Category Archives: Sales

Achievement, Alignment, Budgets, Sales

Budgets and Quotas

It seems to me that too many times I have heard the words “budget” and “quota” used interchangeably. I don’t know why, but this really concerns me. Perhaps I am over reacting. It doesn’t seem to bother others. At least if it does, they aren’t showing it. Perhaps it is just my recent dealing with budget-oriented groups that are acting like quota-oriented groups that is making me more sensitive to this phenomenon. In any event, I’ll do a little comparing and contrasting of budgets and quotas and see what the rest of you think.

First, let’s put a couple of definitions out there. It is always good for everyone to start from the same baseline. First off, do not Google “budget”. You will get far more than you ever wanted to know about some care rental company. But, as you might guess, let’s start with:

Budget

Budgeting for a business is a process of expressing a detailed quantification of resource requirements (capital, material or people) that are expected for given time period in future. Budgeting can be done for any person, business, government or anything that makes and spends money. Restricting in this definition to financial results for business firms we can explain budgeting as process of preparing a detailed statement of financial results that are expected in the future period of time.

https://www.mbaskool.com/business-concepts/finance-accounting-economics-terms/8632-budgeting.html

As you can see it primarily deals with the amount of money (or resources) needed or available for a purpose in a future period of time. This means it is a definition of how much you can spend on, or the expense for something. Let’s keep this “spending” idea in mind when we talk further about budgets.

Now we will move on to quotas. Hopefully this one will be a little more straight forward.

Quota

Sales Quota is the sales goal or figure set for a product line, company division or sales representative. It helps the managers to define and stimulate sales effort. Sales quota is the minimum sales goal for a set time span. Sales Quota can be individual, or group based e.g. for a business unit or a team.

https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/1919-sales-quota.html

Again, we have a financial goal for a future or set amount of time. Only this time it is focused on sales (orders and revenue) as income to the business, not the expenses of the business.

Now admittedly there are other definitions for both budget and quota, but these are also for utilizations of the terms for applications far outside the normal business usage. When you start discussing immigration, college acceptance and items such as those the line can become somewhat murkier. However, we will not go there, or anywhere near there today.

So here we have what I consider the crux of the issue. Budgets are associated with expenses for a set period of time and quotas are associated with sales for a period of time. This seems like a pretty simple set of definitions and differences. So why are people using them interchangeably?

I think some of my confusion may stem from the observation regarding “which side of the fence” people are speaking from. The example I will use here involves the government and everybody’s favorite topic, taxes.

For the longest time taxes were just that, taxes. Taxes were the amount that citizens paid the government. Taxes went up. Taxes went down. Periodically there was an attempt at tax reform when things go too complicated and it appeared that special interest groups were getting away with too much. By and large we all paid taxes.

But somewhere along the line this changed. From the government’s point of view (their side of the fence) taxes started to be referred to as “revenue”. Since taxes were, in the truest definition, the income that the government received, it did not seem like such a stretch or leap to go there. Soon the statement was no longer that the government was going to raise taxes (which was sure to irritate all citizens), they were going to raise revenue.

This is a much more palatable statement. Raising revenue. Everybody wants to raise revenue. Why should the government be any different? They should want to raise revenue too. The only slight difference might be that there is not another government around competing for our tax dollars. They can just vote themselves more revenue.

What doesn’t change is that from the citizen’s point of view, taxes are always an expense. Something that is paid. So, while it sounds more acceptable to raise government revenues, we need to remember that it is always raising the citizen’s expense.

This same governmental evolution occurred (in the US) when the Department of War thought it best to change its name to the Department of Defense, but that might be a discussion for a later date.

In business it appears that a similar evolution is occurring. In the past those organizations that had to live and work within budgets were called “cost centers”. They were associated with costs and expenditures. As such they were occasionally subject to reductions as most companies seemed to think that reducing costs was always a good idea.

It only goes to assume that these cost centers started to realize that the business’s expense budget was their revenue. This quantity was how much money was going to come into their piece of the business.

This was a master stroke.

No one ever wants to cut a revenue. They will cut, hack, chop and slash budgets all day long, but they will steadfastly refuse to cut a revenue.

