The Fatal Mistake Boards & VP Sales Will Make In 2008 Planning

I apologize in advance if this post, even if it isn't that long, touches a variety of topics in one shot. I'm venting frustrations about a mistake I see made over and over again.

For companies selling products worth less than $100,000-$250,000, the old school strategy of hiring more feet-on-the-street to drive revenue growth is failing more often. Or just fails.

Let's take companies in fast-growth periods who are focused mainly on adding new customers (rather than more mature companies who drive much of their growth through their customer base).

The problem: the old bedrock sales principles that usually worked now doesn't..."if I need to double revenue growth, I need to double my sales force to drive it."

Wrong.

Salespeople do not cause customer acquisition growth, they fulfill it.

Before you rush on to the next section, really consider that. It's a HUGE shift in traditional sales thinking. I'm talking about root cause drivers, not correlations. Of course you need more salespeople if you're getting bigger, but they aren't what is causing new customer growth.

Lead generation causes new customer acquisition and sales fulfills it. I see a future in which sales is more and more like account management, and the focus of new customer acquisition responsibility growth falls more squarely on lead generation executives (VP Demandgen/Leadgen and VP Sales Development).

OK, the Sales 1.0 thinkers out there are saying "You're crazy. I'm hiring salespeople and they're adding new revenue. And it's worked for me for 15 years. Without great salespeople, we wouldn't be closing these customers. Our 9-stage sales process is really cool too."

Right. That did work in the past. Things change.

Here's another way to think about it by comparing two competitors.

Competitor A:
* Trying to double from $10m in revenue to $20m.
* 10 salespeople today, growing to 20 in '08.
* Generating $3m per month in new pipeline through proven campaigns in leadgen and marketing (40% of pipeline), a cold calling 2.0 team (40% of pipeline), partners (20% of pipeline).
* Their salesperson ramp-time is 4 months (because they create pipeline for the rep to walk into).

Competitor B:
* Trying to double from $10m in revenue to $20m.
* 10 salespeople today, growing to 20 in '08.
* Competitor B spends money on marketing, and salespeople cold call, but no one really tracks pipeline metrics. But the VP Sales and the salespeople have had a knack for hitting their numbers each month so far with some scrambling.
* They think their new salesperson ramp-time is 6 months (but really will end up at 9-15 months...if their salespeople ramp at all).

Who would you bet on?

Here's the '08 scenario I personally see playing out for too many companies:
1. Board/CEO sets an aggressive 2008 revenue target (mostly based from new customer acquisition)
2. VP Sales/CEO divides revenue goal by expected quota to determine the number of salespeople needed to hit the target
3. Sales reps miss targets after ramping MUCH more slowly than planned
4. Everyone has an extra helping of pain and a side of stress for Thanksgiving next year (if the VP Sales is still around)

Here is the root assumption that causes 'VP Sales roadkill' (although the board and CEO are equally responsible): Their false assumption that salespeople will find new business on their own.

No they won't. Not enough to feed themselves.

(Ok, SOMETIMES, SOME salespeople can. Some people win the lottery too.)

Here's why:
1. Salespeople are terrible at prospecting
2. Salespeople hate to prospect
3. Even if a salesperson does do some prospecting successfully, as soon as they generate some pipeline, they become too busy to prospect. It's not sustainable.

Unless all I'm selling is big deals (>$250k), or in industries that truly are relationship-based (like the ad agency world)...there's no way in hell I'm rolling the dice on my company based on this assumption.

How boards & CEOs exacerbate the problem
As soon as a product is ready for market and there's some initial customer traction, the board and CEO tend to rush to set 100%+ growth targets. They arbitrarily pick goals (since there's no data to base predictions on!) and turn the screws on the VP Sales. The VP Sales sucks it up (especially when he had no voice in the goals) and gets busy hiring salespeople...who miss plan. Company misses targets. Executive team is refreshed.

Why is it easier for people and companies to do more of what doesn't work than to take some time to figure out what does? By Q2, when the sales people aren't making their 2008 numbers, there will be the push (from the board, CEO or VP Sales themselves) to hire more! "We're behind on our goals, we need to hire more salespeople!" How does that make sense?!

I think people, when under too much pressure or stress, tend to retreat to the safe place of what they know rather than taking the risk of trying new things. It's safe, it's less scary than what's unknown. It doesn't make logical sense; it must come from the reptile part of the brain.

Some answers, kind of
Unfortunately, there aren't any quick fixes to this lead generation problem today. In fact, if you don't have any repeatable leadgen programs yet, you're already behind in getting ready for '08. Despite your investors' demands, it takes 12-18 months to get leadgen cranking. What can work is a mix of, for example:

1. Trial-and-error in lead generation (requires patience, experimentation, money)
   
2. Patience in building great word-of-mouth (the highest value leadgen source, but hardest to influence)
   
3. Cold Calling 2.0 (by far the most predictable source of pipeline, but it takes time and focus)
4. Building an excited partner ecosystem (very high value, very long time-to-results)
   
5. PR (great if you're great at getting it!)

Start with more awareness on how much pipeline you're generating
Not sure what works today, or where to start? Begin with awareness.
* Does your executive team and board know how much new pipeline the company needs to generate per month?
* Is that tracked at the board level? (At least while customer acquisition is a primary focus.)


Email me with your rants
Are you skeptical of this? I could use some good email or comment threads to flesh out the ideas and issues around this. Email me at aaron at alloyventures (you know the rest).