Tag Archives: ERM

Six Sales Risks Most Companies Are Afraid to Take

Remember the kid in your elementary school who could skillfully skateboard across broken pavement and out into traffic? He’s grown up, and figured out a killer sales strategy.

He’s not smarter than you. You already knew that. He’s just less fearful. And even though he has more scars, he’s learned much along the way.

It’s not easy being bold. Employers regularly beat the living risk out of marketers and business development professionals. “We want accurate forecasts,” they insist, leading to a mental contagion that rewards playing it safe. People make fewer waves when they’re quietly harvesting low-hanging fruit. But long-term, will squelching risk enable a business to flourish?

Before you answer, reach into your desk drawer, gym bag, or stereo cabinet, and find your Sony Walkman. If you don’t have one, or if you aren’t sure what a Walkman is, I’ve made my point. By playing it safe, Sony ceded the market it created to Apple. The rest is history.

“Financially, the Japanese firms can’t take the risks,” said Yuji Fujimori, a Tokyo-based electronics analyst for Barclays. “. . . The choice not to take risks has its own risks: the danger of falling into a downward spiral. Losses can lead to smaller investments in future technologies or new products,” according to a Wall Street Journal article (How Japan Lost Its Electronic Crown, August 15, 2012).

Sales strategists take note. When it comes to planning for future revenue, playing it safe might be the least safe thing you can do. Here are six selling risks many companies are too afraid to take:

1. Having a physical presence in a country or city. Woody Allen said “half of life is showing up.” Yet, some executives are reluctant to commit to establishing operations locally, preferring to first determine whether there’s demand for their company’s product or service. That can create a self-fulfilling prophecy. “Unless you are there, you’re not perceived as being in the market,” the CEO of a large multi-national government contractor told me last week.

2. Developing customers in new market niches. One executive I talked to found new business opportunity in Europe for his company’s consulting services. When European governments were deregulating energy, he pursued the consulting work, even though the engagements were outside of his company’s core expertise. When energy markets were later deregulated in the US, his company was well positioned to win the contracts.

3. Hiring salespeople with experience outside of an industry or technology. “Hardware people can’t sell software.” I’ve heard that statement in reverse, spoken with equal conviction. Yet, one sales VP told me that provincial mindset doesn’t work for his company. “We used to seek people with experience in our space. But we’ve found that our most successful salespeople have a strong background in solving a range of business problems.”

4. Airing dirty laundry. Few companies like negative sentiment, but some recognize that it’s a business fact of life. The problem is, placing customer service processes into the metaphorical fishbowl of online social media is not something most companies embrace, or are prepared to handle. But companies that consistently resolve customer problems quickly and effectively can use social media to prove a hard-to-replicate competitive advantage.

5. Making the company (really!) personal. The president of a men’s clothing startup told me that people who buy from his online competitors would never expect to meet or speak to the webmaster, shipping staff, or technical personnel. Instead, “people who come here to visit are pleasantly surprised to learn that they can talk to any of us.”

6. Providing an unconditional, money-back guarantee. An anathema to many, one VP of Sales I worked with told me it’s low risk for him. “In twenty years of business, not one customer has ever requested a refund.”

Which of these risks might appeal to the skateboarder you knew as a kid? Hard to say. Maybe none of them. But there’s no doubt he has found others that are worth it.

Five Incredibly Exciting Ideas for Managing Revenue Risks

We’ve all endured small talk at networking events. “. . . and last year, when my daughter and I stayed with one of my sorority sisters, she discovered this weird mole on her leg, and . . .” Your fascination maxes out in the first five seconds as your mind wanders to other things, like whether you remembered to close the garage door that morning. Slipping out of such conversations can be a useful skill, especially this time of year. Better if you can do it politely.

Fortunately, there’s a rejoinder tailor-made for truncating dull conversations. Just say “. . . before you launch into that, could I share some ideas I read about managing revenue risks?” The sort of thing you’d say to ditch an encounter on Chat Roulette if your mouse wasn’t working. You will be rewarded: “. . . Hey, I just saw someone who I really need to talk to. . .” Off into the crowd goes your new acquaintance, and her untold dermatological mystery, while you move on to the bar. You can thank me for the idea by sending a Starbucks gift card.

But let’s say, by chance, this individual happens to be a CFO or an enlightened VP of Sales for a fast-growing company who tells you, “Great! That could really help my company’s performance. I’ve got time.” Game on! You will be ready. And you can speak with the same passion and fervor as a TV evangelist, because once you’ve scratched away the dry wrapper, risk management is pretty darn exciting. You’ll want to begin by sharing best practices. But call them something catchier, like five killer risk rules your competitors haven’t yet figured out.

1. Define risk broadly. Don’t just provide a forecasting spreadsheet or draw a sales funnel on the conference room white board, and leave it at that. In fact, there isn’t anything in the breadth of Enterprise Risk Management that couldn’t have an impact on revenue. That includes strategic, financial, operational, compliance, and reputation risks. So if your sales strategy planning doesn’t consider all of these categories, you’ve left something out.

2. Recognize both the opportunities and downsides of risk. Many organizations think of risks as undesirable, as something to reduce or eliminate. But all organizations take on risks, and the most promising sales opportunities often involve heightened risk. The management challenge is to take on ones that align with the company’s overall strategy, and that are not too high for what the company can accept.

