Start up selling professional services. A sales brute force post mortem
As a preamble and in advance of my rant are these clarifying statements:
This navigational aid, or intervention, is intended only for those companies in Professional Services.
More specifically it is meant for those companies that are ‘startups’ and building/contemplating an assembly for client acquisition and servicing.
In this category of industry there are well defined tiers of incumbents and new entrants and they are usually stratified by relative values of client intimacy, technology, operational excellence. To the prospect/client, the subtle differences are indistinguishable and the large differences are usually immaterial and can be accommodated by the client with negligible inconvenience. Many times, if not most, the buying decision is calculated by weights of price, responsiveness, professionalism of the client facing staff (sales, marketing, and service) and disruption risk.
Many great companies fail because the entire system was not responsibly monitored and was, in itself, unpronounced stages along a lit fuse.
Many companies don’t die of client starvation, they die of client indigestion.
This could have been a book, filled with lots of debatable statistics and dubious graphs, but I have tried to compress it down to its essential, bitching, points. It lacks anecdotes or even any vague evidence or proofs. And, as is my expressive style, it is a Jackson Pollack’esque burst and not all the paint found canvas.
There are three types of clients:
Out sized profitable: Usually takes years of being a client and rounds of renewals to reach this status. They are being charged maximum+ margin.
There will always be a pricing correction and the art/science is to extend the margin+ condition without significantly jeopardizing the client’s retention.
These clients are typically characterized by being intensely loyal and adverse to ‘vendor change risk’ – and this is an element of the client profile that led them to being a long time client and inadvertently moving into ‘overpaying’.
These clients are also the most vulnerable to terming. They don’t want to leave but many times the most offensive factor in their consideration is that the paid an excessive premium but got no sustained commensurate premium service, or client intimacy. This is a precarious dynamic because in this environment, the bad clients (group 3) and improper allocation of staffing resources siphoned resources from the ‘good’ clients.
These clients ‘balance the books’ by being so profitable that it compensates for all the unprofitable clients and creates a skewed, fuzzy image of aggregate client profitability.
One day they will get an irrefutable spreadsheet on their desk from the competitor(s) and the vendor must be responsive and graciously move them into ‘right price’ bucket without further concessions.
Your former sales reps, a sticky residue from failed attempts at building a large ‘brute force’ highly visible sales organization, will give your clients intelligent and well articulated pitches. They will speak the language you have indoctrinated into your clients and use it against you to dismantle an instilled ‘perception’ of value.
I’m gonna skip client profile # 2 for just a moment and move to…
2. Unprofitable clients.
Vendor margins are significantly below ‘right’. Their demands of the product/ service and expectations including those of future cost increases is unreasonable. They understand their advantage in negotiations, you can’t fire them. This is a lever that they have used as a business practice with other vendors. Contractually you can term them but because you’re a new entrant with only a superficial beachhead into their industry they can argue the law, the facts, and… when all else fails they can argue like hell.
Frequently, they belong to a self referential group sometimes affectionately, tongue in cheek, described as ‘low hanging fruit’.
The market leaders can tolerate some measures of lower value clients. This client group contributes to the top line growth and the best vendors have enough scale, staffing ratios and ancillary services that they can properly manage . These vendors also have the discipline to fire these clients ritually when all else fails.
Not all of ‘client type 3’ are the low hanging fruit type. In some instances these are the marquis clients that were inexplicably signed to ballyhoo, but the inside scoop was that the tier 1 players declined them because the prospect wanted the service too cheap or had other resource draining demands. You bought their business; you just don’t know it, yet.
Sales Brute Force:
Here is the voice-over that occurs while I am thinking in meetings.
Startups in professional service many times spend VC money to develop a sales ‘brute force’ as a cloak to resemble a tier 1 market leader in all those cheap ways that a startup company can. They strive to dazzle and confuse the prospect in a ‘Thomas Crown affair’ type maneuver.
Brute force distributes assets over a wide swath of land and creates tremendous strains on a total operational system. This benefits the incumbents and/or market leaders because you are advocating their product with only nominal upside to the prospect, so the sale will almost always come down to cost savings and not ‘core competency’.
