servicePath met with Frank Cespedes of Harvard, author of 6+ books on enterprise selling recently and talked about the trends and challenges in B2B Enterprise Sales, the adequacy of Expert Systems, and how organizations must deal with changes. Frank discusses his findings and learnings throughout the 20+ years career as a Professor at one of the leading institutes, Harvard Business School.
Frank separates myths from facts about enterprise selling. Some of the myths frank has debunked about enterprise sales organizations include :
Salespeople aren’t going anywhere
“The most important thing about selling is and always has been buying, who buys why, and how. That’s really where the big changes are occurring. We’re living through a sustained data revolution that will continue throughout our careers and lifetimes; and clearly, we’re living in a world where online and offline interact as well. That’s having a big change on buyers and the buying process. As a general rule, by the third decade of the 21st century, it is not a digital eats the physical world; but it is an omni-channel buying world that demands a multi-channel go to market.”
For the past 2 years, most organizations globally have suffered; but some industries like remote working tools and software have thrived. In either case, COVID-19 has resulted in a paradigm shift in the business landscape. We then asked Frank if he saw a reduced reliance on salespeople, in response to which he debunked the notion that salespeople are increasingly becoming redundant. The Harvard Professor shared the data with us that reflected that salespeople are, contrary to the current beliefs, here to stay.
“Buying and selling in both B2C and B2B markets has always been a social as well as an economic transaction. I don’t think two years of a pandemic is going to change that aspect of humanity”.
To further elaborate the fact that the pandemic had initially impacted the way people bought but are now going back to their old ways, Frank Cespedes stated some very interesting stats;
“Look at the data; the number of salespeople in North America has increased consistently throughout the 21st century, even as bandwidth has increased. E-commerce, even at the height of the pandemic, as a percentage of retail sales was only about 15% and it’s gone down every quarter, in the last year, as more and more of us get vaccinated.”
The Harvard professor also talked about how the pandemic has demonstrated to many companies that in effect, they were overpaying for many tasks in their sales models;
“It turns out, we don’t need the most expensive enterprise salespeople to do lead generation, we can do a lot of that through less expensive people or even algorithms. There are many demos you can do online, etc. I don’t think that’s going to go away after the pandemic. And I would add that in this new world, what CPQ firms like servicePath and others do to make better use of the decreased amount of time that salespeople have is very, very important, accelerating quote to cash, making sure you’ve got the right data in the right time. That’s increasingly what a large part of good sales management is about.”
When talking about sales enablement, the author of the sales playbook later also insisted on the critical importance of financial literacy for B2B organizations in order to stay in business and be competitive,
“Finance now gets the data and finance people ask questions. The requirements for financial literacy and sales are increasing dramatically. While I love sales, most salespeople are not going to win Financial Literacy Awards. They can tell you about top-line motion. But many of them have a hard time even understanding what return on invested capital is, let alone all the other questions that finance people quite rightly ask about the enormous amounts of money they spend on sales, hiring, training, and development, etc” said Frank.
Lack of financial literacy, Frank mentioned in his book, means not understanding some very key concepts in sales; like the “cost to serve”. Failure to understand which, says Cespedes, has a negative impact on an organization’s future.
“Let’s think about some financial basics in a business. One of the things I learned from running a business 11 years, teaching at a good business school, working literally with hundreds of really, pretty well run companies around the world; I’ve learned how far you can get in business if you can do the basics a little bit better than the next person. Doing the basics well is what earns you the right to worry about the fancy stuff, in my opinion. When it comes to basics, let’s think about this: in 80% of the companies, the single biggest driver of cash in and cash out is the selling cycle. Accounts payable tend to accrete, as you’re chasing customers and process prospects and then accounts receivables tend to come in when you’ve made the sale. As a result, cost to serve, which is very often a function of the selling cycle is a very, very big deal. Now, why don’t most companies have a good handle on that? Basically, two reasons. One is accounting systems. Most accounting systems, especially in multi-product companies, tend to work on the basis of what accountants called “peanut butter allocations” which means basically how do you make a peanut butter sandwich, you put down a bunch of peanut butter and then smooth it evenly. That’s the way accounting systems tend to allocate overhead, especially by the way in increasingly software-driven businesses. And that systematically obscures the real cost to serve the real economic value or lack of value of different customers. And the second reason that this is not good knowledge in many companies, is because of sales compensation systems. I mean, the number I’m about to cite has been remarkably consistent throughout my career, in any given year, it’ll vary by maybe 5%, but if you look at the variable portion of sales, compensation in companies around the world, and ask yourself if I’m a salesperson, how do I max out on that incentive comp in 70% of comp plans? The answer is very simple. It’s all about top-line volume, not the profitability of that sale, not the cost to serve that customer, not the gross margin or price that I sell at, but simply how much volume I bring in. Now, with a comp plan like that the message to the sales force is very clear – “there is no such thing as a bad customer, go forth and multiply”. That’s exactly what reps do; reps always understand in my experience within two weeks, how their comp plan works and they bring in very diverse customers, very different costs to serve. In turn, that has a domino effect on the selling organization. It deeply fragments their business model. So to the extent that we now as I think you do it servicePath again, I’m happy to say this, I think you add tremendous value to your clients. To the extent that you help companies get a better fix on what their cost to serve different segments in different accounts is that makes a big deal. In my experience, it’s usually a big AHA! to the people running sales and running the company. In turn, it affects deployment, it affects compensation, it affects product development; it is a very big deal.”
