Frank Cespedes has been teaching at the Harvard Business School for years and to quote him, his experience with organizations around the world is as good as anyone.
In this piece, which is part 2 of our recap series for the webinar that we had with Frank Cespedes, you will learn about his perspective on:
- Rise of the expert systems and digital transformation
- Return on Capital
- B2B Sales and Technology
- Pricing or agility – which of the two takes precedence?
- Blind spots in the changing B2B world
- Service, consumption-based and outcome-based models
- Subscription Economy: Xerox – Paper As A Service
- The challenges that entail teaching sales
- What’s next for Frank?
We asked Frank if he thought the current systems are adequate. We asked if we’re moving in the right direction with leveraging technologies, like, Quote to Cash and Configure Price Quote (CPQ) solutions.
“I’m a bit of a contrarian when it comes to this topic. And let me add with my academic colleagues, as well as in practice. I think part of the problem with the current talk about whatever it is artificial intelligence, expert systems are my favorite phrase, digital transformation, right? What a wonderful phrase; you can drive a truck through that phrase. They’re vague, they’re put in place basically, not really to point to some actionable managerial reality, they’re put in place because in the fight for my “fair share” of a limited budget in a company, I’m going to hitch my pitch to whatever is the next big thing and right now it tends to revolve around these things. So the first thing I would say is, if you’re in sales, finance, a CEO, who really cares about their capital budget, you’ve got to demand that your people clarify and define what they mean, when they use phrases like that. When someone tells me they can accelerate quote to cash, I get that; I understand what that means for my selling cycle. I understand what that means for my working capital management. But if I’m perfectly honest, and you know, at this stage in my career, I got nothing to lose with honesty. Most of what I read about expert systems, and digital this and digital that, is coming in from some platonic abstraction. So that’s comment number one. Until managers get paid to get real, until they start to specify some of the cause and effect links, they’re trying to fix with technology. I for one, when I’m on boards, I’m not willing to write the check, right? The second thing I will say is, it’s very important to understand that in business in general, and in sales, in particular, data an algorithm is never the same thing as the answer to a management issue. Now data and the algorithm are very, very important. If you think you can manage in the third decade of the 21st century, without good data, without something that gives you a little bit of an edge in decreasing the uncertainty going forward, good luck. But you know that strikes me as dinosaur thinking. At the end of the day, in any changing marketplace, data is about what happened; and that’s not what you and others get paid for. You don’t get paid to manage yesterday, you get paid to manage today and tomorrow. And by definition data is about what already happened. Management decisions are about going forward. So I think that’s important. You know, but then the third thing is my experience with organizations. My experience with organizations around the world is as good as anyone. In general, the issue is not lack of data. The issue is the proliferation of little factoids that most of the time are interesting but marginal. Comments about the business, as opposed to things that really move the meter in our selling cycle, or our pricing or our ability to select and manage accounts. In business, there’s almost always an 80/20 rule. Manage that 20% that makes the bigger difference. Right now data is too often about lots of little interesting but marginal things.”
“So you talk about cost to serve with so much capital flowing around in the market right now. You sit on boards so what does that look like for people to make sure that they’re getting a good return on their capital? What types of things do they need to be looking at, you know, above operational improvements?”
“Well, I think, you know, as always, customers are not created equal. You know, in any, any business, any business that has a strategy, right. And by the way, many businesses don’t. One of the things I’ve learned over the years sitting on boards, and working with companies is that despite the literally hundreds and hundreds of books and articles about strategy, many executives when they talk strategy, and you cut through the rhetoric, are basically saying “let’s pick a big number and go for it” and unfortunately, business strategy is a little more complicated than that. If you do have a strategy, by definition, you’re making it harder for certain customers to do business with you, and easier for other customers to do business with you. It’s important that we understand who those customers are. Are they the ones that are not only important today in this industry, but also tomorrow? So I think that’s one of the ways you get a return on invested capital. The other I think, is to make sure you understand how that works in your particular business. And I don’t think a good model right now is many of the tech firms that are basically living off “sugar daddies”, that’s what we call venture capital firms who don’t care about profitability, if you don’t care about profitability, you don’t care about return on invested capital. It’s really a very small, small minority of businesses that can essentially operate on the basis of. We don’t care about losses because there’s going to be a big payoff two years from now, five years from now, seven years from now; the reality for most businesses, when it comes to their finances is : if you don’t survive the short term, you don’t have to worry about the long term. So that’s the second thing, make sure we understand what drives invested capital. And then the third, because sales is such a crucial function in any business. I mean again step back, think about the basics. So many other resource allocations in any company, depend upon demand forecasts, and the sales force, its ability to actually achieve those forecasts. That’s why it’s such a central function. And as a result, and this is again, where sales management, I think, is under quite rightly increasing pressure. As a result, you can do all the other things I said, understand return on invested capital, understand why it’s important. But if this isn’t reflected in your performance management processes and metrics in sales, then you should teach in university you shouldn’t be an executive, right? I’ll get paid to diagnose folks like you get paid to actually do it. There’s a big difference.”
