Professional Documents
Culture Documents
Joel Davis
Boundary Press
Temple Terrace, Florida
www.boundarypress.com
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Death of a Leader
Death of a Leader. Copyright © 2008 by Joel Davis. Manufactured in the United States
of America. All rights reserved. No part of this book may be reproduced in any form or
by any electronic or mechanical means, including information storage and retrieval
systems, without permission, in writing by the publisher, except by a reviewer who may
quote brief passages in a review. This material may not be used in whole or in part for
presentations, training classes or seminars. Although the author and publisher have made
every effort to ensure the accuracy and completeness of information contained in this
book, we assume no responsibility for errors, inaccuracies, omissions or inconsistency
herein. Any slights of people, places or organizations are unintentional. All names have
been changed to ensure confidentiality. Published by Boundary Press, located at 5004 E
Fowler Ave., Unit C-115, Tampa, FL 33617.
Visit our Web site www.deathofaleader.com for additional and up-to-date contact
information.
Davis, Joel
Death of a Leader: Stop the War of Politics and Personalities Versus Principles and
Performance Before It Kills You and Your Company
ISBN: 978-0-9791397-1-0
Edited by Marjorie Bulone.
Cover Design and Book Layout by Toné Mojica.
Production Coordinated by Toné Mojica.
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Go-To-Market Strategy
You have collaboratively created the vision, mission and values of the
firm. You have defined what business you’re in and also the ones that
you’re not in. You understand your industry position. You have defined
and refined your value propositions and SCAs—and, I hope in the process,
you figured out how to be #1 or #2 in your category, or you created a new
category where you can be #1 or #2. So far, so good!
Now you need a go-to-market strategy that will enable you to become the
category leader in either your existing category or your new category. A
go-to-market strategy is an overall plan for reaching profitable customers
in growth markets via the right blend of cost-efficient and effective
channels with the right positioning and messaging, and with the products
that fit both the customer and the channel.
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Ø Measure the P&L and, hence, the ROI of each channel over time,
enabling you to change your channel investment mix to stay ahead
of your competition
Ø Market Assessment
Ø Customer Segmentation
Ø Sales Force Coverage and Productivity Models
Ø Creating and Leveraging Indirect Sales Channels
Ø Optimizing Direct and Indirect Channels
Ø Pricing and Profitability
Market Assessment
For most firms, there are usually many more market opportunities than
there are marketing and sales resources. It becomes critical, therefore, to
determine which markets to target first, second and third, as well as which
markets you are not going to target.
Your senior management team, along with your marketing people, need to
develop a list of markets in a creative brainstorming session. Let’s say you
have a new software product that you want to bring to market. An initial
list of markets could be manufacturing, distribution, retail, health care,
state government, federal government, education and non-profits.
After you have created a list of markets, you can evaluate them against a
set of criteria to winnow the list down to the markets that provide the
highest ROI and give you the highest probability for success. Clearly, you
need to segment the market, but how?
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Number of Number of
Segment Segment Includes Examples of
Stores in Stores in
Classification Description Subsegments Firms
Segment Subsegment
Wal-Mart,
1 Big Box 5,384
Costco
Pharmacy 12,191
Grocery + Walgreens
Grocery/
2 28,200 Pharmacy 15,173 Safeway
Pharmacy
Specialty Whole Foods
Grocery 836
Large
Sears,
3 Department 9,083
JC Penney
Stores
Specialty –
General 58,602 Gap
4 Specialty 75,914 Specialty Home Depot
Big Box 9,030 AutoZone
Auto Parts 8,282
7-Eleven
Fast POS 11,634
5 Convenience 62,534 Exxon
Gas Stations 50,900
Mobil
Total Retail
182,067
Stores
Now that you understand what market you are going to target, you now
need to follow the same segmentation process at the customer level.
Customer segmentation is very important—do not skip this step. Within a
given market, there will be more customer segment opportunities than the
typical firm will be able to reach. You need to segment the customers
based on varying criteria all the way down to an “ideal customer segment
and ideal customer profile.”
