Category Archives: Sales strategy

Optimize: Meaningful Math or Over-worn Word?

If you want to become a linguistic maven, or the life of a party, read Made in America – An Informal History of the English Language in the United States, by Bill Bryson. The book is saturated with interesting stories about the origins of everyday words like dashboard, refrigeration, airplane, radio, aquatics, megabyte, jackhammer, jazzercise, microbrew, and groovy. The author reminds us that these words were once as novel as IoT and Gesture Tech are today.

After reading Made in America, I take few words for granted. Lately, I thought about optimize, a word I encounter with amazing frequency. Its current meaning, “to make the most of,” had its first recorded use in 1857. It languished for about 100 years, before becoming more prominent in the 1950’s. Today, optimize and its derivatives have soared into ubiquity, rivaling trendy expressions like paradigm shift, synergistic, and transformational change.

I didn’t need to look hard to find examples. In biz-dev alone, I found “Optimize customer experience.” “Optimize customer loyalty.” “Optimize your website.” “Optimize your push-notification strategy.” “Optimize visual storytelling.” “Optimize customer retention programs.” “Optimize your call center conversion rates” . . . The list stretches over multiple pages.

I first encountered optimize in 1978, in an operations research course titled Quantitative Analysis for Management. Our textbook carried the same name, and its graphics were limited to plain statistical charts. Other than the cover, which sported silver lettering on a gray background, the book was devoid of color. Clearly, the authors intended to suck all excitement from their topic. In that sense, this book was impeccably honest. When done correctly, operations research suppresses the flow of adrenaline.

We began  by manually grinding out matrix manipulations for simultaneous algebraic equations. As our professor explained it, these expressed simulations of real-world problems, and the mathematical approach for optimizing variables was called the Simplex Method. This must have been a marketing moniker, because I didn’t find  the Simplex Method very simple. But the professor, a logistician for the US Department of Defense in his pre-academic life, believed that manually slogging through matrix math would be helpful for understanding what computers do when performing optimization calculations. An approach that proved correct.

“In mathematics, optimization problems involve a quantity that we are trying to make as big (or as small) as possible, subject to some constraints, or boundary conditions. The constraints might be time or available resources,” Eugenia Cheng wrote in her column, Everyday Math (Wall Street Journal, March 18, 2017). In B-school, I expected a hefty dose of revenue, profit, scrap, or cost among the variables to be maximized or minimized. Quantitative Analysis for Management didn’t disappoint.

When [Stuff] happens, Operations Research gives you guidance about how to proceed. Here’s where things got fun. After presenting a problem, the professor changed constraints such as raw material cost, lead-time, cube, and weight. “Refer to the original problem above. The factory in Arkansas no longer produces the titanium alloy lock nut. The VP of Operations has asked you to consider using a less-expensive Korean substitute, but the part takes three times as long to receive, and the sample shipment was 28% defective. Should Company A source the part from Korea?” The “right” answer was not always evident, and it wasn’t unusual to find my classmates promoting widely-varied recommendations.

Often, key information was missing from the problems. What was the cost of the Korean part? How many lock nuts would have to be procured to compensate for the expected defective parts? We were forced to figure out what else we needed to know, and to ferret out the right information. And when we couldn’t, we formulated assumptions – which we always had to justify.

A bumpy path. But in this way, we discovered that new conditions spawned new, downstream optimization challenges, requiring more number crunching and more analysis. In fact, this happened for every problem. Even small changes in constraints or variables had potential to upend a carefully prepared optimization analysis. Mercifully, the professor soon had us abandon longhand calculations, and we moved on to use Linpro, an optimization software subroutine. Linpro made it possible to complete the course in one semester, and had the added benefit of preserving our sanity.

Importantly, our mathematical results were incapable of conjuring certainty. And they never decided anything. If anything, our results fostered additional questions. “Following the supply chain interruption, what will be the consequence for delivery lead times and customer service? Should Company A continue its strategy to be a premium-quality producer? Explain your recommendations.” I quickly discovered that optimization demanded grappling with thorny questions that were massively more time consuming than the manual number crunching.