Everyone now is relying on the cloud, everyone’s putting their systems in the cloud. Former manufacturing organizations are now looking like technology organizations, because they’re doing it all – robotics are all driven in the cloud, they’re stacking solutions together that have very similar cost structures.
“How do you think that’s going to change sales and the way we should enter, entertain the future of B2B enterprise sales?”
“Well Daniel, obviously, technology – you don’t need jargon like the Internet of Things, I think to understand this brute fact, about advanced economies. Obviously technology software is being invented, embedded in all kinds of products. Right? So I think, in that sense there is a technological revolution occurring in business. I think it is because the cloud gets more light. By the way, my opinion that’s way overdue; the amount of money companies were spending on it, and servers and other things. I think what the data from good economists suggests, at least through the 20th century; it was a net drain, not a net gain. The cloud here is a good thing. So while it gets more light, I think the rest of the business model depends on the business model. Sales, I think, is a good example of this. As a general rule, I think most of what you’re hearing about these so called “new normal” predictions coming out of the pandemic, are more or less nonsense, they’re they’re based on zero empirical data. They’re somebodies opinion, based on a little bit of what they see. As I’ve already mentioned, if you simply look at online sales and say what, you know, is that growing as a decreasing, well, obviously, or at least it seems obvious to me, when, when stores are closed, or when they’re held to 25 to 50% of their capacity. When people legitimately feel that if they walk into a store, they may catch a virus and die. Obviously, there’s going to be more buying and selling that occurs online. But I’ve already cited the data. Even under maximum lockdown conditions last year, it only increased to about 15% of total retail sales. And it’s gone down every quarter. Since buying and selling in both b2c and b2b markets has always been 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. But it will change how we deploy and use people in customer contact activities, like sales. And these are levers that are increasingly available to salespeople.”
Remember, we asked if you could guess which of the two would Frank prioritize: business agility or efficiency?
“If I’m asked a question about priorities, its priorities versus what? Right, the opportunity costs are a reality in any business executives like to deny it. They always like to say both and to keep your options open; but that’s not true. Opportunity costs are inevitable. In any business, the money and time that you spend with account A is money and time not available for accounts B, C, D, etc. So depending on the business, my question is going to be, this priority versus what? That said, pricing is probably the quickest to build of destroy your value in most businesses. Again, you can see the data in the chapters about that in my book. But there’s repeated studies that go back decades and you know, are updated constantly; where something as small as a 1% price increase, typically has a six to 10 times bigger impact on the bottom line for the typical fortune 1000 company. So its usually pricing and the ability to get better at it – more refined, more focused. Usually that’s somewhere up there on the priorities of companies. However it’s going to depend on a variety of other things in the business model and the business strategy for me to say whether that’s the number one priority, or two or three. Nonetheless it’s usually among the top five, in my experience.”
“As a new sales leader of an organization in this new era of B2B or as things are changing, we go back to some of the basics and things get rewritten. What blind spots would somebody have in an organization?”
