Category Archives: Revenue Risk Management

Ten Things Every CEO Must Know About Sales Risks

With 2010 fading in the rear-view mirror, CEO’s are asking “what risks do we need to anticipate, and what opportunities must we capitalize on to achieve our strategy in 2011 and beyond?” The top business stories of 2010 included emerging developments that percolate into portfolios of selling risks, including China, zero waste, and supply chain efficiency. Not every CEO has time to understand every nuance, but here are ten things CEO’s must know about sales risk:

1. There is a clear linkage between sales risk management and financial performance. Reduced sales risks contribute to higher sales productivity, shorter sales cycles, more accurate forecasts, and lower inventory costs.

2. Sales risk management belongs in the executive suite, not just in sales. Sales risks are enterprise risks. Sales risks aggregate, so the risks individual sales people encounter every meeting, every conversation, every interaction, every day, matter.

3. You can’t figure out your risks without knowing what your sales team must deliver to your company and to your customers. Ask your colleagues and your sales team, and see whether the answers are consistent. Most sales teams must contribute more than revenue, because salespeople are often required to deliver profits, customer satisfaction, market intelligence, and sustainable customer relationships.

4. Sales risks are becoming more complicated. Technological innovation, developments in social media, globalization, world events, and the accelerating pace of commerce and communication all contribute to growing numbers of risks and to their increased complexity.

5. Effective Enterprise Risk Management requires governance of lead qualification policies and procedures. If lead qualification practices are inconsistent, or if salespeople accept too much risk—or too little—your financial strategy is at risk.

6. Focusing on preventing familiar risks won’t protect you from blind-side tackles. Sure, everyone knows about economic and competitive pressure, but while you’ve been reading this, at least a dozen sales opportunities tanked because unanticipated events derailed the effort. In fact, in the 2010 Sales Risk Survey I conducted with CustomerThink, over 40% of sales executives reported that unanticipated situations caused one or more lost sales opportunities.

7. Transferring risks doesn’t reduce them. Hedging your bets through a channel sales program or staffing full-commission sales people provides some risk relief, but it’s superficial. If your sales partners can’t achieve their revenue plan, neither can you.

8. Ethical risks and social media risks are intertwined—and bigger than you think. Companies that turn staff loose on Facebook, Twitter, and blogs absent any guidelines will experience at least one related boardroom discussion this year, and it probably won’t be pleasant. In addition, the impact of negative social media sentiment on your company and your brand could be catastrophic, unless you plan what to do right now.

9. Risks create opportunities. Not all risks need to be avoided. Through more accurate and timely information, your company might embrace a certain type of risk because of a unique capability or advantage you have developed to manage it.

10. As with any risk, your strategic options are adapt, innovate, or mitigate. Adapt to what you must accept, namely that prospective customers might not purchase. Innovate new ways to gain proprietary advantages. Mitigate the risks that have the highest likelihood and highest impact.

Business Innovation Will Drive Demand for New Sales Talent

And now some good news . . . Speaking before the Northern Virginia Technology Council’s Titans of Technology breakfast I attended last week, Wes Bush, CEO of US defense contractor Northrop Grumman, said “The American free market is the most powerful economic engine in the world.”

Comforting to know when our status as superpower—politically, militarily, economically, educationally—faces doubt both at home and abroad. Mr. Bush continued, explaining that our economic engine relies on innovation for fuel, and innovation has a direct link to financial performance. He told the audience of more than 600 that at Northrop Grumman innovation requires:

1) Solid customer relationships
2) A constant influx of knowledge, ideas, and technology-savvy talent
3) Access to capital markets

For anyone predicting a declining role for salespeople, try ripping Sales out of this mix. It’s hard to build an aircraft carrier or a B-2 stealth bomber when you don’t have a network for collaboration, and salespeople are integral. Whether your customer is the Naval Research Laboratory, or a regional appliance parts distributor, your customers’ efforts to innovate drive dollars (hopefully in large amounts) to the top line on your Income Statement.

So I’ll venture out on a limb and say that if innovation is mission-critical for meeting enterprise objectives, and if Sales and innovation are tightly bound, then acquiring and developing sales talent in the next ten years will become more important, more valuable—and much, much more difficult.

Why? With so many out-of-work salespeople, shouldn’t the resumes of qualified candidates cram your email inbox beyond its limits? Not necessarily. First, the first-wave exodus of baby boomer retirees has made the global appetite for employable talent more acute. Second, selling—however defined—has become increasingly knowledge-based and for many products, selling relies on a combination of skills, including financial, technology, communication, and interpersonal. If you’ve interviewed sales candidates recently, you probably know how rare these skills are one at a time, and that they’re even rarer together. Which is why top-tier performers are quickly snapped up. So strap on your helmet. Whether you’re a VP of Sales or a VP of Aerospace Engineering, the competition for human talent will intensify.