I also think that some of the issue stems from business’s drive to remove as much overhead, or indirect cost from the business as is possible. There are essentially two way to do this. One is to actually reduce the number of resources associated with these indirect functions. The other is to try and translate these indirect cost functions into direct cost functions.

Below is a refresher on the difference between direct and indirect costs:

“The essential difference between direct costs and indirect costs is that only direct costs can be traced to specific cost objects.

A cost object is something for which a cost is compiled, such as a product, service, customer, project, or activity. These costs are usually only classified as direct or indirect costs if they are for production activities, not for administrative activities (which are considered period costs).

Examples of direct costs are direct labor, direct materials, commissions, piece rate wages, and manufacturing supplies. Examples of indirect costs are production supervision salaries, quality control costs, insurance, and depreciation.

Direct costs tend to be variable costs, while indirect costs are more likely to be either fixed costs or period costs.”

https://www.accountingtools.com/articles/the-difference-between-direct-costs-and-indirect-costs.html

The idea here is that when everything is associated with direct costs, everything is now directly associated with the sale and the generation of revenue. When that happens, almost all of those cost justifications for those groups now get aligned with sales and more importantly sales quotas. Now all budgets for those groups are supposedly aligned with sales, which in turn are aligned with, you guessed it, quotas.

And everybody likes to achieve their quotas.

In this way what were once cost centers have now aligned themselves with the sales function. Likewise, budgets which were once limits that were not to be exceeded became quotas that were to be achieved. This is a subtle but important difference.

Beating a budget meant that you came in with an expense that was lower than the budget. Success was reducing expenses below the targeted level. Efficiency and cost reduction were key targets. In short, the costs associated with the process were separated from the sales and prices associated with the process.

By now aligning everything with the sales and revenue process, costs now in effect do become quotas.

If sales do not achieve its quota, well then obviously costs will not be affected as they have a set cost quota. As long as they are on target for their quota of costs, they are achieving their goal, regardless of what the overall profitability of the process appears to be. This engenders a strange situation.

These cost groups are now of the opinion that as long as there is cost “quota” left to spend, they have the right to continue to spend it, regardless of sales performance. It in effect becomes the sales function’s responsibility to bring sales back into alignment with the sales quotas, instead of the cost function’s responsibility to bring cost “quotas” back into alignment with the sales function’s performance.

Costs “quotas” are really nothing more than verbal sophistry.

As business continues to look for ways to improve, some of the age-old axioms still do apply. Its always a good thing to achieve or exceed sales quotas. Cost budgets are an upper limit. It is always a good thing to “come in under budget” and return unused budgets back to the business in the form of bottom line profits. And, if you hear someone claiming that they are on target to achieve their cost quota, either they are not trying hard enough, or their cost “quota” needs to be reduced.

Accountability, Change Management, Customer Relations, Efficiency, Leadership, Sales, Simplification

Models

Automation has been a catch word in business for a long time. It has been and continues to be viewed as one of the best ways for businesses to go faster and to save money. I can remember when “office automation” was the automation or application that was the driving force for business. Now it seems to be words like “robots” or “self-driving / healing / whatever” or “artificial intelligence” and the like are the automation applications de rigueur. With this in mind I’m going to talk about models. Not the kind that walk down the fashion runways and seem to dominate all forms of social media (for reasons that I still can’t quite fathom), but the kind of models that can continue to help simplify and speed up business, in the face of an ever more complex environment.

I first learned about the value of models in the Economics courses that I took in college. It was put forth that the best way to learn about the various specific market forces was to create simplified models of the complex real environment. Once the various specific forces were understood, more and more complex models could be created where the primary and secondary interactions between these forces could be estimated or observed. Regardless of how complex you tried to make the model, it was always simpler than the real environment. It was also shown that a relatively simple model could provide a very accurate representation of the system and environment as a whole.

This drove the idea that you could create a model that could very closely approximate the real world. In this way you could get a very good answer to your economic question, without the significant over-head complexity, time, effort, etc., of trying to account for every possible detail. The most recent utilization of models for the representation of a complex system that I have seen are the various models that meteorologists use for weather prediction.