“I think I’ve mentioned a couple. One is what I think was implicit in what I said earlier, an answer to Daniel’s excellent questions. By and large, I think it’s a mistake to see online and offline. As, as substitutes, that’s not the reality in an omni channel, buying world, they’re more often complements, rather than substitutes. And I think that’s where the action is, in most sales organizations, the ability to integrate those two aspects of buying behavior are in our go to market model. So again, it’s not a digital leads physical world. But the second blind spot that I would mention, and this I think, is general, you know, under estimating the rate of change in businesses is is always an issue. You know, I always like to quote, Daniel quoted one of his mentor’s, I’ll quote, one of mine from years ago, were discussing an important strategic decision. And he pointed out something very important as a frank with this decision, would you rather be a year early, too early or a year too late in making the decision, right, so you can see what he was, was getting at. But I think while it’s not a digital leads physical world, it would also be a blind spot to underestimate what that interaction between online and offline means for sales management requirements, and sales leaders have careers. And then the third thing I would say, Bruce, in answer to your question, this is sort of my generic advice to new sales leaders. And by new sales leader, I mean, someone who, you know, maybe making that first move from the individual contributor to being the sales manager, or the sales leader who comes into a new organization, new branch, etc, I hear I do suggest going back to basics, make sure that you take performance reviews seriously. And make sure you do good performance reviews, as opposed to what many sales managers do. And that’s what I call drive by reviews. And the reason that’s important in the pandemic, I think, has illustrated this, much of the really important information, especially in a lot of b2b businesses, much of the really important information about buyers Buying Criteria, it cetera, is not in the CRM system of the company. You know, CRM systems are notoriously sloppy. They’re people input data with lots of different criteria, and they’re usually ignored. for lots of other reasons. Most of that important buying information is lodged in the head of the individual account manager, and it only becomes apparent in a good performance review. So when sales managers do sloppy reviews, they not only perpetuate a culture of underperformance, they inhibit the flow of vital information. And the pandemic has made this a bigger issue. The reality is the Coronavirus was not, is not an equal opportunity plague, right? There are some businesses, I’m going to use the gangster terminology, that have been “whacked”. I mean, I’m on the board of a business that depends on events. Our business didn’t go through a gentle slope in March of 2020. It fell off a cliff and I give this CEO tremendous credit for the pivots he put in place. There are other businesses, many technology businesses, where the pandemic has been good news. If we’re perfectly honest, it’s been very good news. Right? So that is going to be true in your customer base. And again, it’s the responsibility of the seller, not the buyer to figure out who’s barking up the right tree versus the wrong tree. Much of that data is really only visible not through an AI system, but through doing good performance reviews with the person who’s been calling on that account for some time. So those would be my three bits of advice about potential blind spots.”
There’s an evolution in the way people want to consume products now. Hence the move to As A Service economy, consumption based models and outcome based models.
“A lot of organizations don’t clearly understand these models, how do we better arm our sales teams to embrace those because customers are driving them?”
“One way to think about the trend you’re talking about is the increase. It is also by the way very important around this topic to go beyond tech. My experience is that people in tech, they tend to be myopic. Because they get so much attention, they tend to forget that 80% of the world is not what they’re doing. But if you think about subscription businesses, generally, not just software, but subscription businesses, your generalization is supported even before the pandemic. Those businesses were growing about 300% faster than the S&P 500. So obviously, again, most important thing about selling is buying and buyers. There is a sort of sea change in the economy about how customers prefer to buy and consume. Now the issue is what does this mean for sales. Again it will vary by business, by type of subscription business. Generally speaking, I think it has a couple of implications. One is that in many of those businesses, at least in B2B, it changes who buys. It changes, whether it’s part of the capital budget, or whether it’s part of the quarter by quarter operating budget. For many salespeople that in turn affects who it is they have to deal with, at those B2B buyers, what kind of value proposition resonates and what kind does not. So that’s number one. Number two, in many of those businesses, the real money, if there is going to be money that’s made, the real money is not in that initial sale; but in moving that customer up to either the next level of the offering, the premium offer, or whatever. That’s an important sales task. In many companies by the way, it’s not necessarily the people that we call salespeople who are in the best position to do that. In many companies, especially many SaaS companies, the people in the best position to do that are what we call customer success. They are the ones who, because of onboarding and other things, really understand the usage patterns at that customer. One of the I think major challenges facing many of those companies is how they integrate and align their sales function with their post sales service functions. So that’s number two. Then number three is, as always, pricing becomes very, very important. You know, the old saying “you only have one chance to make a first impression”. Right now because of supply chain shocks, many companies are facing a really “once in a lifetime” opportunity to increase price. You’ve got now a socially acceptable rationale for doing that; but you know, in some period of time, six months, a year or two years, those supply chain issues, at least in a capitalist economy, we’ll work their way out. They still remain very, very important issues of pricing in subscription businesses in general. They’re going to be there for some time. What marketers call customer lifetime value becomes the generator of profitability; if it is going to be a profitable customer.”
One of the things that Frank writes about in his book is subscription economy. While it is a common misconception that SaaS is fairly new, Frank explains with a brilliant Xerox paper as a service analogy, that the subscription economy has been around for a long time.
“Well, this is something I learned as a professor for years and years; what goes around comes around and then comes around again. You can dust off the old notes in business, the perennials apply.”
Not only that, in the beginning of his book, Frank writes about car sales being displaced by salespeople; with one person. Less than 1% of 40 million used cars were sold without some sort of human intervention, Frank cited.
