Month: March 2015

Forecasting: Why Bad Things Happen to Good Sales People

By Philippe Lavie, President, KeyRoad Enterprises

Picture this: It’s the last week of the month. Each sales rep provides his manager his forecast with his best guess as to what will close this month. Taking this information, the sales manager prepares her forecast and submits it to her VP sales Americas. He turns around and prepares his forecast to his VP worldwide sales. When the forecast gets to the CFO, CEO, and the Board, many with their own guesses, biases, and wishful projection to attain Nirvana this month have touched the forecast. (This story applies to quarterly forecasts too, as many sales people know.)

The month comes to a close and suddenly the sunshine, smiles, and optimism disappear as time comes to justify what transpired. Revenue was missed by 20% to 40%, less than 50% of the sales reps met their quotas, and the expenses and inventory increased significantly based on the original forecast. Does this sound familiar?

If you have been in such a situation, and if you were the VP sales (worldwide, Americas, or regional), how did that make you feel?

It is funny how the results and responses of the CFO and CEO are similar in such a scenario:

  • What happened?
  • What are you going to do to fix this mess and never put us again in such a position?
  • Why aren’t you controlling your forecast and pipeline grading more effectively?

What we have found is that in most cases, companies share the following stats:

  • The accuracy of the forecast is a direct result of the accurate grading of the pipeline at the opportunity level, not just the revenue numbers.
  • Such accuracy varies from 30-50% at best.
  • Sales people use at least a 40-50% fudge factor when preparing their forecast unless it can be audited without trusting the words of the sales rep.
  • It takes 8-10 hours a month per rep to get the forecast produced.

So Why Do Bad Things Happen to Good People?
There are at least three reasons this happens:

  1. Asking sales people to grade their pipeline without having implemented a consistent and auditable sales process across the company is like putting the fox into the chicken coop while closing any possible avenue for the fox or the chicken to get out.
  2. Sales people should never be requested to forecast their business without a thorough review and approval done by their managers.
  3. Trusting the words of the sales rep when preparing their forecast is like inviting them to be optimistic when below quota, and pessimistic when close to meeting their quota. Either way, you will never get the truth.

Why should sales management take the grading of the pipeline and the preparation of the forecast away from sales reps? Simply because sales people, like all professionals, want to keep their jobs, want to get their expense reports paid, and get their managers off their backs.

Since the managers and the company have never implemented a uniform pipeline grading system with auditable stages and milestones, there are very little chances for objectivity, accuracy, and reliability in grading opportunities in the pipeline. Put in the simplest terms: “If you can’t inspect it, you can’t track it. If you can’t track it, there is no accountability. No accountability also means no motivation. No motivation means no reasons to change. Do not expect what you can’t inspect.”

Where Do We Go from Here?
First and foremost, establish a uniform pipeline grading system that includes stages and milestones. Ensure that each milestone has at least one objective deliverable to the prospect in line with their buying cycle. Remembering the traditional sales funnel, each stage of the buying cycle should be reflected into your sales cycle and not the other way around.

Here is an example of a pipeline grading system you can all use. It can also be customized to reflect your own industry, market, business engagement model, and specific situation. Call us if you need help with this.

  • Inactive – The available universe of potential prospects
  • Active – From your universe, this include prospects that you have pro-actively decided to pursue, that you have engaged in a conversation with, that have expressed an interest to learn more about your offering, and that have shared some reasons why they may be interested in further talking with you. Deliverable: Sales Process Control Letter.
  • Goal Shared – The buyer you are talking with has shared a specific goal to achieve, a need to satisfy, or a problem to address, with a bias toward your offering. In other words, you have helped her create a vision in her mind of HOW your offering can help her address her needs. Deliverable: Sales Process Control Letter with 5 specific elements in it. It documents the conversation you had with your prospect and presents capabilities she said could help her achieve her objective.
  • Champion – Gain access to someone who can introduce you to (or is himself) the key players involved in evaluating your solution and empower him to make the final buying decision. Deliverable: Sales Process Control Letter with request to meet with the key players of your choice.
  • Evaluating Phase 1 – The longest of all these stages, it is the one in which you first meet with each key player individually, then meet with them all in one setting, ensuring that all their goals and issues are in alignment. During this meeting, you identify the correct sequence for evaluating your offering and get their approval to move forward. Deliverables: individual Sales Process Control Letters, Sequence of Events to guide their buying decisions, and approval (verbal or written) has been gained to move forward.
  • Evaluating Phase 2 – When all line items from the Sequence of Events are delivered and acted upon. Things like contractual review of your license agreement, success metrics for the project identified and agreed upon, cost benefit analysis developed and delivered, IT implementation plan agreed upon, etc.
  • Win the deal – verbal or document signed
  • No decision – final proposal is delivered and you wait until the cows come home in the winter
  • Loss – another vendor took the business away from you

You can assign probability-to-close percentages to each of the stages, with the Evaluating Stage representing the only one that can carry a 50% chance to close. Getting a verbal will bring you to 90%, while delivering the proposal and being in a no decision phase will bring you back down to a 10% probability-to-close.