I reveal these details about my background with optimize to highlight a complaint: many people perfunctorily proclaim “optimize!” without understanding or acknowledging the large ancillary issues that inevitably accompany the effort:

1. Tradeoffs.
Optimizing anything requires sub-optimizing something else. Want to optimize customer experience? First, determine what you’re willing to sacrifice. Shortening service queue time will probably increase labor or IT costs. Optimizing order fill rates usually means boosting inventory investment as well as carrying costs. And optimizing customer retention can mean giving up a portion of profit margin.

2. Interpretations and recommendations. Optimization is a decision, not something given as an admonishment, or presented as a foregone conclusion. Five Reasons You Absolutely Must Optimize Your Website for Mobile.  Sound advice for some companies, when given as a recommendation based on context. But optimizing a mobile website doesn’t apply to every business.

3. Ongoing calculation and analysis. Because conditions change, optimization problems are never fully solved.

4. Project reprioritization. Does optimizing customer loyalty make sense if meeting that goal means tanking your profit? That sounds like a rhetorical question, but it’s not. Many executives maintain slavish devotion to “optimizing,” and when conditions change, they fail to question the efficacy.

5. Strategic realignment.
When corporate strategy is to be low-cost producer, do protectionist politics add risks that are too costly to absorb? Optimization analysis sometimes reveals the need to change strategy.

6. Inflection points.
More optimization isn’t necessarily better. Optimization rarely continues ad infinitum. In a key piece of insight, Eugenia Cheng wrote, “If the manuscript I’m revising improves very quickly at the beginning of my work before I hit diminishing returns, then the outcome-to-effort ratio will increase to a maximum and start decreasing. That is the point where I should stop.”

When it comes to optimizing, there are few guidelines for when it makes sense to reevaluate, curtail, or discontinue. That’s where I get most bothered about optimization hype. When hotly pursuing an optimization goal, many executives blow past the point of diminishing return, which can sometimes be at the outset – or earlier. Compounding the problem is the steady, incessant drumbeat of messages from vendors and consultants that says, in effect, “the thing I sell you  optimizes [fill in name of result de jour]. So, don’t stop! Keep optimizing!”

That’s folly. Making the most of something sounds great, but whether it’s worthwhile or valuable depends on context. Optimization is a decision tool that considers and reflects forces that exert pressure and risk on a company’s strategy. And it helps managers adjust and respond when conditions change.

Wells Fargo Disinfects Its Sales Culture. Will Other Companies Follow?

I’ve never taught corporate strategy to second graders, but I sometimes think about how to approach the challenge. I’d begin by representing a company as hodgepodge of contraptions. Maybe, a school bus with feathered wings on top, a boat anchor dragging behind, and wheels of various sizes and materials randomly positioned underneath. “Pretend this is a company. How far do you think it could go? Would it sink or crash? Can it reach Profit Land before everyone jumps off?”

Or, maybe I’d just give the kids a dark, real-world example. Say, Wells Fargo, circa 2016. “The top executives are bullies who believe rules don’t apply to them. They scare the sales staff on purpose, and they tell them to lie to customers – all so the stock price will go up! That way, the executives can get paid lots and lots and LOTS of money!”

I envision an eruption of giggles and laughter. “That’s dumb! And it would NEVER be sustainable, silly!” Every corporate board needs at least one seven-year-old to call out the obvious.

Wells Fargo wants to change that narrative. In the wake of their recent scandal, the company replaced its senior management, and announced its intention to disinfect its infamous sales culture. That effort began in January through a new compensation plan for employees, and success measurements that reflect customer value delivered. Wells Fargo employees will say goodbye to “stretch” goals, low base pay, individual bonuses for entry-level sales employees, and onerous demands to open new customer accounts. They will say hello to higher base salaries, less variable pay, and team incentives. Yes, you read that correctly: team incentives. No more divide and conquer as a daily tactic for employee intimidation. And, probably less employee intimidation, too.

You won’t find “salesy” behavior here! Under the new management regime, Wells Fargo will monitor growth in the number of customers who rely on the bank as their primary financial institution. And branches will be measured on customer retention. Meet the new Wells Fargo, where consumer bankers, loan officers, and financial planners cooperate, collaborate, and support one another. Go team, go!