President Obama leaves Washington today for California where he will discuss . . . education and innovation. I’m guessing that these issues have been on the President’s mind for a while, and that he’s keenly aware of the connection.

So, if your product or service enables your prospective customers to innovate successfully, you can be cautiously joyous. But be afraid. Be really afraid. Without better STEM education, there won’t be enough capable people—let alone salespeople—to satisfy the demand.

Top Sales Producer Meets Foreign Corrupt Practices Act

Which of the following transactions violates the 1977 US Foreign Corrupt Practices Act (FCPA)?

A. Paying a Bloomberg employee’s taxi fare to JFK Airport
B. Offering cash to a Czech Republic government official to expedite processing for a business permit
C. Buying lunch for a senior logistics manager at General Motors

The correct answer, all of these*, underscores an emerging problem: the FCPA has become the legislative equivalent of the Ford Pinto. Useful, but burdened with obvious flaws that get worse with age.

“C’mon! The Feds would never prosecute anyone for something as trivial as paying for a client’s cab fare!” you exclaim. Pause for my sarcastic expression. According to Mark Mendelsohn, who was responsible for recent growth in FCPA enforcement during his time working for the Fraud Section of the US Department of Justice, “If you look at who we’re prosecuting, we’re prosecuting mid-level to senior level corporate officers and employees, CEO’s, CFO’s, heads of international sales.”

And, I might add, earning more than chump change for Uncle Sam. The top ten FCPA settlements total $2.8 billion. In 2010, over half of the civil and criminal penalties the US Government collected were from the FCPA. That’s ahead of a lot of better-known, oft-reviled consumerist, environmentalist, protectionist legislation that collapse into three- and four-letter acronyms like OSHA, FDCA, CWA, and EPA.

Why should anyone reading this care? Because regardless whether your title is CEO, VP Sales or Marketing Rep, the government has unleashed its flying monkeys, and they’re looking for you! According to the US Chamber Institute for Legal Reform, “Five of the top ten FCPA settlements occurred in 2010 alone. The remaining five have all occurred since 2007. An added sign of increased enforcement is that there are currently more open FCPA investigations pending resolution than at any other time since its inception. “ Before you complete the PowerPoint deck for your upcoming sales meeting, I suggest including a slide with the jocular title, FCPA Regs. It will help settle everyone down after the morning coffee.

But before I jump into my Indiana-built Subaru and head out to a big-government-bashing tea party rally, let’s be fair. Without the FCPA, we’d have chaos. Corruption undermines everything we do as marketers, brand managers, and salespeople. Our foundational assumptions include that a major part of the value of our products and services are derived from quality and unique benefits. A payment-with-wink here, an expedite fee there, and that no longer applies. And although it’s hard to believe in today’s litigious and protectionist world, before 1977 there wasn’t a government on the planet that made it a crime to bribe officials of a foreign country. We’re not talking suitcases filled with cash left at arranged drop points. Just fees that were buried on financial statements as a cost of doing business.

But in the thirty-four years post-FCPA legislation, the sales and buying landscape has buckled, shifted, and changed dramatically. What worked in 1977, doesn’t today.

These forces have sharpened the need for FCPA reform:

Globalization. The importance of international trade has increased significantly since 1977. Today, nearly one third of our economy—over $3 trillion—comes from offshore. At the same time, the line between foreign government and foreign business has become hard to discern. Where to begin, where to begin? Did I hear anyone mention Airbus or OAO Gazprom? Require your sales executive to look up the ownership status of his prospect’s company on his iPad before he pays for business lunch.

Demands for economic growth. According to a recent Deloitte survey of companies in the financial services industry, 63% of respondents reported that FCPA issues caused their companies to renegotiate or abort planned business contracts, mergers, and acquisitions in the last three years.

Increasing legislative complexity. According to the US Chamber for Legislative Reform, “American companies seeking to sell their goods and services overseas need straightforward, reasonable guidelines so that they know what the standards are and can communicate them clearly to employees and foreign workers. The FCPA in its current form does not provide such guidelines.”

Not to throw another selling risk on the already-large pile that includes “no decision,” and “competitive pricing,” but FCPA compliance has earned a rightful place among the usual suspects. If you sell internationally, the macho adages “do whatever it takes to close the deal,” and “I don’t care how you make your number, as long as you make it,” should be replaced with the meeker “better run this past Steve in Legal . . .”

Yes, it’s less fun, less “shoot from the hip.” But whether you work for an offshore company that sells in the US, or a US company that sells worldwide, understanding your sales risks is just as important as knowing your opportunities.