What’s Next?
Is there a light at the end of the funnel? There is, if you are diligent at creating a pipeline grading system that mirrors your buyer’s buying cycle, if it is auditable, and if the management team diligently enforces it.

The results are that you no longer rely on the opinions of sales people when preparing your forecast, you can inspect what you expect, you can retire what sales people call the “sunshine pump”, and you can significantly reduce the amount of time and resources spent on preparing your forecast. When I was a VP sale for a software company, I reduced the time spent on forecasting from ten hours a week to two hours a week after implementing such a system.

In Summary
Design a sales process that mirrors your prospect’s buying cycle. Develop a pipeline grading system with stages and milestones that mirror the process with auditable and measurable deliverables. Document all major conversations between your prospects and your company whether by the sales rep or the sales management. Audit these communications and these deliverables. Make forecasting the responsibility of the sales management, not the sales rep. As many of our clients have experienced, your accuracy and reliability of your pipeline, and hence your forecast will be in the 90th percentile at the opportunity level, the right measures of a healthy sales force.

How to Present Your Proposal at an Executive Meeting

By Patricia Fripp, Author, “Get What You Want!”

What’s the worst reaction you’ve ever gotten when you made an important presentation? Probably, it would come in second to the one I just heard about. A woman — ironically she was interviewing me for an article about “Knockout Presentations” — told me the story of her disaster. It was early in her career as a policy analyst. She was just out of school, proud of her MBA and working in her first real job. When her supervisor praised a report she’d done, she was thrilled. She was less thrilled when her “reward” turned out to be presenting the same report to their executive team.

She spent a tense week getting ready, making sure she knew exactly what to say. She spent hours writing out her presentation and prepared every conceivable statistic to back up her points. It never occurred to her however, that how she presented was as important as what she presented.

When her turn came to deliver her report, things quickly went downhill. Naturally, she was nervous. A lot depended on the next few minutes. She stumbled through 200 slides, forgot her lines, and got more and more flustered. Bored executives weren’t sure what her point was and started glancing at their watches, which made it even worse. Desperate, she wanted to flee-and her audience probably did too! When she concluded, they didn’t ask a single question. That would have extended the already painful event.

Does any of this sound familiar to you? If not, great! And let’s make sure it never does. Especially if a lot depends on how well you do. You probably know that the higher up the corporate ladder you go, the more important your communication skills become. And the faster you develop and hone your skills, the faster you’ll climb.

Perhaps you’re already speaking up in team meetings and getting your ideas across effectively. If so, how do you feel about facing a room full of senior management, or at least five around a boardroom table — all staring at you? What is different? Well, for one thing the stakes are higher. All business communications are important, but, with senior management as your audience, you are in the hot seat. They are going to accept or reject the recommendations that you, your department, or your team have worked so hard on. Weeks, months, maybe even years of work depend on your few minutes. Who wouldn’t be nervous?

Don’t worry. You are human. This is a perfectly natural way to feel. Remember, they can’t see how you feel, only how you look and act. You want them to focus on and consider your proposals, not your anxiety. And you’ll look cool and collected when you follow these.

Frippicisms for Dealing with Senior Management

Seven Fripp Do’s

  1. Practice. A report to senior managers is not a conversation; however, it must sound conversational. Once you have your notes, practice by speaking out loud to an associate, or when you are driving to work, or on the treadmill. Make sure you are familiar with what you intend to say. It is not about being perfect. It is about being personable. (Remember, rehearsal is the work; performance is the relaxation.)
  2. Open with your conclusions. Don’t make your senior level audience wait to find out why you are there.
  3. Describe the benefits if your recommendation is adopted. Make these benefits seem vivid and obtainable.
  4. Describe the costs, but frame them in a positive manner. If possible, show how not following your recommendation will cost even more…
  5. List your specific recommendations, and keep it on target. Wandering generalities will lose their interest. You must focus on the bottom line. Report on the deals, not the details.
  6. Look everyone in the eye when you talk. You will be more persuasive and believable. (You can’t do this if you are reading!)
  7. Be brief. The fewer words you can use to get your message across, the better.

Jerry Seinfeld says, “I spend an hour taking an eight-word sentence and making it five.” That’s because he knew it would be funnier. In your case, shorter is more memorable and repeatable.

Three Fripp Don’ts

  1. Don’t try to memorize the whole presentation. Memorize your opening, key points and conclusion. Practice enough so you can “forget it.” This helps retain your spontaneity.
  2. Never, never read your lines; not from a script and not from PowerPoint slides. Your audience will go to sleep.
  3. Don’t wave or hop. Don’t let nervousness (or enthusiasm) make you too animated, but don’t freeze. Don’t distract from your own message with unnecessary movement.