What I haven’t seen in quite some time is the use of models in business.

We are all aware to the “Fast, Good, Cheap – pick two” scenario of business. With continued focus on quality and costs, I get the feeling that “Fast” is paying the price (if you pardon the pun) in the equation. If you don’t believe me, just ask, or watch how long it takes to get a quote or price for any sort of technology product that you are either selling or buying.

I like to joke about “Gobeli’s Laws of Business” in positing how things should be. Sometimes it gets me in trouble. Sometimes it gets me ignored. Occasionally however, sometimes someone listens. This is similar to my wife’s reactions to my “Gobeli’s Laws of Domestic and Marital Tranquility”, except for the occasionally having someone listen part.  

My position for business is this, if it takes more than a business day – that’s eight hours, not twenty-four hours, to either create or receive a quote, it’s taking too long. You will find yourself at a competitive disadvantage. You had better find a way to speed up your quotation and pricing process. Because, while coming in second in a multi-contestant race is admirable, it is usually only the winner that gets the customer’s order.

As technology continues to be one of the primary drivers of product, business and market evolution, the ability to configure this new technology into usable customer platforms and applications continues to grow in demand as well. Again, if you don’t believe me, just look at the number of engineers that are involved in both the quotation and evaluation processes for any technology-oriented businesses. Engineers seem to be taking on a bigger and broader roles in the commercial process.

Needless to say, this concerns me.

In addition to the “Good, Fast, Cheap” product output trade-offs, there are also a couple of other business trade-offs to be aware of. They are the “People, Time, Money” input or resource trade-offs, and the “Sales, Finance, Engineering” internal business forces trade-offs. Strangely enough they all seem to be interrelated and roughly align as well.

“Cheap”, “Money” and the driving force “Finance” are obviously all related. This is a pretty simple one. “Fast”, “Time” and the driving force “Sales” are also related. Since sales is indeed a competition (for the customer’s order) getting there ahead of the competition can be seen as an advantage. That leaves “Good”, “People” and driving force “Engineering” as the third relationship. That also seems to make sense as it is the engineers that are concerned with the accuracy and “correctness” of how the technology fits together.

Now a days it seems that you cannot get a project started, a bid created, or a proposal reviewed without direct engineering involvement. This direction has the effect of creating a business bottleneck based on the number of engineers you have available for any activity at any point in time. It also limits the options available to business leaders.

In the “pick two out of three” business trade-offs listed above, if you have always chosen the “Good”, “People” and “Engineering” business force (for “correctness”) then you can only choose between “Speed” and “Money” (read profitability) as your second choice. While going fast is nice, making money is not negotiable. Without it you won’t be in business long. Hence “Money” is usually chosen over “Speed” in these trade-offs.

This is my long-winded, round about way of getting to the topic of models. Current mathematic and modeling techniques can be used to predict the location of a single electron (the sub-atomic, negatively charged particle – you didn’t think I would ignore physics entirely for this article, did you?), with respect to a single proton (the sub-atomic positively charge particle) at any point in time. With this kind of modeling capability and technology available, getting a price, or creating a quotation should be as simple as creating a few salient entries into the appropriate model.

Remember the Economics analogy. Models can be created as complexly, or as simply as desired. Also remember the goal of a quotation or pricing model: to create a price for a good or service, not to specifically engineer and configure that good or service. Up to now most businesses believe that the good or service must be engineered (and costed) in order to create a price (with acceptable / appropriate margin) for the customer.

Also remember that by and large customers do not care what it costs the business to deliver the desired good or service. As an example, I don’t think many people care what it costs an automobile manufacturer to create the car they purchase. They just want to know what the price is in relationship to the features and capabilities of the car.

Price modeling versus cost engineering can and would significantly speed up the quotation and pricing process for businesses and their customers. It would enable the customer to ask for several “what if…” prices and configurations. It would make things easier and faster for the organizations responsible for providing the price. It would simplify the process.

So, why isn’t this the usual case? Why does it seem that everything must manually pass through engineering, in some way, before it can be approved or released?