3. Develop a culture of identifying and evaluating risk at multiple levels in the company. A tough shift for sales organizations steeped in a can-do culture. While risk identification and evaluation aren’t the same as can’t-do, they are often seen that way: “Don’t tell me how you’re not going to make your number, tell me how you are!” One reason why many business developers rarely see the first warnings of risk. Risk assessment must be performed regularly in every department, but especially throughout Sales and Marketing—from telesales on up—so the most critical ones can be presented to decision makers.

4. Look at the total cost of risk. Risks that come home to roost compromise revenue, and increase marketing expenses for maintaining higher revenue-pipeline multipliers. But there are non-monetary ripple effects as well: lost productivity, distractions, low morale, and in the case of social media, negative publicity.

5. Senior management and business development staff must collaborate. “I don’t know exactly what they do over in Sales to make goal, but somehow, they always manage to pull it off at the end of the year!” The best companies take a different approach, recognizing that Sales is not a black box. By working together and constantly improving connected strategies and tactics throughout the organization, they are more likely to achieve success.

After you’ve shared these scintillating ideas, who knows where the conversation will go! But in case your friend says, “Thanks for the insight! Now, about the mole I was telling you about . . . . . ” maybe you’ll be lucky. If your timing is right, the caroling will begin.

Happy holidays!

Revenue Risk Management – Part 1: How Menacing Is Your RAR?

Imagine for just a moment that your business risks vanished into thin air. Economic uncertainty, competition, government regulation, product obsolescence, customer churn. Gone! You’re 100% risk-free! Produce whatever you want, whenever you want, and sell what you want, all for a tidy profit! No worries. Ahhhhh, bliss! Before letting go of the fantasy, think of the costly operational fat and unneeded projects you can now jettison.

Lead generation, sales training, trade shows, promotions, price discounting, customer relationship management systems, advertising, public relations, loyalty programs, social media campaigns, content development, webinars, brand management, predictive analytics, market research, marketing automation, search engine optimization, buyer persona development, use-case analysis, supply-chain logistics. –Heave ho!

As utopian as this sounds, there’s a downside. Without risk, almost everyone reading this blog would not have a job. Revenue guaranteed into perpetuity obviates any need for CMO’s, CCO’s, CSO’s, or anyone else tasked with business development. No need for concern, though. As much as we dislike uncertainty, we all operate under the same permanent cloud, namely, there might not be sufficient demand for what our companies plan to profitably produce. This situation, which I call RAR, or Revenue at Risk, sustains the careers of millions of knowledge workers, not just in sales.

Revenue at Risk gives sales funnels their taper, lead pipelines their multipliers, and sales forecasts their probabilities. Yet, the concept baffles nearly everyone. According to a recent CSO Insights survey, executives responded that the win rate for forecast deals was 46.5%. As Jim Dickie, the company’s managing partner observed, people have better chances of winning at roulette.

The low win-rate could be improved with better risk management. Unfortunately, for many executives, risk just looks like one big amorphous blob onto which they spray project money, hoping problems will shrivel to a less-intimidating size. The Sales VP says there are too few leads in the pipeline? Stoke up the lead-gen campaigns! Revenue didn’t make plan last quarter? Increase the pipeline multiplier! Such tactics can reduce risk, but don’t often tackle the ones that create the greatest impact.

Taming RAR requires examining its four components:

Revenue At Risk = (unpaid or underpaid revenue) + (future revenue lost due to customer churn) + (pipeline leakage) + (revenue from unrecognized opportunities).

• Unpaid or underpaid revenue. Not all revenue that’s invoiced gets paid. Some companies manage this through requiring prepayment for products and services. Amounts that are uncollected are tracked through a budgeted allowance account in the General Ledger.

• Future revenue lost due to customer churn. Many companies recognize that a percentage of accounts will not remain customers. The amount of Revenue at Risk can be estimated based on the expected attrition rate times the expected revenue per customer.

• Pipeline leakage. Everything that spills out of the traditional sales funnel. Unqualified, uninterested, undesirable, unmotivated, unknowledgeable, lost to competitors. The list goes on. Where most companies concentrate time and effort.

• Revenue from unrecognized opportunities. Revenue from prospects who would be perfectly happy buying from you, if only they knew you existed. Or put another way, revenue from prospects who would be perfectly happy buying from you if only you knew they existed. Quite hard to measure.

Which risks should be managed, and how much attention must be devoted? The answer depends on who judges the risk. According to Paul Slovic, a psychology professor at the University of Oregon, and a leading expert in risk perception,

‘Risk’ does not exist ‘out there,’ independent of our minds and culture, waiting to be measured. Human beings have invented the concept of ‘risk’ to help them understand and cope with the dangers and uncertainties of life. Although these dangers are real, there is no such thing as ‘real risk’ or ‘objective risk.’

Still, if you’re like me, and appreciate guidelines and topographic maps, Part 2 in this series, How to Perform a Revenue Risk Audit Without Even Crying, will offer a checklist for uncovering how risky your revenue forecasts are. Part 3, Risk. What Happens When You Aren’t Getting Enough?, will address how companies use risk capacity for competitive advantage. And Part 4, Do You Know What Your Revenue Risks are Costing You? will discuss the how efficiently your business development expenses are addressing your revenue risks.

How menacing is your RAR? Add up the numbers – before you send them to procurement, product planning, and finance.

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