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One last note: go back and review your value propositions and SCAs in
light of the market you’ve chosen. What additional value propositions and
SCAs can you come up with to make your offer even more compelling for
this initial market?
Customer Segmentation
The following are excellent questions to help you identify your ideal
customer profile:
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Ø How many of your clients fit this ideal profile today and how many
do not?
Ø What percentage of each sales rep’s customer base matches the
ideal customer profile?
Ø Does the firm know the sales potential for each customer and
segment?
Ø What are the drivers for determining sales potential at the customer
level?
Once you have identified this ideal customer, stop for a moment and
define the opposite. In other words, what would the worst customer profile
look like? Many firms fail to take this step, resulting in marketing and
sales investments, programs, people and time being wasted on customers
who may be close to the ideal profile, or have a few elements of the profile
but, in actuality, are terrible prospects. If you can come up with four to six
qualifying questions that would enable your sales people to smoke out
prospects that don’t fit the profile, you’ll save yourself a lot of grief along
the way.
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Revisit the ideal client profile on a consistent basis. Use it to guide your
marketing and sales efforts and be extremely cautious NOT to chase
opportunities that are closer to your worst-case profile than not. Many
marketing and sales organizations consume as much as 25 percent of their
resources, time and money chasing customers and deals that are outside
their ideal client profile by a mile—so don’t let them even enter your
system! Don’t let these “leads” or “requests for proposal” enter the
customer relationship management (CRM) system. Don’t let sales people
talk you into pursuing the deal. Don’t let these deals make it into the
forecast. In organization after organization, I’ve seen the bottom 10-15
percent of customers actually COST the company 25 percent+ of their
total profits—and, when analyzed, they typically met the worst-case
customer profile or major portions of it. So do everything you can to block
these accounts from ever entering your system!
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product along with all the problems, tribulations, costs, productivity loss
and uneven quality. Or, describe on a line-by-line basis; chart, report, etc.
how their life is different the day AFTER they’ve acquired your product.
By completing the before and after sections as completely as possible,
you’ll identify more value propositions for your messaging and validate
that this customer is actually your ideal customer.
The Vice President of Marketing turns to her business analyst and asks her
to run the “MBR Report” from the company’s business intelligence
datamart. This datamart collects information fed from the company’s
multiple, disparate and, in many cases, obsolete systems. Each information
feed has been validated from both an IT and a business perspective as
being from the right source at the right time. If there is any discrepancy in
the information feeds, a red flag is displayed along with the potential
source file where the error might have occurred. Since the business analyst
has been running this report for months, all red flags have been eliminated
from the system and the data is accurate and consistent. The Vice
President of Marketing reviews all the key metrics from her monthly
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business dashboard and is able to drill down on the fly to dig deeper into
any specific area. After about one hour of review, the Vice President of
Marketing lets her business analyst know that the information is ready to
be dropped into the report (which takes about five minutes). Armed with
complete, accurate and up-to-the minute information, the Vice President
of Marketing enters the MBR with her boss and walks out of the meeting
with her new headcount increase approved!
So, before you launch horizontally; think vertically. There are definite
advantages to this approach, because it’s so often overlooked. Further, as
companies grow, competitors enter the market and many products become
commodities. A way to change the game on the competition is to tailor
your products, services, programs and messaging to a specific industry.
Intuit has done a masterful job at this with their QuickBooks product.
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Even with the Internet, cell phones that can work anywhere in the world,
instant messaging, English as the “Microsoft Windows” of languages and
international trade agreements, going international is not the same as
selling into your local market. Senior executives need to follow the same
process of assessing which international markets to enter as the one I just
described for local markets. Marketing and selling internationally adds a
level of complexity to your business strategy, programs and execution.
You’ll save a tremendous amount of time and money by doing your
research, and doing it well, before entering any international market.