Where to Start?

  1. What is the topic or subject you are reporting on? Be clear with yourself so you can be clear with your audience.
  2. Why is your topic important enough to be on the busy agenda of senior level managers?
  3. What questions will your audience be asking? Can you answer them early in your presentation?

Here’s an Example
Present your conclusion — What is your central theme, objective, or the big idea of your report? How can you introduce it in one sentence? Suppose that you’ve been in charge of a high-level, cross-functional team to study whether there is a need for diversity training in your company. You might start by saying, “Our committee has spent three months studying diversity training programs and whether one could benefit our company. Our conclusion is that diversity training would be an exceptionally good investment. We would save money, increase employee retention, and improve company morale.”

Present your recommendations — “We recommend that the company initiate a pilot program, starting next quarter, using the ABC Training Company at an investment of $… The ABC Company has successfully implemented this program with one of our subsidiaries, as well as many Fortune 100 companies. All 27 members of the cross-functional team agreed with this conclusion. Our team was made up of a real cross-section of the company — two Vice Presidents, the Facilities Secretary, 18 associates, some with PhDs, and six entry-level personnel. The group includes both long-term employees and some new hires. And all 27 members of the team are willing to be part of the evaluation committee to study the results before a decision is made about a complete company rollout.”

Describe what’s in it for them — Address the needs of senior management, as well as the company. Answer the questions they will be asking, and show them how your recommendation can make them look good. For example, senior management is usually charged with increasing sales and reducing costs. What if this program means saving money by lowering employee turnover, yet has a relatively modest cost?

Why is this a good idea, just when we are cutting unnecessary spending? One of our company’s key initiatives is to recruit and retain 20% more of the best available talent than we did in the last fiscal year. If this training had been in place last year, not only would morale have been higher, but our 23% minority associates would have rated their employee satisfaction survey higher.

As you remember, for the last three years our minority associates traditionally rate their satisfaction 3% lower than the other population. This training could have helped increase satisfaction and retention. We would lower the cost of recruiting and training new associates. “How does this investment compare to other investments we have already made? As a comparison, the initial cost of the pilot for all three offices is 2% of what we spend on maintenance agreements for our copier machines in our headquarters building.”

Conclusion — “On behalf of the 27-member committee, thank you for this opportunity. The friendships we have formed and our increased company knowledge is invaluable to us all. The entire team is committed to this project. We are asking for your okay to start the pilot program.”

You’ll make a strong impression and increase your chances of acceptance when you can be short, clear, and concise. Be prepared and practiced. It’s okay to be nervous, but nobody sees how you feel, just how you look and act.

Improving Your Sales Management Processs

By Mitchell Goozé, President and Founder, Customer Manufacturing Group

Are you still forecasting sales the way you have been for years? Are your forecasts any more accurate than they ever have been? Does anyone take sales forecasts seriously? Perhaps it’s past time to consider a new method for forecasting sales … that actually works. Forecasting is done effectively in other parts of business, and that was not always the case. What can you learn about forecasting from other areas of business that will help you create better sales forecasts? Not surprisingly, a lot.

A Parable
John was recently promoted to assistant plant manager. As part of his new job, he was recently provided with the production demand requirements for the next quarter. On first pass, the lead times appear reasonable, and John is confident of this factory team’s ability to produce quality products. Prior to his promotion, the factory floor had adopted a number of the key “best practice” manufacturing methods. The team understands lean thinking. They have flexible work cells and support a “one-piece flow” method of manufacturing. Average cycle time for work-in-process (WIP) for each work center is understood and tracked. Total lead-time for product production is also known. The team understands how to work through manufacturing bottlenecks and how to subordinate to the key bottleneck to increase throughput or balance the line. And, the company has the appropriate technology in place to meet the needs of the production process.

In addition to all of this, the Quality department has been actively supporting a “zero-defects” program for years. Continuous improvement is a way of life. In fact, John’s pretty sure that Dr. Deming himself trained the predecessor plant manager. Documented and audited production plans exist for all products in production. This, of course, includes the requisite inspection plans. All products released to production also include process capability studies including upper and lower control limits prior to their release to production.

So what is John’s problem given the near “heavenly” environment that he finds himself in? Well, John has never been held accountable for forecasting production output. While he is confident in the factory’s ability, this is the first time he has to present a shipment forecast to the senior management team, and he wants (in fact he needs it) to be right. In thinking about how to prepare his forecast, John considers what he has seen in the company before. He considers who else “forecasts” regularly to senior management. Well, actually all of the department managers forecast. Sales management forecasts sales, finance forecasts cash flow, engineering forecasts new product completion, human resources forecasts headcount. But everyone seems to use a different method. Upon consideration, John realizes that the sales manager forecasts most often and has been successful at staying with the company for many years, so John decides that he should consider emulating the sales manager’s forecasting method.