Wells Fargo’s new plan “will focus on customer service, customer usage and growth in primary balances,” Emily Glazer wrote in a Wall Street Journal article, Wells Fargo to Roll Out New Compensation Plan to Replace Sales Goals . These new objectives are light years from what they were less than one year ago, when the company’s goals included having every customer hold eight accounts, even if it meant browbeating the sales team to open accounts surreptitiously. And by browbeating, I mean threatening to ruin careers for noncompliance, then conspicuously enforcing the threat.

Such reforms are instrumental for building an ethical culture, improving customer experiences, and keeping customers happier, longer. By forgoing an aggressive sales environment with harsh punitive measures, Wells Fargo can also close the chasms between their written Corporate Vision and Values, what their employees do in the field, and how management recognizes and rewards their efforts. Can is the operative word. It won’t happen automatically, and it won’t occur overnight, but I predict for Wells Fargo, the outcome will be greater revenue, profits, and higher investor returns over more quarters. And for the same reasons, Wells Fargo’s customers will feel good walking into a branch and talking to a banker who now is far more likely to have benign intentions. That’s huge, and it doesn’t happen on its own.

These changes seem so pragmatic and sensible that I’m surprised they are not more widely adopted. But in the sales world, they compare to a diamond in the rough. Similar initiatives are rare, so whenever you discover one, savor it by examining it closely. One of my clients, a global cloud software developer, deviated from a widespread industry practice that provides reps commissions on seats sold. Instead, my client’s plan compensates reps not for seats sold, but for usage. They go even further. Their plan penalizes reps for dormant seats. The reason? Nothing puts a vendor in a financial buyer’s crosshairs more than writing checks for stuff that nobody uses. “I see we’re paying Squishysoft $400,000 every month for supply chain software that only 10 of our employees log into daily. They told us we’d save money by going to the cloud!” No vendor wants that conversation taking place in the buyer’s offices. My client was shrewd in recognizing the risk lurking in an attractive revenue stream, and they mitigated it through their pay plan.

Some might dismiss Wells Fargo’s new sales strategy as an obvious choice to restore customer and employee trust. No doubt that’s a motivator. But I think their kinder, customer-centered selling approach is an astute competitive maneuver, and long overdue in revenue strategy.

Why does Wells Fargo today appear at the vanguard for a sales model that should be commonplace? I don’t know. But I have a theory that specific forces impede companies from jettisoning practices that consistently antagonize and alienate customers and employees:

1. Demands on CXO’s to grow shareholder value. For the investment community, stock price and potential revenue growth are connected. Unfortunately, many senior executives operate under the misguided notion that growing shareholder value is not only their primary responsibility, but an obligation. In turn, their demands for short-term revenue growth seeps into selling strategy, undermining the delivery of longer, more sustainable value to customers.

2. Sales managers today are unable to adapt to evolving needs, because they began their careers in “revenue-driven” organizations. Customer loyalty, customer retention, and user satisfaction have emerged as value drivers for vendors. But sales managers are slow to change their expectations, along with their coaching and mentoring.

3. Many outside the sales profession stereotype salespeople as “thriving on pressure.” As we learned from Wells Fargo, they can also be sickened by it. Accountants, lawyers, and logisticians don’t thrive on pressure any more than salespeople do. But for salespeople, the stereotype leads to dysfunctional pay policies and incentives.

4. Hiring managers still believe money-motivation as integral to selling success, and strategies are built around that assumption. Further, firms that provide psychographic testing for sales candidates perpetuate obsolete traits deemed essential to a “sales personality.” But these were formulated at a time when “individual contributor” was a synonym for “salesperson.” That doesn’t cut it today. Yesterday’s competencies won’t fill tomorrow’s sales needs.

5. In many organizations, sales operates as a stand-alone entity, with procedures, goals, targets, and objectives that are disconnected from other parts of the organization. By contrast, Wells Fargo has developed a model built on collaboration and goal congruity between departments.

Wells Fargo’s new sales culture is a risky move, but if successful, it will be a powerful competitive differentiator. Much can go wrong. Will a company with a heritage of individual revenue production make a successful conversion to competing as a team? Will the new customer retention measurement backfire? For example, what will happen when a customer wants to close an account because he’s combining assets with his fiancé’s at another institution? Will he encounter a gauntlet of red and gold-clad bankers hellbent on preventing that from happening? By now, Wells Fargo’s management knows about Comcast’s retention debacle. Will they commit the same error? The answer depends on how tightly Wells Fargo adheres to its Vision and Values, the incentives it provides to its sales force for meeting goals, and the penalties it metes out for failing.