Ø Population total
Ø Demographic breakdown of the population
Ø GDP total, growth trends, historical averages
Ø GDP breakdown by industry
Ø Currency, currency conversion, currency fluctuation, inflation rates
Ø Per-capita income—this is incredibly important!
Ø Taxes, fees, tariffs. Don’t forget to break out the differences in
taxes on capital investments versus operating investments.
Ø Ownership requirements and other regulations for foreign firms
Ø Business demographics—total, by size of business
Ø Government integration with businesses
Ø Are there state-run businesses? Which industries? Are there any
hints about privatization?
Ø The “Top 100” analysis. This is a list of the top 100 firms within
the country with their total revenue, profits and employees, as well
as what percentage of total GDP they represent. This data may
shock you, for in many countries, these top 100 firms are 90
percent of the country’s GDP.
Ø Political stability
Ø Geopolitical stability (stability of the region; not just the one country)
Ø Cultural attributes—manners, customs, norms, behaviors, the
importance of time, gifts, holidays, religion(s)
Ø Historical perspective—get a good understanding of the country
form inception to today. It can teach you a lot about doing business
in that country.
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Still, there’s no substitution for being in the country, so what you have to
do now is go visit the country! There are trade offices in nearly every
country that can provide information and arrange for you to visit and meet
with various government officials and business leaders. After you’re done
with the official tour, stay a while longer. Introduce yourself to local
business people—the ones running small businesses—and get their take
on doing business. Take their pulse on the economy, political officials and
what keeps them up at night. You’ll learn as much or more from these
conversations as you did through formal channels.
At the end of this complete process, you should be able to identify the
single best country to enter and have a solid business plan to do it
successfully. Remember that entering a new country is a multi-year
investment of time and money, and it can be a significant management
distraction. Still, the rewards can be substantial, so don’t shy away from it
if you believe there is an opportunity. Just make sure this is a conscious
decision, well thought out, with detailed plans, timelines, milestones and
the business flexibility to handle surprises.
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A sales force coverage model is a fancy term for determining how you are
going to deploy the sales force to cost-effectively reach your ideal end-
user customers. This definition is simplistic, as you will see in a moment,
but it’s a good working definition for now.
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TAM/SAM
Remember these terms from earlier in the book. TAM stands for Total
Available Market and SAM stands for Serviceable Addressable Market.
TAM shows you how much and where the money is overall—while SAM
shows you how much of that TAM you can actually get. You will want to
organize your sales force around SAM; not TAM. You will need to
monitor potential shifts between TAM and SAM as markets move through
their life cycles. If you don’t do this, you could find yourself in a situation
where your sales people literally can’t reach the customer segments that
you want because you’re in the wrong markets. A simplistic example is
this: if you’re targeting the financial services industry, deploying your
sales force in the middle of Iowa would not be the best thing to do.
There are many mapping programs available that work with Microsoft
Excel. Plug your market assessment information into Excel and then map
it so you can visualize it. This “seeing is believing” step is very important.
The mapping software can help you visualize the revenue potential (SAM)
of each of your target markets, the number of current customers, the
number of prospects (non-customers), number of businesses overall and
the population. Anything you have in Excel can be visualized on the map
and—as we all know—a picture is worth a thousand words! Remember,
this is the first and most important step, but not the only step.
Now that you have a solid idea of where your ideal customers and market
opportunities are (SAM), you now need to understand how to structure
your sales force to reach it. Remember, these steps are all to be done
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iteratively, and I’m forcing you to go through these steps in this order on
purpose, from high level down to the ground level, in order to identify
problems before you have deployed people and spent millions of dollars!
The three structures highlighted above are the ones that are most typically
used. However, hybrid versions of these do exist and can make sense. For
example, you can have product or market specialists reporting to first-line
geographic sales management. Or you could have product or market
specialists reporting through a separate management structure. For
example, if you’re organized around industries, you might have an
Insurance or Automotive Strategic Business Unit (SBU) with marketing,
sales and support all under that umbrella. If you’re organized by product,
you might have an “Organic Foods” SBU or a “Heavy Tractor SBU” or a
“Laptop SBU.”