In order to ensure that organizations do not suffer due to a lack of financial literacy and failure to understand some very key elements like the cost to serve, solutions like servicePath CPQ+ can help make it easy for salespeople and their leadership to have the insight to drive good revenue and to get deals that will be accretive to the organization.
When asked about the trends related to hiring and training of salespeople, Frank answered with some really interesting insights.
“When I ask most sales managers who you’re looking to hire, if you actually take their rhetoric seriously, essentially, nobody except Michael Jordan, or Michelangelo is going to fulfill their criteria. And my advice is always the same. Whenever you can hire a Michelangelo or Michael Jordan do it, you know, they’re probably going to add value. But there are very, very few Renaissance men and women around right most of us tend to coagulate around the midsection of the bell curve. But these are levers available to sales managers. How do I deploy my salespeople? Do I really need them to do every task in the customer conversion funnel, or as I think the pandemic has demonstrated, in effect, can I offload some of those tasks, use less expensive, less capable people or machines to do it and then increase the amount of time available to my really good account executives for doing this? I’ll end this with a little bit of data but the data I’m about to cite obviously varies by company and by industry. But if you ask yourself how much time does the average salesperson spend in customer contact? And by customer contact, I don’t just mean making a pitch, either in person or virtually about your product. I mean all forms of customer contact; webinars, demos, emails – the data varies, but on average, it tends to be between 30 and 35%. Now think about what happens in a business. If, because of good data analytics, deployment, etc, you can make that 40% 45%, you know, Nirvana, 50% or more. Not only is that an enormous productivity improvement in most businesses, but it also increases the addressable market of the business, because segments that were economically infeasible to reach now do become feasible when we’ve got better utilization in our sales force. So it’s a huge opportunity for companies and I think increasingly a core source of competitive advantage.”
He went on to add that hiring for sales is harder than hiring for any other function.
“There always have been inherent challenges in hiring in sales that simply do not exist to the same extent, in any other business function. For example, if you want to hire an engineer, you can go to a school, and it’s a little bit like walking into a food court. What are you interested in – electrical engineering, chemical engineering…? Or do you want someone in finance and accounting? You can find people who majored in those subjects. The same is true for computer programmers. But last time I looked, which was about three years ago when I started this book, of the nearly 5000 colleges and universities in North America, less than 300, even offered a sales course; let alone a sales program. So this is an area where most people start out knowing almost nothing about what they’re going to get paid for. That, in turn, leads to other facts about this function; the amount of money that is spent on sales training etc. It is also getting tougher to hire in sales.”
How do we then best allocate the remaining 40% of the salespeoples’ time to maximize the outcome we wondered.
“Well, that’s a question that varies. This, by the way, was one of my core motivations for writing the book. My motivation in writing the book is that of all the business functions, sales is by far the most context-specific. Selling software is different than selling capital goods, which is then different than selling professional services. Selling 567 years licensed software is different than selling SaaS. It varies in North America versus Latin America, or Asia. So very context-specific, but sales is also that area, where for some reason people feel most comfortable making these huge generalizations that are usually unsupported by any data, except as we would say, in academia, n equals one; I think it’s very important to understand that context specificity, and deal with it that way. And that’s going to affect how that 40% is allocated. It will also be affected by your strategy. There are a number of businesses, let’s think about a lot of tech SaaS businesses, that because of their fundamentally VC funding, you know, and because they believe, although my own experience about this, and data you can read about this in the book is that this is usually way, way overestimated, because of what they’ll call early mover advantages. It’s all about top-line. In that case, the 40% is probably allocated to initial customer conversion. On the other hand, there are other businesses where the real issue is “land and expand”. And you want your important people performing that ongoing account management task because they understand how to move from this division to the next division from these users to the next crop of users, etc. And then there were other businesses, lots of big project businesses, capital goods businesses, where the real issue because of the size of the deals is making sure that we not only know how to negotiate and articulate our value proposition but make sure the price is right because it’s going to be a multi-year project. One of the rules of business is you can’t lose a lot of money on small accounts. If you’re going to lose a lot of money, it’s typically on big accounts. So, that 40% will be allocated very, very differently depending on the business and strategy, and its up to sales leaders to understand that. In my opinion, this is one of their core responsibilities. When they don’t, in my experience, they’re toxic; they hurt the rest of the business. Again, the data revolution is making this increasingly visible to other C suite leaders in their companies.”
Expert Systems like servicePath CPQ+ that sit on top of systems like Salesforce CRM and Microsoft Dynamics contain configurators that have the ability to capture the organization’s “Michael Jordans + Michelangelos”’s. This expertise and knowledge is now an organizational configuration process that your company’s other salespeople can leverage. This knowledge and wisdom allows the rest of the salespeople to perform like rockstars!
Stay tuned to learn about what Frank had to say about artificial intelligence, digital transformation and subscription economies. Can you guess which of the two would Frank prioritize: business agility or efficiency? Stay tuned to find out!