Marketing and Sales Alignment

Factors In Choosing Your Sales and Marketing Model

It bears repeating that despite all the possible permutations of how you can get there, there are only three ways to grow your business:

  1. Increase the number of customers
  2. Increase the average transaction size
  3. Increase the frequency of purchase

In order to be successful, you must align your marketing and sales model to meet one or more of these three objectives. If you can increase all three metrics, you will soon have a world-class operation. And while there are many possible ways to achieve a revenue objective, some organizations (perhaps yours) are not using the best strategy. Each of the possible methods has its plusses and minuses, and the best choice for you is not always the obvious choice. You should not make decisions regarding your marketing and sales model simply based on what your competitors are doing but rather on your unique assets and weaknesses.

When I talk about a sales and marketing model, I am referring to the specific methods and processes that are used to generate revenue. A sales and marketing model can be as simple as a corner lemonade stand, or as complex as Amazon’s e-commerce engine. Major sales models include direct sales, telesales, channel sales, retail sales and ecommerce sales with many hybrid options.

Tough Questions That You Need to Answer

Before considering a new way of doing business, it is helpful to understand your current situation. Begin by asking these questions:

  1. How did your current marketing and sales model evolve?
  2. What is your motivation for keeping the status quo?
  3. Are you doing things out of habit or by deliberate choice?
  4. Is your sales force earning its keep?
  5. Are your current channel partners helping or hindering progress?
  6. Are there any time bombs at your company?

Time bombs are those issues that, if not addressed, could have serious consequences downstream. If you prefer a different analogy, think of time bombs as the potential Achilles tendons of your organization – where you are most vulnerable to atrophy or attack. The Andy Grove statement, “Only the paranoid survive,” certainly applies here. Sometimes, the best time to be paranoid is when you don’t feel that you have to be. Here are a few of the most insidious time bombs:

  • Metrics that are way below standards – for example, a high cost of customer acquisition.
  • Good products, but a sales team that is stable, comfortable, and very inefficient.
  • Channel partners that are leaving you for the competition.
  • A prohibitive cost-of-goods.
  • Products that are more than one generation behind the competition.

This post was excerpted from the white paper, How to Choose the Best Marketing and Sales Model.

business model

Three Questions to Create Your Business Model

In a seminal Harvard Business Review article from 2009, writer Joan Magretta defined a business model as “the story that explains how an enterprise works.” Peter Drucker asserts that a business model should answer three questions: “Who is your customer, what does the customer value, and how do you deliver value at an appropriate cost?” For me, the answer lies somewhere in between.

Sure, you need to have a cogent narrative on hand to tell the world why you’re doing what you’re doing when you’re doing business. In its simplest form, it shows up as an elevator pitch in numbers. It will distill your value proposition but it will also allow you to be nimble enough to change it at will.

Infuse those numbers with a solid customer strategy based on Drucker’s answers and add your own story of what success should look like for you– with this business, in this economy, with these specific competitors nipping at your heels—that’s how to make sure your model is innovative. In fact, HBR recently showed that creating yet more innovative business models remains a priority for senior decision makers across the globe:

“Since 2006, the IBM Institute for Business Value’s biannual Global CEO Study has reported that senior executives across industries regard developing innovative business models as a major priority. A follow-up study reveals that seven out of 10 companies are engaging in business-model innovation, and an incredible 98% are modifying their business models to some extent. Business model innovation is undoubtedly here to stay.”

Why? Are these leaders collectively searching for the Holy Grail of business success to handle an increasingly complex global marketplace? Of course they are. But to me, business model innovation not only helps you manage your marketplace but also must do three things in tandem:

  1. Create a value proposition at a speed that beats competitors
  2. Allow the company to identify what it does best and provide a roadmap to continue these activities at the same level, but with an eye for continuous improvement
  3. Quickly annihilate what a company “does worst”.

Like Einstein’s theory of relativity, these three things work together, across time and at the speed of light. For example, the numbers that make up your value proposition are meaningless unless they move with you, allowing you to meet your customer where they live. And you can’t really see what you’re doing wrong unless you track the consequences of what you’re doing wrong: Every solid business model must quickly point out your mistakes in a quantifiable way that shows where they reverberate in your company. Then and only then can you use these missteps as a platform for growth and build processes that prevent your mistakes from reoccurring — and guillotining your goals. Check out CBM’s free SWOT resource for finding out where you are when it comes to business planning from a strengths, weaknesses, opportunities and threats (SWOT) standpoint.