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For most firms, sizing of the sales force is part art and part science, and
too often is based on politics, personalities, who has control and, in many
cases, unrealistic assumptions about what mere mortal people can do. This
flawed process has been the undoing of many a sales leader, so I would
really like to help prevent this from happening at your firm.
Let’s assume that you’re running an existing business. The first thing you
need to understand when sizing a sales force is to know what percentage
of revenue is coming from each of the following categories:
New Customers
New Products/Services
Existing Customers
Existing Products
Lastly, determine how the size of the proposed sales force compares to:
As you probably can see from this list, most firms don’t have a clue about
sizing the sales force and so, right from the beginning, the sales leader is
behind the eight ball—as is 80 percent of the sales team. In fact, many
sales force sizing discussions go something like this:
CFO (Career CFO): “Ha, ha, ha. You are such a kidder! Listen, I told you
last week in an e-mail, the budget will only support 10 new field sales
people. And, yes, I saw the competitive analysis you did, showing that we
are substantially outmanned in the field but, hey, that just means that we
need to work harder and smarter.”
Vice President of Sales: “We already are working harder and smarter. Did
you read the business plan, program and metric targets for my department
this year? I can’t think of another time at any other firm in my life where a
team could hit these metrics and execute all of these programs without
burning out.”
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CFO: “I wish you would negotiate this hard for us with our customers.
Listen, it is what it is, unless the CEO wants to do something different.”
CEO: “These discussions have been going on for weeks via e-mail. Based
on my experience (Author’s Note: he does not have any sales experience,
so watch out), these numbers are a stretch, but they are doable. So, you
just better figure out how to do it with only 10 more people.”
Vice President of Sales: “I understand your position, but I’m telling you
right now that we are putting the entire revenue plan at risk. In addition,
you cut the training program from my budget, so not only are we going to
have fewer people than we should, we will have to get them up to speed
by cobbling together internally developed training delivered by people
who already have other full-time jobs to do.”
CFO: “Well, you said a lot of these same things last year, and you still
figured out a way to make the numbers, so let’s just revisit this in 90
days.”
CEO: I hear you, but our products are the best in the market! If you can’t
sell these products…well…anyway…we are done here…let’s go sell
something!
Now that you know where the SAM is and have a good idea of how you
want to structure the sales force, it’s time to take a first pass at creating
sales territories for each sales rep. The single most important rule for you
to understand is this: you will need to create, refine and restructure
territories every 12 to 24 months, depending on the industry. Territory
management is a process, not an event.
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Each territory should have the same SAM and hence the same sales and
earnings potential! If you miss this step, you might end up rewarding a
poor-performing sales rep who happens to be in a great (high SAM),
territory and let go of a top sales rep in a poor (low SAM) territory. For
example, let’s say your “top rep” did $2M in sales last year but was in a
territory with a SAM of $100M—clearly this rep is getting his tail kicked
by the competition. However, your supposed “poor sales rep” did $1M in
a territory that had a SAM of only $10M. This “poor rep” has a market
share of 10 percent in her territory, which is 5 times the market share of
the supposed “top rep.”
Do your best to carve out territories with the same amount of SAM. If you
can’t, acknowledge it, and keep it on your radar, so that as reps come and
go and the business changes, you can load balance the territories over time
until you achieve your objective.
Conversely, if the territory has very large SAM, revenue, gross profit and
reaches a certain maximum that is more than a single person can handle,
the company needs to split the territory into one or more territories and
add sales reps. This divide and conquer strategy was used successfully by
Cisco, EMC, IBM and many other high-tech firms to consistently
penetrate deeper and deeper into markets, thus becoming the category
leaders.
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The minimum SAM and Sales for an Inside Sales Rep is $5M and $2.5M.
If an inside sales rep falls below this level, the company will either collapse the
territory or replace the rep. Sales management should try to keep the average SAM and
sales at $10M and $50M. When an inside sales rep grows their territory to $5M –
$7M, Sales management needs to begin the process of identifying how to divide the
territory and add more sales resources.