* Bloomberg is a company owned by the mayor of New York City, Michael Bloomberg; the United States Government is the primary shareholder in General Motors

IBM at 100. Aggressor? Defender? You Tell Me!

There are two kinds of people in the world: those who over-simplify, and those who don’t.

Complexity, made clearer through categorization. But whether uber-broad categories are useful is another question.

No matter. Steve Case, founder of America Online, hit the nail on the head last week during the keynote at the Digital Media Conference in Arlington, Virginia when he said “there are two types of companies in the world: aggressors and defenders.” What he means is there are entrepreneurs and Zappos, and virtually everyone else.

When a start-up company has nothing to defend, aggressor is an obvious choice. But along with success, entrepreneurs frequently lose their mojo faster than the swooning Florida Marlins. “Be all you used to be,” except when you’re becoming fat, dumb, and happy.

Just this month, two once-aggressive innovators, Google and Gore (maker/licenser of Gore-Tex), were dragged under the FTC’s anti-trust lens and now must defend their defensiveness. According to The Wall Street Journal, (Feds to Launch Probe of Google, June 24, 2011),“’Google engages in anti-competitive behavior…that harms consumers by restricting the ability of other companies to compete to put the best products and services in front of Internet users, who should be allowed to pick winners and losers online, not Google,’ said, a group representing several Google critics . . .”

And Gore? Legal, not Laboratory, ensures the company’s shareholder value. Columbia Sportswear, a plaintiff in the anti-trust probe of the company, said “consumers mistakenly believe that Gore-Tex is the only waterproof, breathable membrane available. And Gore has reinforced that impression by restricting its licensees from using rival brands or even claiming that other technologies are both waterproof and breathable.” In The Wall Street Journal (Gore-Tex Faces Anti-trust Probes, June 22, 2011), Peter Bragdon, Columbia Sportswear’s General Counsel and plaintiff, added, “We believe that Gore has long engaged in a systematic campaign of exclusionary conduct to insulate its dominant position against challenges from more innovative, better quality and lower cost rivals.”

Sheesh. When a company reaches the point that attorneys generate more excitement for shareholders than do chemists and software developers, you know time takes a toll on more than just physical good looks. Which brings up a question. How did IBM become a vibrant 100 years old this month when Google and Gore act crotchety at the youthful ages of 13 and 42, respectively?

Self image has much to do with IBM’s success. Not that IBM didn’t have its own anti-trust skeletons when it had a 70% market share and was derisively called an evil empire. But “from the beginning, IBM had a concept of itself as an institution, not just a technology company,” said Rosabeth Moss Kanter, a professor at Harvard Business School. Others agree. ”IBM is not a technology company, but a company solving business problems using technology, said George Colony, chief executive of Forrester Research.

This insight provides much more than good ol’ customer-centric Pablum with a sell-solutions-not-products! label slapped on top. After all, IBM survived three major IT platform changes. That’s like GM transforming its product line from all gas-powered, to all electric, to all public transportation vehicles. And IBM never required a government bailout. Remarkable.

Why does IBM thrive in an IT industry characterized by innovation and change? Pigeonholing the answer into “aggressor” or “defender” archetypes doesn’t tell the story. According to a recent article in The Economist, 1100100 and Counting (June 11, 2011), there are five key reasons:

1. IBM maintains connections to its customers. “Today the main conduit is the huge services organization, which employs more than half the total workforce . . . it often ‘co-creates’ products with customers.” The company has come a long way since MAPICS and DMAS.

2. IBM has become less hierarchical. “Its Smarter Planet initiative is said to have originated in one of IBM’s ‘jams’, online brainstorming sessions where all employees and sometimes even family members are welcome. “ Not your father’s IBM, when wearing a shirt other than white was a brazen sign of disrespect.

3. “IBM tries to ensure that the output of its 3,000-strong research division remains relevant to its business.” If executives at Chrysler thought similarly, the world would never have seen the now-discontinued Crossfire.

4. “IBM is no longer a collection of independent national subsidiaries, but a globally integrated company” with a common IT infrastructure.

5. IBM has an ethos of financial planning and risk management. “One rule is to ditch businesses that are about become commoditized and no longer yield a sufficient profit margin.” Goodbye PC’s and printers, hello PriceWaterhouseCoopers!

When you think about the resources that enable enterprise longevity, a valued sales force belongs on the list. IBM has more than a few best practices worth emulating. “From the beginning, as a maker of complex machines IBM had no choice but to explain its products to its customers and thus to develop a strong understanding of their business requirements. From that followed close relationships between customers and supplier.” There are thousands of books and blogs on these topics. But IBM achieves them.