I applaud Wells Fargo’s board for addressing a daunting selling challenge, and for setting a worthwhile example that others should follow. For many, the concept of paying team bonuses and rewarding reps for outcomes tangential to direct revenue production might seem as heretic as NASCAR including fuel economy and safe driving as additional criteria for who wins a race. But promoting positive customer outcomes and fostering ethical practices requires companies to change the strategies underpinning their business development activities. And that means reforming sales pay and incentives.

If you need advice starting out, ask a second grader: “When a person buys something they should feel good. And they should always be happy that they did, because that will mean the person did a good job deciding, and the person who sold them something did a good job, too!”

Thanks, kid. You have a great future in business development. I know you’ll go far.

Should Companies Stop Worshiping Sales Rock Stars?

“Can you find us a sales rep? And not just any rep. We want a rock star!” An ordinary request for something truly extraordinary. I hear it often. Lately, I began to wonder, what does this honorific mean?

I searched online for sales rock star, and received a deluge of results. 23,800 of them, if you’re into numbers.

How to Find Your Next Sales Rockstar

Be an Inside Sales Rockstar

How to Be a Sales Call Rockstar

And, From Sales Rookie to Enterprise Sales Rockstar.

I found a YouTube video, How to be a phone sales Rockstar. It’s over 90 minutes long, with 1,276 views. Oddly, just one Like.

I dove further into the results by clicking on random links. Many were for job opportunities like this:

“Business Development Sales Rockstar Jobs in Connecticut.” The position stipulates “Other Must Have’s: Ability to sit for extended periods of time at a desk, in meetings, etc. . .” Oh, baby! How many candidates applied?

There’s a definitive book on the topic, Sales ROCKSTAR: How Top Producers Perform by Jeff Krantz. You can find it on Amazon, which offers an expectedly salesy blurb:

“This book was written for those who want to become ultra Top Producers in the profession of selling. It has been developed for those who desire the lifestyle that only a successful sales career can afford.”

Questions for the copywriter: Is it necessary to modify top producers with ultra? And which lifestyle are you referring to? The retirement you’re planning while burning out as a micro-managed, bag-carrying road warrior, shackled by a thin thread of job security?

I even discovered yet another usurpation of the Keep Calm mantra: Keep Calm and be a Sales Rockstar.

This was getting weird. The last straw was an article, The Seven Absolute Must Have’s to Become a B2B Sales Rockstar. The title leaves no room for dissent. Had the writer been interested, I would have questioned why honesty, ethical integrity, humility, and empathy don’t appear on his list of essentials.

About 45 minutes into my rock star investigation, my head hit the keyboard. I was appalled by what I read, and felt no closer to an answer. The most consistent idea I gleaned about sales rock stars was that they achieve high ratios of revenue compared to goal. Lots of unanswered questions remained. How difficult were the goals? Were they impossibly high, or ridiculously low? Are rock stars better at exploiting serendipity? Are they more immune to black swan calamities? How long do rock stars remain rock stars? Forever? Or like many professionals, is their performance subject to ups and downs?

For rock stars, there’s lots of admiration for their revenue outcomes, but what about their customer outcomes? Do rock stars have happier, more loyal customers than non-rock stars? Do rock stars nurture more profitable customers than others? No answers.

Finally, there’s the question of fairness. For sales reps, does a rock star label mean landing a peachier territory than reps whose abilities have not been similarly anointed? Does it gain them more opportunities for professional development? More autonomy and independence? A speaker slot at Achiever’s Club? Does being considered a rock star become a self-fulfilling prophesy – or an unwieldy career burden, causing the bearer failure and disappointment? Hard to say.

“It’s tough to juggle the mountain of details about everyone we meet, and we need an easy way to think about them, wrote Peter Cappelli, professor at the University of Pennsylvania’s Wharton School, in a Wall Street Journal article, Why Managers Should Stop Thinking of A, B and C Players (February 21, 2017). “Managers routinely put employees into one of three boxes: people who perform well (A Players), those who perform poorly (C players), and those who are stuck in the middle (B players). Rock Star persists in sales parlance, reflecting our adoration for all things ostentatious. Rock stars belong in Sales! A-Player banality belongs in Accounting.