Relationship Marketing

Relationships are Dead? Smart Sales Models Resurrect Them

For me, reading the Bain and Company white paper, Is complexity killing your sales model? was like being splashed in the face with cold water. The ideas presented here about relationship selling were counterintuitive, at least for this former sales force communications manager. After all, I was used to the sales success mantra of—Relationships are everything! Then I read:

“Buyers can readily gather basic information about products online. Then, in the vendor selection stage, total cost of ownership and return on investment trump relationships. Purchase decisions that were previously controlled by one manager now involve a web of stakeholders.”(page 1)

Crazy, right?

But after I read the entire paper, I realized Bain was telling me how we need to rethink current B2B sales relationships and stop creating complex, inefficient sales models that use these relationships ineffectively.

  • The changing shape of demand means that customers are researching more before they buy, expecting to find solutions for their business problems, not just one-time products. The sales relationship thus becomes more consultative and the relationship even more crucial
  • Smart sales models reward their sales personnel for expanding the customer relationship through cross selling but also put a high premium on the difficult process of landing that new account.
  • Early in the sales cycle, smart sales organizations are loading their sales bench with specialists who are industry experts. That’s how they avoiding losing sales because customers fear salespeople “don’t know their industry”
  • Sales models that include a specialist and a generalist create a team that will grow with the product line. The relationship that a specialist builds with the “new kid on the block” is also rewarded somewhere in her compensation, to ensure that the knowledge needed to close deals expands across the company, across time, and in tandem with the sales cycle.
  • Make sure the relationship between the back office and the sales organization is seamless. According to Bain, the back office is the company’s “secret weapon” in protecting customer loyalty and freeing up to 30% more of the sales representatives’ days for actual selling. (10) Allowing a well-staffed, expertly trained back office to protect the relationship with new and existing customers can save money, untold heartache and, yes, Virginia, I’ll say it — relationships. To download the entire Bain and Company white paper, click here.

SaaS Customer Metrics: Why is my SaaS Business Not Making Money?

David Skok’s valuable blog, SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters – discusses how Software as a Service (SaaS) businesses hone their SaaS customer metrics. The article includes easy-to-use spreadsheets to help these businesses define the cost to acquire their customers (CAC) and how to price effectively and expand intelligently to keep their books in the black.

In my experience, customer relationship management (CRM) activities are usually implemented after the money has been spent to acquire the customer. Moreover, much of CRM activity is limited and short-sighted — tracking leads, follow-up and interactions with each customer – without assigning a dollar value for each step of the customer lifetime. Skok’s exercises allow us to assign costs to each step of the process – from acquisition onward – and truly get a clear view of customer investments. I wish I had had some of these metrics when I was managing the communications projects for a sales force—I could have really put some useful metrics in the representatives’ pockets!

Why is SaaS Different? How is Your Business the Same?

The SaaS business model often requires a high investment in acquiring customers based on its monthly, subscription payment structure. In fact, it often takes up to 13 months after the client signs the contract to experience profit. This causes cash flow problems if it’s not accurately planned for and it’s often unclear as to when to start spending again on new customer acquisitions.

In addition, SaaS companies, in this increasingly commoditized marketplace, need to “grab market share fast” in a “winner takes all” game. You must have solid numbers and know how much it costs to acquire and keep customers to assure investors of the value of your business.

Skok’s in-depth paper also suggests other opportunities for delineating customer value:

  • Skok discusses why sales models with a long sales cycle (consultative sales for extremely complicated offerings) require more resources and better planning to identify CAC and the “profit-point” when that investment pays off. For SaaS, he’s come up with a 3 x CAC ratio to identify the lifetime value of a customer (LTV). Skok also suggests looking at the value of current lead generation activities; customer segmentation for the “quickest return and highest LTV”; and finding out when to push the button to expand.
  • If you haven’t recouped your CAC fast enough, Skok offers some good suggestions. For example, he suggests “variable axis” pricing, up-selling and cross-selling to create more revenue with existing customers. Another way to protect cash flow is to offer discounts for clients who pay in advance or getting paid more up front.
  • A word about customer churn: You need to know when it’s happening, why it’s happening and how to stop or mitigate it. Skok provides excellent, step-by-step instructions to discover why customers are leaving and what it means to your business. Will the expansion revenue from new customers cancel out or exceed lost revenue from churning customers? Skok’s got some excellent SaaS customer metrics and graphs to show you how to find out.