Many, if not most, if not all unprofitable clients are the artifacts of brute force sales campaigns that lacked pricing discipline.
Brute force requires an exhausting bureaucracy for sales recruitment and typically results in high turnover and building/training the sales staff (and supplying the hot leads) of your competitors and other new entrants. Intensive, hard core training driven by testosterone fueled quotas is very inefficient filtration.
Brute force doesn’t ever complement a tactic of sales rep efficiency. They are opposing forces.
Startups overwhelm the market with Marketing, Social Media and sales desks. This usually hits a brick wall after a few years of sales rep turnover have had their consequences, (unexpectedly) high client attrition, and an inventory of unprofitable clients. This is when the more experienced and cautious business operator becomes visible in the sky, waiting.
Starts ups desire to cast to wide a net and when this happens they are really doing is reinforcing the market leaders. They do successfully take the low ‘hanging fruit’ out of the prospect pool, but what remains will go to the market leaders and pay a premium for some surety and to avoid risk. So the clients that you need to accelerate profitability you are driving to the market leaders.
Brute force works tactically in situational play. It is an effective strategy in several different scenarios.
In a recession when you want to get as many looks at prospects as you can and you currently possess the mechanisms to extract their value.
Company is willing to forgive some client quality. You hire lots of reps and allow them to create visibility, you forgive their lapses in production because you need the looks, and you recognize it will have a statistical and residual value.
A new entrant in a new industry and your sales reps are also acting as a type of socializing agent, evangelizing, educating and closing deals.
You are trying to neutralize an opponent by buying up the market.
If you are not in an entirely new industry and there are market leaders, use brute force sales precision and stay upstream, where the profitable clients are. The low end clients will always be there and you will get their sales inquiries and can respond to them. Keep the low hanging fruit clients to a very compressed sales cycle and train/compensate the sales reps to move them quickly through-out the pipeline.
3. Right clients/right price, reasonable usage and drain. They don’t leave and you can forecast reliable revenue and attrition.
Having an inventory of these clients and a pipeline of quality ‘live’ deals is imperative.
A startup should, in most instances build a sales assembly to manufacture, with precision, this sale.
This requires a rigid methodology of prospect selection, asset allocation, staffing ratios and most importantly, pricing discipline.
The vendor must initiate a sales ramp foremost identifying themselves as having a quantifiable and unique core competency. Multiple beachheads although theoretically compelling, rarely plays well in the market, it looks like the incumbent and vendor/disruption risk pushes the best prospects to the ‘fail safe’ tier one provider and pricing concessions won’t resolve this, it will just lower the bar.
Top tier clients somewhat defined.
Clients that pay a premium. Many younger companies generously undercharge and the rationale might be that this creates momentum and has its own contribution to the lifetime value of the client. The reality is that those clients, many even in the ‘low hanging fruit’ category will pay (much) more and that their ‘vendor management’ is better than your ‘client management’.
Allows your company to gain deep insight into the client operations and anticipated needs. This means that they are giving you the business intelligence to move up a chain to be the most client facing within an ecosystem. This dialogue benefits the mutual interests. Companies that are working with a variety of vendors go through cycles of vendor consolidations as the products mature. These are cycles of consolidation and fracturing and when you sign these clients you must also work towards deep integration from day 1. This is not forecasting upsell or products still in development, it is warehousing the operational and system intelligence that will be needed for acquiring other companies nad gaining deeper pentration into the the client.
Contribute to a viral ‘network’ of clients and that are willing to dedicate the resources on their side to further enhance the value. They must be engaged. Somebody on the client side must be your internal raving fan and advocate.
This sales force employs brute force tactically. It is all pointed to the high end and maximum visibility. Service (not including exec management) staffing ratios are slightly front loaded.
Sales must avoid high turnover and instead is more selective and aims to get many reps to be the tenured, high performers coupled with some more marginal sales performers that overtime can be developed. Training is real world and happens out of the office. These sales people are not an anonymous mass that the lesser entrants employ and they will distininguish the product.
Start up selling professional services. A sales brute force post mortem