“The problem is that there is precious little evidence to support the A-Player model and the basic idea beneath it. The evidence from objective measures of actual job performance for individuals shows that it varies a great deal over time, even within the same year,” Cappelli writes. Could his research explain why I have witnessed so many high-flying sales achievers who tanked at their next gig, or suffered revenue craters when territories realigned, products changed, or competition stiffened?

Before rock stars produce even one dollar of revenue, hiring managers proclaim their stratospheric hopes. “We just hired Stefan away from [competitor X]. He crushed his goal in their East region last year, and he’s a fantastic closer. Welcome aboard, Stefan. We know you’re going to just kill it!” Bro hugs from proud management follow as Stefan joins the team.

Cappelli writes that more than half of US corporations routinely segregate individuals based on such expectations. “In this system, people are singled out as A players, often after only two years’ performance, and groomed to rise higher and higher in the company. Yet the evidence shows that people are kept in those programs no matter what their actual performance is – and only 12% of companies report that their employees see the process as impartial.”

That creates a morale problem, though some sales managers argue that it shouldn’t because all reps are evaluated the same way – on revenue achievement. That sounds egalitarian, but it doesn’t guarantee a level playing field. Could rock stars, by dint of their near-deity status, be granted better opportunities? Or are they allowed slack if their performances don’t match expectations? After all, what manager wants to admit a hiring mistake? “It is easier to play along with the A-player model and assume that job performance is hard-wired. It has the drawback of being wrong and bad for business,” Cappelli says.

Requests for sales rock stars say more about a company’s position than most senior managers realize. It’s tacit admission of a hornet’s nest of marketing problems. A neon sign on a job post that tells candidates “Our products are weak. We don’t know how to deal with our competitors, and we can’t a produce a quality sales lead to save our life.” Hence, Rock Star as salvation for a smorgasbord of management inadequacies. The problem is, high-achieving sales professionals are attracted to high-potential opportunities. When those opportunities don’t materialize, their appetites for sticking it out are no stronger than an employer’s resolve to keep a struggling rep on the team.

The sales profession needs to look at itself in the mirror. Using crass terms like rock star trivializes the difficult challenges that salespeople encounter every day. It ignores a reality in every profession that performance rarely remains consistently high or consistently low. And it perpetuates a dumbed-down culture. A hypocrisy that sales managers bemoan when sales reps face the cold, cruel world of the C-Suite. “Our reps just don’t know how to talk to senior executives . . .” Ahem . . . you can help them by first expunging sophomoric language like “rock stars” and “crushing it!” from your sales communications.

In his book, The Art of the Sale, Philip Broughton wrote, “A positive view of sales and selling “holds that . . . no matter the condition of your birth, if you can sell, you can slice through any obstacles of class, status, or upbringing in a way inconceivable in more hidebound societies. Great sales[people] need no other prop to succeed. Selling well, in this view, is also a reflection of a healthy character. It means you are the sort of person people are drawn to – hardworking, clean living, and trustworthy – and you are likely to succeed at whatever you choose to do.”

I’m under no delusions that sales success means possessing saintly virtues. But characteristics that distinguish outstanding sales professionals defy assigning labels. It’s time for companies to quit worshiping meaningless, flamboyant nicknames like rock star, and instead, seek the combinations of skills, behaviors and actions that produce the right outcomes for their companies and customers.

Six Strategies for Managing Revenue Risk

When you boil off the ancillary stuff that business developers do, four distinct objects remain:

1. Capture: Acquire new customers
2. Maintain: Keep current customers happy
3. Grow: Encourage customers to increase spending with your company
4. Reclaim: Win back former customers

No mere coincidence that the word customer appears in each one. This indicates the basic element has been revealed. Time to stop boiling.

The problem is that the slew of activities involved in augmenting the Income Statement’s top line have obscured these fundamental objectives. For revenue generation, organizations now employ specialists for direct selling, indirect selling, measuring, forecasting, dashboarding, best-practicing, comparing, spreadsheeting, analyzing, planning, content developing, press releasing, training, storytelling, elevator pitching, and social-media-ing! How did this happen? Discuss . . .