“The lesson here is not that online technologies and the internet is not a big deal, because it is. This has been true through the pandemic as well. If you look at online, car sales hasn’t increased that much; the dealer is still the locus of that buying and selling but that doesn’t mean that online is not a big deal. Cars are a very, very good example. You know, I think anyone who’s at least in the United States, anyone who’s bought a car over the last 20 years realizes that the experience has improved dramatically. It has improved dramatically not because dealers went to Bible School and said “let’s stop playing all these games that we typically do in dealerships”. It’s improved dramatically because of the internet. You will see the data in the book, but the average car buyer spends almost 14 hours online researching the purchase and a total of something like three and a half hours, actually going into dealerships. Yet 96 plus percent is still bought in the dealership; but the buyer now walks in armed with that information about product, price, etc. That in turn has quite rightly motivated dealerships to make that a better, more value-added experience when that knowledgeable buyer is in the dealership. That’s happening in lots of other categories in b2b user forums where people actually exchange information about the product and their user experience. By and large, this is a good thing. It’s a good thing for society and ultimately, it’ll be a good thing for sales. It will force sales to up its game.”
Unfortunately, there’s not a lot of good formalized training for salespeople. Within the academic organizations of the world, universities and colleges, there are organizations like Pavilion or the revenue collective, that seem to be doing some great things.
“What are your views on these new sales focused at ground up sales, people driven organizations to drive sales?”
“A couple of things. One is you’re right, academic institutions don’t do a particularly great job in this area. Partly it’s because of snobbishness in sales, doesn’t that sound like grade school stuff? But the real reason is because of a supply issue, not a demand issue. Sales is not easy to teach. What’s important in sales is almost by definition, what’s important is what we associate with marketing. Is the buying behavior, economics of persuasion understood? I think one of the best sales books ever written was written by a salesperson; it was written by Bob Cialdini at the University of Arizona, about persuasion. It’s also about psychology; that is not the way academics are trained – they’re trained to know about their patch of land, they’re not trained in cross disciplinary areas. And the third thing is that you got to watch what you wish for. If you put in place a sales curriculum in a college, it’s going to stay that way. Meanwhile, the market is going to change. So I don’t think we look to universities to solve the talent pipeline issue when it comes to things like the revenue collective, etc. That’s different, that is the intersection of vocational training in the real world. Question I raise about those organizations is frankly, are they simply too tech centric? Are they dealing in some sense already with the past? What I mean by that is, I don’t think there’s any particular mystery to inbound marketing or inside sales models at this point. I think the playbook about that has been written in a number of good books. Precisely because that model is now domesticated and one could argue commoditizing it, look at what’s required to generate leads in that model, and then look at how much money how much increasing money you’ve got to pay for social media ads, etc. And the pandemic has just accelerated that expense. The real action, as always, in sales is changing. I think the real action as I said earlier, is integrating elements of that with sales models that for good reasons have always been account based but now we got to find ways to increase productivity. Creative destruction is a reality for universities just as it is for all businesses. My advice to your viewers is to figure out if they’re still up to speed with what’s happening, or if they’re dealing with stuff that was really important five years ago, but hey, I can do this a lot faster and cheaper on my own.”
“So what’s next for you?”
“What’s next for me, you ask? Oh, what’s next for me is lunch. We’ll see. I do think I must say one of the things that really grabbed my attention in writing this book, and I think there’s a lot more to explore with it. By the way, I think it’s an area where technology is the seller’s friend; if the seller knows what the hell he or she is doing! The ROI from sales training is notoriously disappointing. And there are systemic reasons for that. I talked about that in, you know, one of the chapters of the book. But what I am seeing is a lot of really clever and smart ways that organizations are now using technology to do what I would call is the most important thing in sales in particular, and that is just in time learning. Salespeople are not studying for the final exam in my course and yet, most sales training is still this classroom based training. I think you’re beginning to see increasingly see a big sea change. It’s something I want to learn more about. Just an anecdote there, we’re seeing it increasingly with our technology customers, because they offer so many products, like we have customers who have literally millions of SKUs. So how can a salesperson ever get up to speed? And if you talk about turnover a product of 10% a year? No, that’s hundreds of 1000s of changing products on an annualized basis. So just in time and ability to filter that and help pull that information together, insightfully. I mean, we tackle that somewhat, but the learning portion on how to pitch how to sell the value and understand the value. I think this is an area where the tools increasingly exist. It becomes then a management issue, how do we make this part of the cadence of what we do with our folks. Again, this is what managers get paid for. They get paid to do it better than the next guy or gal”
It was an absolute pleasure talking to Frank – so many new learnings and so many surprises! Frank answered many questions businesses often struggle with.
You can get Frank’s book “Sales Management That Works” on Amazon and you can learn more about him/reach him on : https://frankcespedes.com/