I think the answers are relatively simple, but the solutions are not. Change of this type, moving from an ingrained engineering process to the utilization of models for customer prices and quotations involves not only change, but the relinquishing of control at such a level as to cause some discomfort to the overall organization. No group knowingly gives up control of a process, even if it is for the betterment of the overall organization.

On a related issue, models are always an approximation of reality. There will always be small variances present between what the model generates, and what the engineer will manually create. This will always generate a certain amount of uncertainty, and no one wants or likes that.

Engineers will always argue that their manual engineering is always more accurate than a model’s price prediction. In some instance this may in fact be true. But one of the issues with manual engineering is that no two engineers do it the same way. If they did it would be much more easily modeled. So, despite arguments to the contrary, even manual engineering injects inconsistency into the pricing equation as well.

This is why most changes must be driven from the top down, as opposed to the much talked about, and often desired bottom up approach. Creating a modeled approach to engineering and pricing goods and services to customers will need to be driven from outside of the group that is currently responsible for performing these functions. Remember, that given their choice, an engineer will always search for a way to engineer a solution, regardless of the commercial ramifications of that approach.

Utilizing a price modeling approach to generating customer prices and quotations will re-inject “Speed” back into the business output and business resource trade-off equations with a minimal effect on the accuracy and quality of the price generated. With speed, comes a competitive advantage that should be translated into more orders, without incurring incremental costs or reduction in quality.

And isn’t that what automation is supposed to be all about?

Business, Customers, Sales, Value

They Don’t Have to Buy

Sales is a very interesting profession. It may not require a specific type of person, but I think it requires a specific type of mind-set. It has been shown that people more readily buy from people that they trust. You have to fully believe in and be committed to what you are selling in order to gain that customer trust. You must be the first to be convinced of what you are selling, before you have any kind of a chance of convincing a customer. If not, you have a tendency to come off as an archetypal used-car salesperson, and no one seems to trust them.

There was some research done some time ago that showed that there actually was a “smell of fear” that could occur. When scared the body does emit chemicals that that can be sensed by others. (https://www.telegraph.co.uk/news/science/3545435/The-smell-of-fear-is-real-claim-scientists.html)

I think that there probably also exists a “smell of insincerity”. Just as it may be possible to sense fear in others, it is probably also possible to sense insincerity in others. And for a sales person, insincerity is probably the worst thing for a customer to sense. There is that trust thing again.

That means that the first person that a sales person must convince of the benefit of the product or service that they are selling is themselves.

Having been in sales I can vouch for the fact that it is difficult enough to sell anything in the face of competition, let alone sell a product that you are not fully convinced of or believe in. And if you don’t fully believe in what you are selling, you will come across as insincere. And as I said, like fear customers can sense insincerity.

So, why am I going into all this discussion regarding sincerity and trust, and whether or not a sales person has convinced themselves that they believe in the benefit of the product or service that they are selling? There are a couple of reasons. The first is as I said good sales people are convinced of the benefit of their product or service. This is a good thing.

The second is that just because the salesperson is convinced of the benefit of the product or service they are selling, does not mean that the customer will be convinced of the value.

First, let’s do a few definitions. Today’s source will be the Merriam-Webster dictionary:

Definition of benefit: Something that produces good or helpful results or effects or that promotes well-being (https://www.merriam-webster.com/dictionary/benefit)

Definition of value: The monetary worth of something (https://www.merriam-webster.com/dictionary/value)

So, while the first step in a successful sales process is convincing the sales person (or sales team) of the benefit of a product or service, the second step is convincing the customer that the benefit of the product or service is at least worth the cost required to obtain it. That would mean that the monetary worth of the benefit is greater than the amount that they are paying for it. This is the value.

Too many times I have heard and seen sales people who have been convinced of the benefit, and who have communicated this benefit to the customer, believe that their job is then done. This point in the sales process is usually denoted by when the salesperson utters the phrase:

“They have got to buy.”