Field Sales Minimum Ave Max
Quarterly SAM $ 10,000,000 $ 15,000,000 $ 20,000,000
Quarterly Sales $ 2,000,000 $ 2,500,000 $ 4,000,000
# Accounts 5 10 15
Field Sales Guidelines
The minimum SAM and sales for a field sales rep is $10M and $2M.
If the field sales rep falls below this level, the company will either collapse the
territory or replace the rep. Sales management should try to keep the average SAM and
sales per field rep at $15M and $2.5M. When a field sales rep grown the territory to
$2.5M+ in quarterly sales, Sales management needs to begin the process of identifying
how to divide the territory and add more sales resources.
As we continue to drill down into the sales force coverage model, it’s now
time to begin identifying what the productivity drivers are, as well as the
systems and processes that you’ll use to track and manage those drivers.
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advice is to understand the 80/20 rule yet again, and make sure that you
can monitor and track the 20 percent of the drivers that deliver 80 percent
of the results. Start with this segment first, then you can expand over time
if you like.
What are all the ways that the sales force is measured currently? Here are
more good “sales metrics” questions to guide you:
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This is why you need a Sales Operations Analyst (this individual also can
be known as a Business Analyst)! They literally can create additional sales
capacity (see the next section) across the entire organization by being the
focal point for creating reports, updating corporate databases, training reps
how to read and use portals and dashboards, doing “what if” analyses, pro-
forma projections, deep dives on specific areas, etc.
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Memorize the following phrase: “sales capacity.” Repeat it over and over
and over. Sales capacity is the amount of time actually spent selling
(demand generation) versus non-selling (administrative, internal meetings,
account servicing, forecasting and reporting). Sales capacity must be
understood, measured, benchmarked and constantly protected. Firms that
guard and increase selling capacity will grow market share more
consistently over time. Firms that don’t get this concept will continue to
whittle down their outbound selling capacity, lose market share and
become take-over bait or, even worse, a niche player struggling to survive.
Ø Where does the sales person spend his time today: selling,
prospecting, account servicing, administration?
Ø What essential work is required for each segment, territory or
customer? List the specific steps for each one.
Ø How does it vary by industry, geography, order size, product line,
customer size?
Ø Who does demand generation today—lead generation, prospecting,
inbound call handling and requests for information? How many
full-time equivalents (FTEs) does this add up to? Could you do it
better or for less if you created a focused group rather than having
one person’s time sliced into doing many different tasks?
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As you go through these questions, you might discover that you need more
selling capacity than you have. This leads us to the next section, Indirect
Channels!
Most firms start off selling their products directly, whether it is via the
Web, a direct sales force, manufacturer’s rep firms, inside sales and
catalogs, etc. As a firm grows, it runs into the problem of “reach.” Simply
put, even the most successful firms can’t reach all of their target prospects
directly on their own. Even if they have an incredibly large sales and
marketing budget, there are just simply too many prospects for them to
reach. For example, say you have a product that is perfect for the small
business owner. There are more than 10 million small businesses in North
America. How will you reach them all? You can’t—at least not directly. It
wouldn’t be economically feasible to create an internal sales capacity large
enough to reach this market. Expanding sales capacity externally is where
indirect channels come in!
Sales channels or just “channels” are adjunct routes to market a firm can
use in addition to their direct-selling approach. Channels also are used to
describe the types of firms that can help you reach your ideal target market
via their marketing, sales and support services as well as their large
existing customer bases. You buy and shop in channels every day—Publix
Supermarkets, Home Depot and Lowes, CDW and Dell, Best Buy, Lands
End and Victoria’s Secret are each channels within their respective
industries.
