it is a useful early warning system. If you don’t have enough value in your pipeline, then whether it is made up of large or small deals isn’t the big problem. The problem is that you don’t have enough in your pipeline.

I love it when a plan comes together, particularly when that involves one of our customers gaining huge payoff from implementing Dealmaker.  Recently, I received a copy of an article in CRM Magazine in which (unknown to me) a customer of ours – Fleetpartners, a fleet leasing company in Australia – recounted their real-life experience of implementing a CRM and Dealmaker.  The full article is available to view at CRM Magazine, but I thought it worthwhile to share the experience with you.

First the payoff:- According to the article, since turning to Dealmaker, Fleetpartners has:

• realized a 400 percent increase in new business contracts in 2009
• increased pipeline opportunities from 48 to 520 in a year
• seen an expansion in average fleet size per opportunity from 57 to 156
• reduced the number of accounts lost per month from 8.6 to 0.8, and
• boosted the average number of new contracts per month from 1.3 to 7.8

Now that’s what I call a payoff! 

Adam Trevaskus, director of sales and marketing at Fleetpartners was responsible with driving the change.  Newly appointed in April 2008, he quickly discovered that “There was no particular discipline or methodology being applied in the sales area.” The company was already using salesforce.com, but as with many organizations, as Trevaskus says “It wasn’t maximized in [his] organization.”He then selected Dealmaker.  It was important to him that it offered out-of-the-box integration with salesforce.

“That would encourage people to use salesforce.com even more, and give them a reason to go to the system,” Trevaskus says.  ”If, as part of sales methodology, you can discern existing accounts, win new ones, and increase penetration in existing ones using Dealmaker, the methodology is beautifully simple. We could actually incorporate disciplined thinking by the use of good questions, and involve the board of directors here as well.  I knew that there needed to be participation from the wider executive team in the sales processes.  They needed to have confidence that the sales team going out into the market had the right approach and was asking the right questions.”

The payoff described above has all happened since Dealmaker was deployed in July 2008!  I think that is a spectacular result given the economy we all experienced and is a testament to Adam’s remarkable leadership.  According to Trevaskus, a new culture has emerged in his organization, and the implementation has placed his company back in the fast lane.

“This has helped to completely turn around our ratios in terms of loss and win rates, the number of opportunities we have, and the quality of the [potential sales].” he says.

The full story is available here. 

I was with one of my sales team recently when he was demonstrating Dealmaker to a prospective customer. (Dealmaker is the Sales Performance Automation software platform that we provide to help sales people win more deals.) One of the modules in Dealmaker guides the sales person to select the right competitive strategy to win the sale.  Based on the information entered during the demo, Dealmaker recommended a Fragment Strategy.

The customer, who was keen golfer, nodded his head, and said “Yep, it’s just like golf – sometimes you’ve got to just lay up.”  I thought that was good analogy and worth sharing.

If you’re an average golfer (or a hacker like me) you’ve probably often found yourself with that 220 yard carry over water to get to that par 5 hole with your second shot.  You know the smart play – but somehow you believe you can make it – just this time.  Splash! Out in three, playing four, losing the hole.

Selecting the right strategy for a particular sales opportunity is like taking a golf shot – you can only choose one strategy – and then you must follow through.  You cannot mix multiple strategies – otherwise you will stray off course.

The most common strategy employed by most sales people is what we would call a Frontal Strategy.  It’s a ‘go for the jugular’, ‘kill the competition’ and ‘win the deal now’ approach.It’s also the strategy that is most often defeated.The purpose of a frontal strategy is to quickly and decisively subdue the competition.  It’s a direct approach based on the customer’s perception of your overwhelming superiority in solution, price or reputation.  Remember it’s the customer’s perception that counts.

A frontal strategy is a high risk, high gain strategy.  It requires a lot of resources. It’s a blatant approach, and obvious both to the customer and the competition.To be successful with a frontal strategy you need:

• Overwhelming superiority: You need at least a 3:1 advantage over the competition that is recognized by the customer and should be based on your solution, resources, your price or another considerable advantage.

• Size and speed: What this really means is: If you have overwhelming strength, GO FRONTAL; If you can get the sale over before the competition even knows about it, GO FRONTAL; If you are 1st on the scene and you can set the agenda, GO FRONTAL

• Plentiful Resource: With a frontal approach you will burn up a lot of resources. So don’t forget to review your resource requirements before you engage.

Because a frontal strategy is blatant, you should expect a competitive reaction.  Before you engage you must ask yourself:

• What’s the 3:1 solution advantage I have?
• Does the customer believe enough in my reputation to carry me through?
• Have I got what it takes – the resources – to get over the finish line – quickly?

A frontal strategy can be very effective, and very rewarding, but quite dangerous.  Consider the risks before you engage and check your proof points, otherwise the competition might get the knock out blow in first. 

Laying up – Choosing a  Fragment Strategy:  Sometimes you just know that you can’t win all of business that a specific opportunity represents.  A fragment attack strategy divides an opportunity into smaller parts and focuses the customer on the subset where you feel you can be successful. If you win this piece, you will gain a foothold, and perhaps expand your presence later.Here your objective is a limited target and you are not relying on overcoming your competitors.  This means that you and your competitor each will win some portion of the opportunity.

Fragment strategies work well when you position your product as a niche solution against a specific weakness in a competitor’s solution or perhaps in a single department or functional area.  Alternatively, you can take a peaceful existence approach and seek to expand an existing solution with your offering.

The main considerations for you of a Fragment Strategy are:

• Is this a launching pad to exploit future opportunities within this account?
• Have you got inside support?
• Will this opportunity deliver sufficient return to justify the effort?

When you go after a piece of an opportunity, you’re probably changing the customer’s decision criteria, and for that you will need inside support.

Picking the right Competitive Strategy: As Paul continued through the demo, he chose a number of different opportunities, and Dealmaker recommended in turn, Flanking (‘Oh, that’s when you change the rules mid-round”, said the customer), Frontal (“I do like to go for it some times’), Develop (“More time on the range’), and Defend (He was stuck for an analogy here).

At the end of the demo, the customer got up and walked around the room, practicing his imaginary swing, in that distracted way you often see with weekend golfers.”So, sales is really like golf.  I knew that.  To make par you’ve got to select a different approach or strategy for each hole.  Dealmaker is like my caddy – telling me what shot to take each time. “I think he was taking the analogy a bit too far – but hopefully he will opt to lay up when appropriate and that might help him improve his handicap -er, I mean make his quota.