The Corporate “Hangover” From High Demand

by | Jul 12, 2012 | 2006, Sales

Remember when you had a unique product, a top-notch sales force, customers who couldn’t get enough of your product and were willing to pay anything for it. Sales reps couldn’t close deals fast enough and the factory couldn’t keep pace with the orders. Little to no inventory cost, high margins, an incredibly productive sales force, big bonuses, soaring stock, etc…things couldn’t be better. But what happens when demand begins to slip?

One of the first things to occur is that your best customers, who in the past had no leverage, begin to feel the advantage shift their way and sales reps (unknowingly and for the most part unwillingly) help that transition.

As demand cools, good sales reps who are trained negotiators and born manipulators, begin turning their finely tuned sales skills on the organization. Feeling the pressure to close business and meet quota, reps begin “selling” the organization on what they need in order to get the deal done.

Instead of driving customers into existing solutions with a premium price, they take the course of least resistance, demanding that the organization bend to meet the customer’s (not the company’s) requirements. The company “customization” party goes on for as long as the sales quotas exceed market demand for the product.

The Hangover Effect

What does the company look like after the party? Unfortunately, like most good parties, the news of the festivities grows and involves most of the organization. At the end, it is not a pretty site and it take years to clean up. Here’s a list of the mess left behind:

  1. Large contract departments – When demand is high, customers typically agree to standard terms and conditions in order to get the product as quickly as possible. As demand slows customers begin to try to gain leverage by modifying the “T’s & C’s” of a contract to their advantage. Reps desperate to get the deal signed before the end of the quarter apply pressure to the legal and contract departments to accept customer terms. This results in contracts so complex to manage, that additional staff is needed to administer them.  In one hi-tech firm, for example, it takes a staff of four to perform administrative tasks related to just one large customer contract. Multiply that by twenty large customers and you begin to see the problem.
  2. Complex product and price configurations – In the eyes of the customer, the value of the rep shifts from problem solver and solution provider to personal customer advocate. The same demand for customization of “T&C” is applied to product configuration and pricing arrangements. The result is highly customized solutions, hard-to-write service agreements, and complex payment terms that may end up costing the company money.  The response from the product management team of an ATM manufacturer working on standardizing product configuration was: “We have been trying to do this for years, but the sales force wouldn’t let us.”
  3. Order Taking vs. Order Making — A nasty side effect of this hangover is that when demand slows it reveals flaws that would otherwise had been hidden. One of those is seen in the quality of the sales force. The difference between “order takers” and “order makers” becomes apparent in a slow marketplace. In this environment of longer sales cycles and fickle customers, sales reps must work harder than ever for the sale that doesn’t hold much appeal for reps who are used to making quota without much effort.   A sales rep at a one-time highflying manufacturer of telecom and web equipment was overheard saying in the hall to a colleague; “…I’m afraid we are back to the bad old days when customers required a business case and ROI for every purchase decision…” 
  4. A Service Nightmare – When product configuration becomes so highly customized, it limits the number of service reps who have the competency to work on the equipment. This results in long service times. Worse yet is when service reps turn over, new reps, which lack the knowledge of the original configuration, begin applying short term service “band-aids” that sacrifice product performance.   In addition, complex product configurations bring complex service agreements. As is the case for orders, service contracts become incredibly difficult to administer and manage. For example, one customer of an equipment manufacturer demanded that each component of the product have its’ own unique service agreement…all 200 parts.
  5. Remarketing vs. Marketing – Marketing gets the opportunity to host the party. Because demand for most products already exists, marketers focus their efforts on having fun catering to big customers and satisfying the whims of the sales organization (big expensive customer events, sponsorships of sporting events, etc.). Their activities are nothing more than “remarketing” to existing customers to keep the party going.

As the downturn comes, marketing is stuck with pre-conditioned customers and reps who are looking for “fun” and “fluff”. Unfortunately in this environment, marketing never develops the types of programs and core competencies needed to effectively sell products and acquire new customers right when the company needs it the most.