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From those questions, you should be able to list all of the potential
channels to consider. Next, map your customer’s total buying experience
to your potential channels. For example, where would they go to get
expert advice, training, customization, an integrated total solution, on-site
installation, maintenance, price and product information? These are
important items to consider because they will help you winnow down the
list of potential channels and prioritize the ones that remain. If you’re
selling a product for home improvement that’s easy to install and use, your
choice of channels could be much larger than if you were selling a product
that took two people to carry, one person to set up, six hours of training
and twice a year servicing to maintain.
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Switching gears slightly, in the home improvement area, Home Depot and
Lowes are volume channels. But they also provide in-depth training and
how-to-classes, as well as a tremendous variety of on-site services
including remodeling and landscaping. Weren’t these services the
exclusive domain of tens of thousands of small businesses like
landscapers, cabinet makers and general contractors? You need to identify
which channels are the best match for your products based on the ideal
end-user profile, the price point of the product, and the pre- and post-sales
support required.
On the next few pages, you’ll find a channel analysis matrix and a channel
management checklist to help you determine which channels might be
suitable for your product as well as potential metrics to measure within the
channels. Again, this example is for a high-tech firm.
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GM%
OPEX%
Rev/Head
Business Drivers
Current Trends
Cost of Doing Business Review
One only
All channels, first come, first serve
Selected, prioritized based on goals
Exclusive or Non-exclusive
Account Penetration Strategies In Each Channel
One only
All accounts, first come, first serve
Selected, prioritized based on goals
Exclusive or Non-exclusive
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Strategic
Tactical
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Tactical
Ø What are the top-selling products in units and dollars, overall and
by channel? What are the year-over-year and quarter-over-quarter
changes?
Ø What is the ASP by product, by channel and overall? What are the
year-over-year and quarter-over-quarter changes?
Ø How many orders per day, overall, by channel and geography?
What are the year-over-year and quarter-over-quarter changes?
Ø How many orders by order size by channel and geography.
Example: less than $1K, $1K – $5K, $5K – $10K, $10K – $50K.
What are the year-over-year and quarter-over-quarter changes?
The same questions apply to the aggregate amount of revenue in
each of those categories.
Ø Compare the list price to actual selling prices. Which products are
being discounted the most in dollars and percent? Does it vary by
order size or channel? How many dollars of profit are we losing
based on those extra discounts? When in the quarter are the most
price changes occurring? Are there any trends by sales rep, branch
or channel?
Ø How many orders have more than one unique product on it? What
is the percentage of overall orders?
Ø What is the average number of line items per order? What is the
average order size? How much does it vary by channel?
Ø How many orders have a maintenance contract on it? What is the
percentage of overall orders?
Ø How many orders have free freight included? What is the
percentage of overall orders? What is the dollar amount being
covered?
Ø How do order dollars and unit volume vary by day-of-the-week,
week-of-the-month, month-of-the-quarter and quarter-of-the-year.
Ø What is the net revenue of each order by channel, based on return
rates, defectives, MDF, rebate, co-op, special deals or terms and
sell-through trends?
Ø Accounts receivable reconciliation—how do I collect the cash and
what amount do I ask for?
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Now that you have decided to create an indirect sales channel, it’s time to
review the fundamental principles of success in any channel program.
These principles for success are battle proven across all industry lines,
product and service categories, and geographies. I’ve seen them work at
start-ups, fast-growth firms, mid-size firms and large Fortune 500
enterprises. I’ve also seen successful companies violate these principles at
their own peril—resulting in market share and revenue losses, declining
profitability and erosion of their customer bases. Review this list
frequently, especially when you’re evaluating adding new channels,
modifying existing channels and, of course, exiting channels.
All channels are not created equal. This applies to what markets each
channel can reach, the cost to reach those markets, the services each
channel can provide and, finally, the P&L of each channel as well. Don’t
expect each channel to deliver the same level of revenue, gross profit or
operating profit in dollars or percentage, because that isn’t possible based
on the different business models each channel has developed.
All channels are connected, whether you plan for it or not, so plan for
it. Customers have access to more information than ever before. They are
more sophisticated. They are more connected than ever before. Never
assume that your channel programs will remain in channel-specific silos.