This phrase is usually accompanied by qualifiers along the lines of:

“The customer’s competition is doing…” or

“The market is moving or responding…” or

“The technology is ready…”

These are all non-commercial, or non-value related reasons as to why a customer should make a positive buying decision. Let me illustrate with an example:

Let’s say you are looking to buy a new car. You have your own set of reasons for wanting a new car. Perhaps your old car is worn out. Perhaps you have decided you now need a sedan instead of a coupe. What would your response be if you heard the following when you went to the car dealership:

“All of your neighbors are buying exotic sports cars.”

“The car market is moving toward and responding to exotic sports cars.”
“The technology associated with exotic sports cars is the best and highest available.”

I’m guessing that unless you were going to the dealership with a specific interest in buying an exotic sports car, it really wouldn’t mean that much to you, and depending on the approach and ferocity of the sales person, it might actually dissuade you from buying anything from that dealership.

Yet it is an approach that many marketing people and teams create for their goods and services, and it is belief that many sales people and teams seem to adopt.

The point I am making is that no customer has to do anything. Just like the car buyer in the example above doesn’t “have” to buy a car. (My guess is that they used a perfectly viable car to get to the dealership in the first place.) Most customers are looking for something that they deem, using their specific product priorities, to be better than what they currently have.

However, the “better” or the benefit of the new product or service buying decision is still only half of the Cost – Benefit equation, which results in value. Just as exotic sports cars may be able to go twice as fast as other cars, there may be question regarding their value if they cost ten times as much as those other cars.

There will be a market segment that is interested in going twice as fast as everyone else. These will be the customers that will look at the twice as fast for ten times as much value equation and find it acceptable. But just because this segment sees the value does not mean that the rest of the car buying market will as well. That is why there seem to be so few high-speed exotic sports cars on the road.

It is very risky to extrapolate market niche applications into market wide acceptance.

With most products, it is usually technology and its evolution, that drives new products into the market. The idea that the new technology can create greater benefits can be a significant market force. But just like the new car replacement question, new technology must replace and supplant the existing technology in the market.

This means that there (usually) already exists a viable product and technology in the market. The new technology must create a greater benefit at a price point that makes sense for the customer, or they will not make the positive new buying decision.

This is not the case for “new” product-technologies with no existing capability or analog. Examples of this would be items such as Ford’s Model T (replacing the horse), Sony’s Walkman (possibly replacing the boom box – now there is an old phrase), Apple’s iPod (replacing the Walkman), or more recently Cellular Phones (replacing radio phones). These are products that created new markets, but once created they followed the technology evolution path with a good example being the iPod’s displacement of the Walkman as a personal music listening platform.

Much has been written about this technology evolution-replacement-benefit relationship. Roy Amara was an American researcher, scientist, futurist and president of the Institute for the Future best known for coining Amara’s law on the effect of technology. He coined what has become known as Amara’s Law. It goes:

“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” (https://en.wikipedia.org/wiki/Roy_Amara)

This law has become known as the basis for what has been called the “hype cycle”, as coined by the Gartner Group, to represent the maturity, adoption, and social application of specific technologies. The hype cycle provides a graphical and conceptual presentation of the maturity of emerging technologies…. (https://en.wikipedia.org/wiki/Hype_cycle) It is depicted as follows:

Circling back around to sales people and their selling of products, it would seem that they are the first group to go through the Hype Cycle since they are the first group that must be “sold” on the product or service before it hits the market. They are the first to see the benefits and experience inflated expectations. But since they are selling instead of buying, that is all they can truly define as they do not initially have good information on the relative costs and values of purchase in the customer value equation.

Unless it is a new market defining product, all defined benefits are “relative”. That means that the existing product in the market already has established a baseline of customer benefits. Each new iteration or generation of the product (hopefully) brings incremental benefits. The value equation for each customer is the balancing of the incremental benefits of the new product versus the incremental cost of obtaining it.

Sometimes the value of the benefit outweighs its cost and buying occurs. Sometimes it does not. Regardless, it is a very rare instance where a customer “has” to buy a product.

With this in mind, I would suggest that most buying decisions can probably be delayed by all customers for an extended period without their experiencing much if any deterioration in their market position. In today’s economically uncertain business environment, I would not be surprised if significant purchases of any kind are delayed, even if only for a little while. This may be due to the realization by customers that in today’s environment they do not have to buy every iteration of new technology to remain competitive.