Driven to distraction.
“The sales models for many large companies have become more complex and less efficient, putting pressure on profit margins,” a Bain & Company survey explained. Using financial data between 2003 and 2011, Bain compared the income statements of about 200 US healthcare, technology, and financial services companies. “More than half of these companies had increasing sales and marketing expenses as a percentage of revenues over the period, or they failed to demonstrate the scale benefits that one would expect from their growing size.”

Sales pundits offer a reason for this by proclaiming that customers have suddenly become “more demanding than ever.” That’s an illusion designed to induce panic, sell services, or both. Customers are not more demanding. They have demands that are new and different, which throws vendors for a loop. Bain attributed the increased cost percentage to four emerging buying trends:

1. Customer needs becoming more sophisticated, evidenced by faster revenue growth in vertical industry solutions over general enterprise systems.

2. Customers defining value as derived from outcomes or results, rather than in simply receiving the lowest price.

3. Customers becoming more experienced conducting disciplined, competitive bid processes.

4. Customers becoming more wary about risks of incurring high switching costs.

These trends complicate almost every activity between trading partners. More intricate, collaborative processes for buyers drive congruent challenges for sellers. And for both, increased transaction costs, and greater risks. For B2B vendors, longer sales cycles and less predictable outcomes have become the new normal. Not everyone is upset. These problems represent red, billable meat for strategy consulting companies, which predictably promise “solutions” by positing new, box-intensive revenue frameworks.

Here’s one from PwC: The Sales, Channels & Distribution Diagnostics Framework. Despite the impenetrable title, multiple layers, lots of arrows pointing left-to-right and top-to-bottom, and odd categories under the Sales Technology Solutions stack (CRM Solutions/ Sales Portals/ Channel Integration Solutions/ MIS/ Sales Dashboards), it’s a useful visualization that takes a spaghetti bowl of cross-departmental projects, and organizes them into a concise, linear arrangement.

It’s easy to believe that adopting a more complex selling framework offers salvation from revenue calamity. But without knowing a company’s current situation, it’s hard to know whether that’s true. Regardless which selling model or framework your company uses or chooses to implement, expect to encounter a unique collection of risks. Some familiar, some brand-spanking new. For mitigation, consider one or more of these risk strategies:

1. Accept. Many executives regard risk as something to get rid of. But every business strategy involves risk acceptance. The challenge is knowing which are appropriate. For example, any company unable to accept the risk that a sales opportunity might fail is not market-ready. So for commercial organizations, the possibility of losing a deal is an appropriate risk to accept. From there, the question becomes how much capacity the company has for failed opportunities.

Examples of risk acceptance:
• “We expect that [X%] of our pipeline leads will not result in a sale.”
• “We’re going to monitor trends X, Y, and Z. But for now, we’re not mitigating their risks.”
• “We have budgeted [X%] of gross sales for Bad Debt Allowance.”

2. Reduce. This is the most common approach to revenue risk. After all, when it comes to risk, shouldn’t less be better? Maybe. Yet, some companies want the very risks that other companies willingly chuck over the fence. In fact, entire companies have been built on this idea. Who can’t think of an entrepreneur or two that has created a business by providing an effective solution for the difficult or hard-to-serve customer?

Examples of risk reduction:

• “We are tightening our lead-scoring requirements before handing opportunities to Sales.”
• “We are increasing our sales pipeline multiplier.”
• “We are conducting background checks on all of our new hires.”

3. Eliminate. Some risks can be so catastrophic – bad ethics, for example – that they exceed a company’s capacity to bear them. But eliminating a risk is rare, because it means crushing it to zero probability. When getting rid of a risk is the objective, often the best that can be achieved is making it a very, very low possibility.

Examples of risk elimination:

• “No orders will be shipped without payments clearing in advance.”
• “Moving forward, we’re discontinuing all channel sales and adopting a direct model.”
• “Our CRM system will not advance an opportunity to the next stage until we know [X.]”

4. Share.
Some risks are too great for a single company to sustain, but they can become feasible when shared between two or more entities. This often occurs with co-development agreements between trading partners, or when projects are underwritten by other investors. Risk sharing occurs on the operational level, too. When a company cannot afford a salaried sales rep in a territory, the arrangement might become possible when base pay is lowered, and commission percentages are increased.