Aggressor? Defender? Both? Neither? Maybe defying categorization is the best strategy of all.

When “Lame Excuses” Become Significant Selling Risks

“12 Lame Excuses Salespeople Use and How to Respond”

This headline from a June 30th blog grabbed my attention like a July 4th firecracker. A better title might have been How to Ignore What You Hear. After the banking crisis, the BP oil spill, and the Japan nuclear reactor breakdown, who would be arrogant enough to blow off warnings, and then to further that stupidity by lambasting the messenger?

Had people at Lehman Brothers, BP, Tepco, and Boeing whined louder—and had more managers and government regulators been less dismissive of their whining— could dedicate more screen area to stories about the breakup of Jonny Fairplay’s marriage, and the fifth season of Jersey Shore. Sadly, unmanaged risks make headlines all too often. And we’re reminded every time . . .

OK, I agree, you can’t compare sales risks with nuclear meltdowns, but come on! After learning about how otherwise smart people ignored risks that all but smacked them upside the head, are you still going to callously sweep under the rug the warnings your sales force brings to you? “Oh, I’ve heard it all before! Get back on the phone and make your quota!”

These are the “lame excuses” in bold that are described in the blog. Pure whining? Maybe. But I’ve added the risks that lurk behind them:

1. The product sucks. Risk: the product sucks. Ever tried to sell a product that was a flat-out misfit in the intended market? I have. And the only time slamming your head into a brick wall feels good is when you’ve stopped. You should ask what’s missing from the product or service. What’s included that’s not needed? What has to be changed? Maybe nothing can be done short term, but ignorance is never bliss. Why squander the opportunity to learn?

2. The price is too high. Risks: the product is mis-targeted, the messaging doesn’t match how customers think about the business challenge, the price really is too high!

3. No time for prospecting. Risks: sales force churn, missed revenue targets, poor morale, mis-aligned commission and incentive programs. Some companies saddle the sales force with customer support, CRM administration, and other tasks that reduce direct selling time. If you consistently hear this issue, the challenge might require changes in workflow, outsourcing lead generation, a redistribution of job responsibilities, and more.

4. Goals are too high. Risks: sales force churn, poor morale, mis-aligned incentive plans, the business plan is not grounded in the reality. One thing I’ve learned, goals are more SWAG than science.

5. Our competitors are better. Risks: wrong target market, mis-aligned product development investment, missed revenue targets, attrition of talented sales staff to competitors. Decompose the challenge: In which ways do competitors have a superior offering? How tangible are competitor benefits in the prospect’s mind? Which capabilities can be nullified or surpassed? Is it smarter not to take on certain competitors head-to-head? Do prospects perceive your product as “me too”?

6. We do not get enough support. Risks: sales force and customer churn, missed revenue targets, extended sales cycles, high sales expenses relative to revenue. Spend a day with your sales reps—whether top producer, middle-of-the-bell-curve, or underperformer. Are they chasing down answers to routine questions and checking ship status because no other resources are available, or because you haven’t provided better tools to get the information?

7. No one is buying now. Risks: long sales cycles, orders lost to competition, mis-aligned messaging, channel conflict. Sometimes, delays in buying decisions are a leading indicator of larger economic problems, and adjustments in financing, pricing or product may be needed.

8. My product is a commodity. Risk: your product is a commodity. It happens. One company I worked with in the bar coding industry failed to accept that reality, and managers insisted on pricing scanners at over $1,000 when customers could readily buy them for less than $500. With that delta, that’s not a pricing problem, that’s a strategy problem. A once-premium product became a throw away, and customers weren’t stupid to the economics.

9. Can’t get an appointment. Risks: confusing and un-motivating messages, mismanagement of social media and other communications channels, poor sales training, lack of understanding of customer need, misaligned value proposition.

10. Can’t get them to return my calls. Risks: overly dependent on phone for communications, not competent in other communications and social media technologies, misaligned communications, prospects don’t understand the “value proposition,” the company, and its brand.

11. Not enough people know about our products/run more ads. Risks: continued wasted marketing spend, opportunities lost to competition. Possibly another way to say “the right people don’t know about our solution . . .” Dig into the problem, but don’t avoid giving credence to it.

12. All I need is more leads. Risks: ineffective marketing execution, wasted marketing spend, poor workflow between marketing and sales.

Hubris kills a company’s business strategy as surely as voracious competitors. “Lame excuses” might not actually be lame. Few things bring more risk to a selling organization than a manager’s bring-me-sales-not-excuses mindset.

Oil derrick and nuclear plant workers are as prone to whining as salespeople, but the risks they reveal should never be ignored.

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