David Skok started his first business when he was 17 and today, he’s one of the most sought-after consultants in the business world. Reading this paper is like having “the smartest guy in the room” deliver all of his hard-earned secrets for free. Find out how much your customers are costing you – and create more value from each and every one.

strategic-business-plan

Strategic Planning Basics – Part 2

Strategic Business Planning

By failing to prepare, you are preparing to fail.

Benjamin Franklin

Let’s plan! Planning is an art and science so you need to convert your ideas into an actionable plan.

The conceptual planning or the art of planning is where experience and knowledge of your environment are combined to develop solutions, objectives and assumptions. Understanding the competitive environment, the capabilities of your team and maintaining relationships with customers and partners will help you plan to achieve your goals.

The science of planning involves using measurements and analysis. How long does it take to build your product? How long does shipping take? What are your organization’s procedures and policies? This data will provide you with limitations and help you build your schedule based on measured performance.

I will focus on a blend of conceptual and detailed planning. The following are my steps for strategic planning:

  • Define your goals

    This is the first and the most important step. What are you trying to accomplish? What is your company’s goal? Clearly define your goals. If your goal has been assigned to you or to your department, ensure that you completely understand the goal.

  • Analyze the environment

    What will it take to accomplish your goals? What are your barriers to success–both internal and external to your organization? Who are the stakeholders? Who will you collaborate with? Determine the interdependencies that you will rely on to accomplish the goal.What resources might be required? Have you done a SWOT analysis? If so, how will you react to threats and opportunities? Maximize your strengths and minimize your weaknesses? Finally, uncover all of the assumptions about your environment that your planning is based on and make sure they’re valid.

  • Develop objectives

    What are your long-term objectives? What are your short-term objectives? Do you have milestones? Deliverables? What resources are required? As you develop your objectives, create small executable steps, so progress can be easily measured and those executing the objectives are not overwhelmed by the enormity of the task.

  • Create road maps, general strategies

    This is where the plan comes together; here we create the map or schedule to be followed.How do we accomplish our objectives? Who accomplishes them? When will they be complete? What are the risks associated with the schedule? Explain the strategy here.

  • Execute the plan

    Finally, time to execute! You’ve gone through all of that effort to create the plan– now use it. The planning process should have prepared you and your team to meet your goals.

  • Review, fix the plan if broken

    What worked in the plan? What objectives were not met? Planning is both a continuous and a cyclical activity of the operations process. Regular reviews of your plan should be established and assessments of the plan accomplished.

During the planning process, be careful not to forecast events too far into the future. Too much detail or using too formal of a planning method will delay the plan and complicate the process—and itwon’t improve the end results since planning can never exactly predict future results. The most important aspect about the planning process is what you learn about yourself while you’re planning. Planning helps anticipate future action and will help you adapt to changes.

Center for Business Modeling

Here’s To Your Business Modeling Success!

Greetings and welcome to our first post. So, why are we here? Because smart leaders know that planning is indispensable in business as well as every other aspect of life. Benjamin Franklin said that, “By failing to prepare you are preparing to fail”. Dwight Eisenhower expressed the same sentiment another way, “In preparing for battle I have always found that plans are useless, but planning is indispensable.”

I, and the others who will write in this space, are committed to bringing you information that is both interesting and useful. Our vision at the Center for Business Modeling (CBM) is to create a valuable community for sharing resources and best practices, while becoming the leading provider of online business planning tools.

You may think this is a tall order, and I agree. We can certainly supply the tools and industry leading information about business modeling but we need you to be successful. Your participation can make the difference, not only to your own organization but also to other companies who face the same challenges. Let us know what you think about our content and add your best ideas to the mix.

My colleagues and I believe that a lack of effective business planning has been a real detriment to success for thousands (millions?) of start-up and existing ventures. Like all areas of business, things work much better when you have the right advice and tools from those who have successfully negotiated the business modeling minefield. A well-written business plan can help you get funding, attract the right partners and employees and give you a much better chance at achieving your objectives. A sloppy or poorly-conceived plan can have just as profound an impact, but on the negative side of the ledger.

The CBM Resource Center (including this blog), is devoted to business owners, entrepreneurs, sales and marketing executives, finance managers, students, professors, and everyone else who is interested in collaboration and improvement of their business planning and financial performance. Hopefully, you fit in one or more of these categories. In addition to the paid tools, we will include many free resources on the CBM website.

Please register to receive each new article/blog post via email. I promise that we will keep the content fresh, relevant and practical. Let me know if you want to hear more (or less) about a particular topic. I look forward to sharing important ideas and resources.

All the best,

Michael James Smyth