Examples of risk sharing:

• “We are engineering this new energy technology with a consortium of trading partners who will have exclusive rights if we are successful.”
• “Our reseller contract provides protected territories to our exclusive channel partners.”
• “Our suppliers have revenue incentives if we meet our target sales volumes.”

5. Transfer. This strategy is increasing, because companies have discovered rapid growth is possible through operating with few employees and scant physical assets. New business models are emerging where risks have been offloaded, and shifted to different entities in the value chain. Recently, one – AirBnB – has even become profitable!

Examples of risk transfer:

• “We are outsourcing our software development to a third-party company.”
• “Sales quotas are going up.”
• “All of our sales representatives are independent and work on full commission.”

6. Pool. As the name suggests, risk pooling is used for combining a large amount of similar risks into a single group. The rationale for risk pooling is that positive and negative spikes in variability tend to offset one another, thereby diminishing the impact, and lowering costs. Risk pooling is often used in supply chain applications where central warehouses might be used to consolidate inventories from satellite facilities, decreasing the investment in safety stock.

Examples of risk pooling:

• “We’re providing our reps a team incentive bonus if the territory meets its revenue target.”
• “Our strategy is to provide a horizontal software solution.”
• “To make quota, every rep must maintain no fewer than [X] qualified opportunities at any time.”

“The purpose of business is to create a customer,” Peter Drucker said. In a complex world, I find the simplicity refreshing. But all around Drucker’s straightforward idea swirls a constellation of risks. Don’t ignore them. Accept the right ones, and use this arsenal of choices for dealing with those that are consequential.

Virginia Gives Tesla’s New Sales Model a Faint Green Light

Earlier this month, I visited friends in Beverly Hills, California, and rode in their new Tesla Model S. The car accommodated six adults. Two sat up front, and four snuggled into a back seat designed to hold three. I loved the quiet, and especially the acceleration. If there were celebrities milling about, I didn’t see them. The scenery was all a blur. But it was a blast getting to the country club.

When I returned home, I initiated an online search, How to buy a Tesla in Virginia. The top result, Edmunds.com, gives some up-tempo prose. Kudos to the writer:

“If you are in the market for a new Tesla car or truck, your search should begin at Edmunds.com. Our expansive network of Virginia Tesla car dealerships gives car buyers the ability to start shopping for their new or used vehicle from the convenience of their desktop. Once you locate Tesla car dealers in Virginia, you can compare online price quotes to find the lowest possible rate. Whether you are interested in a car, truck, SUV, wagon, or minivan, the comprehensive listing of Virginia Tesla car dealerships at Edmunds.com is a great place to start.”

The first hint of weirdness, though, comes in the first sentence from the word truck. Tesla doesn’t yet have one available for purchase. The “expansive network of Virginia Tesla car dealerships” is impressive. The list covers much of my state, making an alphabetic span from Alexandria to Woodbridge. There’s even a link to find Tesla dealerships in Lynchburg, located in Campbell County, which voted 71% for Trump and 24% for Clinton. Not a superb target demographic if you’re selling an all-electric vehicle. Strange . . . why put a dealership there?

Then, my website peregrinations guide me toward an answer. Each time I click a link, I receive an identical result:

Sorry, there are no car dealers in your area. Please try a selection below.

The online experience proceeds downhill. The try-a-selection-below path demonstrates what happens when software gets flummoxed. Edmunds.com simply coughs up a different list. One that shows makes of cars from Acura to Volvo. Fail!

Other sites are no better. “No Virginian should buy a new Tesla without being fully informed about the new car market. TrueCar shows you the average price other people are actually paying for new cars at Virginia Tesla dealers.” Please! Now you’re trying to play me.

Of course, there are no Virginia Tesla dealers. My suspicions are confirmed – online car buying services just re-use the same copy for all vehicle makes. “Change Toyota to Tesla . . . ” I can hear the Marketing Director saying it now.

Evidently, Edmunds and TrueCar have teed up their websites in preparation for the first franchised Tesla dealers, broken links, be damned! When – or if – that day will come remains unclear. “In Virginia, as in most states, it is generally illegal for manufacturers to sell cars directly to consumers, partly to prevent car makers from undercutting their franchisees. But there are exceptions to that rule. And Tesla says those apply, in part because its cars are so unconventional that traditional car salesmanship will not work,” Laura Vozzella wrote in a November 29 Washington Post article, Tesla’s Bid for Second Store in Virginia Draws Fire.

