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Archive Archive for March, 2008

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Strategy

Medium is Beautiful

Posted by

Ian Brodie on March 25th, 2008.

Who are your best customers? It's a question I often ask my clients. And the answers I most often get are either “the big ones” or “the small ones”.

In fact, because I have a ton of experience in selling to large companies, I'm often asked for my advice on how to “land a whale” or to break-in to big companies.

But in my experience, the best, most profitable customers for most businesses are the medium-sized ones. It's certainly the case for me. And when it comes to prioritising business development – that's where I put my energy.

I love small customers and working with SMEs. They have a flexibility and a freedom that makes a real refreshing change from working with big corporates. The trouble is that the revenues from these businesses often don't justify the fixed “overhead” costs of doing business with them. In the work I do, I invest a lot of time really getting to understand my client's businesses, diagnosing what we will need to do to grow their sales, and understanding the best way of implementing my recommendations so that they will really stick.

That up-front investment is pretty much the same for small or large businesses – but with small businesses the revenues I may get from that investment are usually lower. And because my fees are pretty much at the top-end of the market, smaller businesses often struggle to afford me. So sadly, I have to restrict my work with small businesses to a few a year, where I am really going to learn something and grow myself as a result.

Conversely, although the profits I might earn from large companies are theoretically much higher, I find this to rarely be the case.

Nowadays, large companies have “professionalised” their purchasing processes – and in my experience this often means that they have bureaucratised them. The selection processes for suppliers are long, complex and costly – effectively ruling out many smaller businesses and handing a huge advantage to bigger suppliers more used to dealing with these processes and having pre-prepared stock answers to the typical questions asked.

In an effort to have a “fair” process, suppliers are prohibited from speaking to potential business customers during the selection process and are funnelled through the procurement professionals. This hands a huge advantage to incumbent suppliers who know the company well and know how to frame their solutions and responses to resonate with the company's needs and culture. For new suppliers, cut off from rich interactions with the people who are really going to be impacted by or using their products, they have to rely solely on what has been written in black and white on the request for proposal.

As anyone who has been involved in sales knows, it's frequently the case that the true customer requirements only really emerge from in-depth interactions with expert sellers. So by cutting off those interactions, the process effectively becomes a guessing game where the winner is the supplier that is able to most accurately second guess what the customer is really looking for, rather than the one who is best able to deliver it for them.

And of course, the procurement departments in large companies are frequently charged with ensuring “value for money” by squeezing out every last drop of discounts from their suppliers. It's only the very best procurement professionals who are able to get more value by working with the supplier to ensure greater benefits. The majority simply work at reducing the supplier's price.

Now this is not meant as a tirade against large companies and their procurement practices. There are very good reasons for them having adopted those methods. But what it does mean is that for most suppliers, large companies are usually not their best customers.

In my experience, both personally and for my clients; medium-sized companies are frequently the best customers.

They are large enough to place decent sized orders or engage service providers for large projects. They are still small and flexible enough that the seller can engage with the key decision-makers to properly shape up a solution and demonstrate their capabilities rather than working through intermediaries.

And medium-sized companies often have an ambition level that outstrips the large companies. They're not focused on protecting what they've got – they're focused on growth and are willing to take on new ideas to do so. As an additional bonus for service providers, medium-sized companies rarely have their own internal organisations which duplicate what external providers do – so they are more willing to take on outside help.

Of course, this picture is not universally true. Some small companies buy big from certain suppliers. Some large companies are nimble and focused on value rather than just cost. And some medium-sized companies suffer the worst of both worlds.

But more often than not, when you do the analysis and work out the profitability of each of your customers – taking into account all the costs of doing business with them – medium sized businesses come out on top.

The implication? Don't be afraid to focus your prospecting and business development activities on medium-sized companies rather than chasing the big company “whales”.

Onward!

Ian

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Selling

Ask for that meeting – and grow your sales!

Posted by

Ian Brodie on March 12th, 2008.

Early in my career I learnt a very simple tactic which made a significant difference to my sales – and I noticed recently that I had stopped using it. So as well as restarting its use for myself, I thought I'd share it. It's most appropriate for consultants or other professionals who have to prepare proposals to sell what they do.

Here's the tactic: when someone asks you for a proposal, instead of meekly agreeing and heading off to do it; set a meeting date with them then and there to review it together.

Simple and obvious, and as old as the hills. But easily overlooked.

When you're in a sales meeting with a client and you've talked about what they need and what you can do and they pop the question: “can you write that up as a proposal for me?” – it's so, so easy to agree and to rush off to do the proposal just as they've asked.