Never assume that customers in one channel will not find out about special
pricing, promotions or programs in another channel.
Channels can synergistically sell (increase sales) for you or they can
compete (decrease profits) for you so, again, plan for the former and
do everything you can to prevent the latter. You need to understand
how customers use each of your various channels for each step in the
procurement process. They might use the Web for early, initial research,
then call an inside sales person to get some specific questions answered,
then develop a request for a quote that goes directly to the manufacturer
AND to multiple channel partners found on their Web site and so on. The
point is that you need to understand how each customer procures their
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products and where they like to go for that information, and then make
sure you have the right channels in the right place with the right
information to enable the customer to make a decision as easily as
possible.
Channels have life cycles too, so make sure you are in all of the right
channels to diversify your revenue streams. If one channel gains share
at the expense of another channel, and you are in both channels, you will
most likely be okay. If you are only in the channel that lost share, then you
probably missed your revenue numbers as well. Monitor each channel’s
revenue growth and make sure that you are properly protected on the
downside while ensuring that you are not too highly dependent on one
channel on the upside. If you see one channel really taking off at the
expense of another, you should re-evaluate your channel investments to
make sure they are optimized. In some cases, you might decide to invest
more in the channel that is losing share for some strategic reason, or you
might decide to cap investments in that channel at the current level to free
up dollars to invest in the emerging fast-growth channel. Just be aware
that all channels have life cycles and monitor investments and programs
on a periodic basis.
It’s the pricing model, stupid! All good channel programs have as their
basis the following objective: The price to the end user is within a narrow
band (+/-10%), regardless of which channel the customer decided to buy
from. The determining factor for the customer to choose should not be
price, but what services (or lack thereof) that channel is able to provide.
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The first step you need to take is to do an audit of how channels are
performing, both from your perspective AND from your customer’s
perspective. Here are some great questions for your audit. Please note that
the word “channel” here is used to cover both direct and indirect channels.
Your Perspective
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At the end of this audit, you will come away with a good overview of
which channels are performing as intended and which ones are not. Even
better, this valuable information will be validated from your customer’s
perspective; not just your own.
However, channel conflict does happen, even within firms with the best of
intentions. In fact, by following the steps in this section of the book, you
will have a huge head start in creating a powerful go-to-market strategy
that has a minimal amount of channel friction or conflict. When you do
run into it, and you will, you need to look at your compensation system for
your own sales people and at the compensation system for your channel
partners.
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So do your best to ensure that the sales teams earn at least as much on an
indirect sale as on a direct sale and, if you are really serious about the
channel, make it more lucrative to have the business go indirect. One way
this can be accomplished is with commission uplifts to overcome the
channel pricing model. Some real-world examples follow.
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List $ 100
Street Price $ 80
VAR Acquisition Cost $ 60
VAR Margin to List 40%
VAR Margin to Street Price 25%
Don’t kid yourself by saying things like, “Smart reps will route this
business through the channel because it multiplies their feet on the
street and will make them more money in the long term.” There is no
long term in the sales business. It’s the compensation plan, stupid!
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Creating Hard and Soft Decks to Optimize Your Indirect and Direct
Channels
The best way to do this is to create hard decks that sales reps are unable to
drop below, and soft decks that provide the flexibility to do what is right
to win the business without impacting the sale rep’s compensation. Below
is a real-world example of how a software firm could do exactly that!
In this example, if the direct field sales team tries to drop down below the
enterprise account level, which must have at least 1,000 employees, they
can take the order, but they won’t receive any commission on it. This
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should ensure that the direct sales team leverages their finite and
expensive resources on the accounts with the highest possible ROI. As you
move into the mid-market, sales reps will earn the same amount of money
whether the orders flow directly to the firm or through the channel. If the
sales reps are smart, they know that routing orders through the channel
increases their revenue potential because more people are selling their
products within their territory and, since they get the same credit either
way, it should be a “no brainer.”
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