Tesla, which is licensed to sell cars in 23 states, wants to open its second store in the Old Dominion, just outside Richmond. Tysons Corner, Tesla’s current Virginia location, is called a Gallery. Staff are allowed to talk about the vehicles, but cannot discuss sales or arrange test drives. But Don Hall, president of the Virginia Automobile Dealers Association (VADA), doesn’t want even that to happen. “For the last 29 years, I have fought as a gladiator to protect the rights of Virginia auto dealers and their franchise system. This system is under attack by the likes of Tesla and many others out there who believe the franchise system is a dinosaur and no longer works . . . Let’s all strap on whatever it takes to win.”

Some sales advice for Gladiator Don, which I’ll throw in, no extra charge: if you want to convince Virginians to support the business model you cherish and aspire to protect, mention a few feel-good phrases like dealer value-add, consumer rights, buyer protection, and excellent customer experiences. And describe how crushing Tesla’s direct-to-consumer sales innovation brings benefits to car buyers, and not just to your association members.

For Don, a full-frontal sales pitch should be familiar territory. He espouses the same go-for-the-jugular approach that made auto dealers notoriously unpopular with consumers. Something he likely feels he must do to bolster an industry that holds not one, but two spots in the Better Business Bureau’s (BBB’s) top 10 industries for customer complaints. In 2014, Auto Dealerships – New placed 4th on the BBB’s list. Auto Dealerships – Used placed 6th. And while I’m at it, Auto Repair and Service ranked 10th. Not all of that complaining was directed toward dealership repair facilities, but no doubt, some of it was.

Checkered customer satisfaction ratings possibly explains why over the past 10 years, VADA has found it necessary to invest over $4 million in campaign contributions and gifts to Virginia politicians to maintain its hegemony in auto sales. Their effort seems to be working. Achieving Tesla’s strategy is far from assured. “If [Tesla] wants a carve-out, it better be such an incredibly compelling argument,” Republican Del. Jackson H. Miller said. “And I’m not sure Tesla has that.” The commissioner of Virginia’s Department of Motor Vehicles will rule on the matter in December (author’s note: see the update at the end of this article).

“Tesla has argued that dealers, who are used to quick sales, price markups and profitable maintenance work, could not shift gears to its cars. With new, highly sophisticated technology, Teslas are more time-consuming to sell. Tesla offers the cars at set prices whether they are purchased at a retail store or through the company’s website, leaving no room for markup. And with few moving parts or oil, they offer little opportunity to profit from service – an important source of revenue for many conventional dealers,” according to The Washington Post article. “It’s not a Ford versus a Toyota versus a Hyundai. It’s a whole different product,” said Marcus Simon, a Democratic state delegate from Fairfax. “There’s not many moving parts to the thing. It looks different, works different, smells different . . . It’s more like buying a computer or electronic device than a car.”

Tesla’s management knows what dealers would have to do to make a profit selling their cars, and it wouldn’t be pretty. Would dealers gouge customers with unnecessary add-on fees, as they did with undercoating and “appearance packages”? Would they steer them to more profitable gas-driven models? And would an intermediary injected into the sales process destroy Tesla’s carefully cultivated customer trust?

It’s understandable that Tesla wants to drive away from the franchise sales model. As a prospective car buyer, I hope they succeed in navigating that road, not only in Virginia, but throughout the US.

Update: On November 30, Richard Holcomb, Commissioner of the Virginia Department of Motor Vehicles, allowed Tesla’s petition to open a second Virginia store. “After careful review of the entire record, I find that there is no dealer independent of Tesla in the community or trade area of Richmond to own and operate a Tesla franchise in a manner consistent with the public interest,” he wrote.

In an email, Tesla’s VP of Business Development, Diarmuid O’Connell responded, “Tesla applauds the Commissioner’s decision to allow us to open our new store and service center in Richmond, Virginia. . . This decision will allow Richmond-area consumers to learn about and purchase their Tesla vehicles in closer proximity to their home. We intend to swiftly begin construction.”

As of December 1, 2016, a search of the Virginia Automobile Dealers Association website yielded no response to Holcomb’s decision.