Assuming doing a proposal is actually the right thing (often it isn't – often the problem itself requires further exploration with the client – but assuming it is); as we all know, our chances of selling something increase exponentially if we present the proposal personally rather than just sending it in.

However, calling after you've done the proposal to set up a meeting very often results in the client asking if you can just send the proposal in for them to read first – then they'll set a meeting if needed.

Of course, without you there, the proposal doesn't have the same impact, the meeting never happens, and the sale is lost.

But if you ask for the meeting then and there you're leveraging three things:

It's harder to turn someone down face to-face
You've built up a degree of rapport in the meeting
They've just asked you for a favour – so they're likely to reciprocate by agreeing to a meeting

It's an obvious and pretty easy thing to do – but very, very often it's not done.

There are many reasons for this. I've seen sales people simply forget in the heat of the moment. But more usually, there's an underlying fear preventing them asking. They fear that the client may say “no” – and then they'll lose the chance of proposing and of winning the sale.

But if a client is going to say “no” to a simple request like a meeting – how likely is it they're going to buy anything? In reality it's much better to get a “no” right now than it is to waste time on the proposal.

Another problem some salespeope have is that they put themselves in a servile position relative to the customer. They take the “customer is king” philosophy too far and feel that they must do just what the customer asks with no reciprocal obligations. They don't feel it's right to push for anything, but instead just jump through whatever hoops the customer asks them to jump through, hoping that they'll be rewarded with a sale.

That's not the right positioning for most sales – and certainly not for selling professional services where what the customer needs is a real business partner. A peer who can advise and guide them – not just do what they ask slavishly.

So next time you're asked to prepare a proposal, just take a deep breath, and say “sure, that would be great. Let's set a date for a meeting together to review it……”

Onward!

Ian

Featured

Strategy

Challenging the 80:20 Rule

Posted by

Ian Brodie on March 5th, 2008.

The 80:20 Rule It's probably the best-known and most-repeated rule in sales: 80% of your sales come from 20% of your customers. The implication is that you should focus the majority of your sales efforts on those 20% to maximise your returns.

But it's also the most misunderstood and misused rule in sales. Slavishly following the 80:20 rule could cause you big, big problems.

The first question to ask about the 80:20 rule is “is it true?”.

Well, the answer is “usually”. There are many professions where sales do follow some sort of 80:20 or 60:15 or other uneven split. But there are also professions where it doesn't – where the spread of sales is pretty even across customers. So it's absolutely crucial that you know the numbers in your business and don't end up putting all your eggs in the wrong basket.

The second, more important question is: “OK, there is an 80:20 split in my business – but does it persist over time?”. In other words – are the 20% of customers who make up 80% of your business going to be the same today as next year?

In this case, the answer is very often “no”. And this can be a huge trap for business developers who focus their efforts too heavily on today's big customers. In very many situations today's big customers may not be tomorrow's.

Takeovers, changes of management or changes of strategy often result in big changes in the amount of products and services being bought – and in who they are bought from. And in many industries there is a natural cycle of peaks and troughs in purchases.

For management consultants, for example, there is often a natural cycle of entry into a client firm, followed by an expansion period where you build relationships with more client executives and sell more work. However, there is also a natural decline as the issues you were brought in to deal with are addressed, and the clients begin to take over much of the work and the capabilities to do it themselves.

The key message is to be aware of fluctuations in the 80:20 rule. Look at your historical sales and analyse whether the composition of the 20% of customers who make up 80% of sales varies significantly year on year.

And if it does, you need to watch carefully and invest time and effort in nurturing new customers to rise up into the top 20% rather than spending all your effort on the current 20%. Focus on sales potential to drive your efforts rather than just historical sales.

The final question to ask is: “Even if I know my top 20% – does that mean I should devote most of my attention to them?”

The answer here is “usually yes – but not always”. It's common sense to focus on your highest potential customers. But there are sometimes diminishing returns to any extra efforts if you are already devoting a lot of time to a customer. Sometimes spending more time with an “underserved” client can produce a much greater impact on sales than holding yet another meeting with your favourite client.

In all three cases the key is to look beyond the simplistic 80:20 rule to check:

Does it really apply in my business?
Does it persist over time – or do I actually need to focus on “rising stars”?
Will extra effort on my top 20% really increase sales – or are they already being fully served?

Now don't get me wrong – the 80:20 rule can be very helpful as a simple guide to where to focus your effort. But thinking beyond the simple rule will pay big dividends for sales people willing to invest their brain power and challenge the accepted norms.