The next day John goes out onto the factory floor and asks each member of the production team what his or her production status is. How many units do they have in process at their work-center. He asks each production worker what they think the probability is (in percentage terms) of completing their units in the relevant timeframe. Based on the collection of that individual information, John can then build a factory output prediction based on the weighted-average of each of their probabilities.

This seems like a really good idea and Sales uses it all the time. But when John meets with his boss, the plant manager, Steve, and explains his ideas on how to forecast, Steve is in shock. Where on earth did John come up with such a forecasting method and why did he think it could possibly work. When John explains he copied it from the Sales Manager, Steve bursts out laughing. Steve explains that Sales can never accurately forecast anything, and their methods prevent them from ever being able to do so. But since no one expects Sales to get better at forecasting, they just adjust their forecast. But, John explains to Steve, one of the things he “learned” from the Sales Manager was that while he was interviewing his people to get their forecasts of production, he could also “motivate” them to try to do “better.” In fact, the Sales Manager claimed to have great success at getting his people to commit to increased “production” during those “motivation” sessions. John explained that maybe he could get the factory to do even better by emulating that management method. Steve just shook his head. Steve put his arm around John’s shoulder and began to help him understand what he was missing.

Steve explained that the culture in Sales Management has traditionally operated with a “strange” viewpoint on how to manage their process. But, since everyone seems to do it that way, nobody has ever questioned whether it makes any sense. Steve suggested to John that if the Sales Manager were to emulate the plant’s forecasting and management methods, they might have more accurate forecasts, and even more importantly, increased sales and operating efficiencies.

Let’s see how that might be true. First, we must be aware of a management truth:
You cannot accurately measure what you don’t understand. And you cannot improve what you cannot measure.

Your “friend” in sales management uses an “art” based process that has very low probability of predicting the correct outcome. Because sales management does not generally understand the process they cannot measure what their people are doing, and therefore they can’t improve their process. Several years ago the practice of sales management evolved a tool called pipeline management or funnel management as a way to try to improve forecast accuracy. By categorizing each “step” in the sales process into a stage, management felt they could better assign a probability to the prospect becoming a sale. These “improved” probabilities are “rolled-up” into a global forecast which sales management hopes will be reasonably accurate based on the law of large numbers. Even when it is somewhat accurate, there is no way to improve.

Shifting From Astrology to Astronomy
Sales management is always under pressure to produce better forecasts and more sales. Steve explained to John that once Sales hit upon the funnel system, he was always surprised that they did not see the analogy to plant floor work-cells. Instead of using “scientific” methods, sales management appears to continue to use the “astrology” theory of forecasting. As Steve explained, “Just as looking at the stars and attempting to predict a specific future doesn’t work reliably, neither do the sales forecasting methods now in general use.”

If instead, sales were viewed as a flow, then lean thinking methods could be employed, intrinsic patterns could be identified, and cause and effect relationships understood. Thus, sales could turn to “astronomy” (science based) rather than astrology to predict and improve sales. It is even likely that sales management could begin to use cause and effect management methods. What does Steve mean by “cause and effect” management methods?

Once you have a flow description of your sales process, you can experiment by changing an activity in your selling process and monitoring the effects through feedback to determine how the change effects the outcome (sales). Anticipating what the Sales Manager would say about “too many variables” to accurately identify cause and effect, Steve reminds John of how not that long ago, factory managers believed the same things about their complex processes. What production people learned is that the process works and even more importantly, when the output changes, the flow model allows them to identify what was the intrinsic cause. The same is true in a sales flow model.

If asked, Steve is convinced that he could demonstrate to an open-minded Sales Manager that customer buying process patterns exist and will result in natural sub-processes that can become useful feedback points in the flow model. Steve suggests to John that you could model the sales process in a similar way to the methods used to model the product floor with work-cells, work-in-process, latencies, yields, etc. Further, the same management concepts such as constraint theory, lean thinking, and continuous improvement methods that had been applied over the years to dramatically improve their product manufacturing could probably be applied to “manufacturing” customers . . . if someone just thought about it that way.

Steve points out to John that if the Sales Manager used a system similar to the one John had available, Sales could view their so-called sales reports in a whole new way. These new sales management reports could provide useful yield information from stage to stage as well as other in-process information such as throughput rate. Using these new process reports based on system yield and sales process rates, Sales could provide much more accurate forecasts than the ones they currently provide to management using their probability weighting system. Further, sales management would be able to identify where to focus to improve sales performance rather than running month-end and quarter-end sales incentive programs.

Which led Steve back around to asking John why on earth he thought he needed to go outside the data reporting system from the plant floor to get an accurate production forecast?