Best Cure for the Hangover
It’s not the hair of the dog that bit you that’s for sure and unfortunately, this hangover does not respond to a quick fix like a couple of aspirin or a new technology. Here are a few tips for getting started:

  • Map out a plan – you didn’t get into this overnight and you’re not getting out quickly. Start small and stay focused.
  • Find/Create opportunities to standardize and/or simplify– force events such as technology implementation or new product introduction to standardize process, price and services.
  • Understand that not everyone is going to make it – the hiring profile for reps and managers 10 to 20 years ago when the sales force was built may not make it – order takers vs. order makers. The service and marketing departments may also need retooling. New competencies, skill sets and training are also necessary for those who make it.
  • Utilize new sales and marketing channels and retrain existing channels – introduce and pilot new sales and marketing channels that increase customer coverage, reduce overall sales cost, and improve customer acquisition. Help field sales reps find their “sweet spot” (closing large complex orders in new accounts) by providing training on multi-channel coverage models.
  • Draw a line with customers – Analyze and determine the profitability of your customer base. Segment it into three groups: 1) Profitable, 2) Marginal but with Potential, 3) Unprofitable with no potential.   Begin the process of re-conditioning the way customers in segment #2 buy. You’ve created the monster and now you have to tame it. In segment #3, begin the process of terminating the relationship.

In the end, it is like any hangover. You feel terrible, you have a few (or a lot) of regrets, you promise to yourself and others that you’ll never do it again — but…it was fun while it lasted.

Top 10 Truisms in Business

by | Jul 12, 2012 | 2006, Opinion

Original post date November  15, 2006

Over the last 25 years, I’ve had the opportunity to work with well over 100 companies.  Some of them recognized as “best in class” while others brought up the rear…so to speak.   What has been interesting is the consistent themes, trends, and/or characteristics that determine where they land on that list.

Below are what I’ve observed to be the “Top 10 Truisms” of business behavior.

 The TOP 10

  1. Corporate Culture – is directly related to the CEO. He or she sets the tone that everyone else emulates.
  2. Trust – is the difference between a dysfunctional and a high performance team. If you can not trust the people you work with and/or who work for you, you can not perform at the highest level.
  3. 80/20 Rule – the Pareto Principal always, ALWAYS applies, whether it is revenue, profit, sales, people, etc.
  4. No New Customers – if you are an established company that has been in business for 10 years or more, you can achieve revenue and profit objectives solely based on doing a better job of capturing the opportunity in existing accounts (see the 80/20 rule).
  5. Marketing Contribution – 10-15% of Revenues– if you are in a mature marketplace and you have to use marketing to acquire new customers, sell new products, etc., know that it will not product more than 10-15% of your total revenues. The other 85-90% will come from the sales channels.
  6. The Rule of 70% – given the speed of today’s market, competitors, and customers, getting a product and/or marketing campaign/program 70% complete and out the door is good “enough.” Let customers/prospects complete the rest of the 30% for you. Less internal debate and more customer feedback makes for successful programs and products.
  7. NEW does not mean BETTER – everyone loves something new but it is the last thing that any company should focus on. Building/ selling/thinking NEW takes too long, cost too much and will have the lowest ROI. Focus first on getting more out of existing…and then invest in new (see 80/20 rule..again).
  8. Elephant in the Room syndrome – there are big problems impacting performance in every organization that everyone knows about but no one talks about or attempts to fix. They will treat the symptoms but not the core problem…call it career preservation. High performing companies (and leaders) create a culture that is open to addressing difficult issues.
  9. Risk Tolerance – fast growing and “best in class” companies have a culture of tolerating risk and/or failure. It is a HIGHLY valuable and a very real competitive advantage.
  10. Performance Dashboards – we recently completed a research study with the CMO Council that surveyed over 400 CMO’s in companies over $500 Million in revenue. 50% of the responders said that they have a Dashboard and 38% said that they were working on one. Here’s the truth…they don’t have a dashboard; they have an excel based “Report Card” of what they did, where they spent marketing dollars and what they got in return (hopefully).  The reality is that a real Dashboard has real time information and can allow you to forecast at least 30 days forward.  Don’t show everyone in the organization your “numbers” until you know how to move them in the right direction.

Since this posting, I’ve recognized two other “Truisms.”

  1. Sales Force Behavior – is consistent regardless of what they are selling, who they are selling it to, or the industry they work in.  As a result, it’s somewhat easy to predict how they will react in certain situations and/or to certain changes or challenges.  Good insight for marketers to know.
  2. Smart companies can’t tell you what they do – professional services firms are terrible at creating the “elevator” speech.  The reason is that they view the company as a reflection of the work they do with clients.  Each client and project being different, they form different opinions as to the organization’s value.

Please add your “Truism” in the comment section below.