I suspect that I too will probably be delaying on my desire to buy a new car in the near future as well, mainly because right now I don’t have to buy one.

Alignment, Analysis, Business, Conflict Management, Finance, Sales

Conflicting Internal Forces

I have talked in the past about the three internal organizational resources required for business success, and their trade-offs and interrelationships: Time, People and Money. The idea that if you have less time than desired to achieve a goal, it will require the expenditure of more people and more money to achieve it. If you have fewer people for the goal it will require more time and money. And so on.

I am now going to talk about the driving internal functional forces that are acting upon desired organizational goals. There are again three of them and to put them at their simplest, they are Sales, Finance and Engineering. I think in order to be a little more accurate it would be better to look at the conflicting goals of each of these functions with respect to the desired goal of the organization, instead of just the function itself.

The goal of sales is to get orders. There may be additional sub-requirements placed on them, but it is almost always quota attainment, as it pertains to orders, that is the measuring stick for sales. Achieve your sales order goal as a salesperson, and you get money, fame, glory, respect and most importantly, you get to keep your job. Fail to achieve your sales order goal and you don’t get the money, fame, glory or respect. More importantly, perhaps the first time you fail you may get a pass on keeping your job, but probably not the second time.

Sales in general doesn’t really care about finance or engineering. This is primarily because they are not paid to care about them. They are paid (usually in the form of commissions) to get orders. Sales usually wants the highest quality and lowest price possible as this helps enable their sales. The greater profitability desired by finance usually means a higher price, which usually makes sales more difficult. Sales will usually align with engineering on generating the highest quality solution but diverge when the costs of such solutions are taken into account.

The goal of Finance is margin or profitability. Again, there may be other sub-requirements, but finance’s primary role is to make sure that the organization brings in more money than it spends. Finance keeps score. It’s not enough to just bring in more than you spend. Finance quantifies how much more money needs to be brought in than is spent so that the business’s ongoing and future success can be assured. Future investments and corporate overheads (as well as salespeople’s salaries and commissions, etc.) have to be paid for.

Finance is usually focused on what could be called the margin percentage versus margin value balancing act. It is desirable to have a high margin percentage and high profitability on each sale. However, having high margins with low volumes will not generate enough profit to drive the business forward. Just as a high volume of sales with low margins will not generate the desired margin value. There is a desired financial equilibrium where both margin percentages and values are maximized.

The goal of Engineering is to make sure that everything gets done right. Engineering makes sure that products and solutions are configured properly. They make sure that components and solutions are available in the desired time frames. They make sure that services are costed and allocated correctly. In short, they make sure that the organization can in fact do whatever the salespeople are trying to sell.

Engineers are also believe that they are the primary group responsible for doing the people, time, money, analysis. Engineers are not usually interested in the sales aspect, other than recognizing if there are no sales there is no need for engineers. And they are not particularly focused on finances, as margin and profitability again have little direct effect on them. They are usually focused on the accuracy of the solution and will include whatever they deem appropriate (the people, time, money resources) to that solution to make it ever more accurate.

Of the three functions, sales is probably the most difficult. Sales is competing with external entities for each order, in addition to trying to balance the internal goals associated with the financial and engineering functions. Finance and engineering are only associated with internal functions, including sales. There is no competing engineering or finance function claiming that their financial wizardry or engineering prowess is superior. When they are forced to deal with external forces, it usually only through sales.

When these internal functions, and their associated goals are in balance, an organization can operate at near its peak efficiency. Sales pushes for orders, finance makes sure the sale is profitable and engineering makes sure that the sold solution is done correctly. Life can be good.

It is when an organization gets out of balance that we start to see significant issues. When an organization becomes too sales focused, margins and profitability can begin to slip as the quickest way to increase sales is to reduce price (this is just baseline economic theory). We saw an example of this some time ago when some stocks started being valued based on the assumptions of future sales and sales growth instead of the more standard stock and organizational valuation criteria. These stocks eventually came crashing down when it was realized that they would in fact have to start making money if they wanted to stay in business, regardless of how much they sold.

When an organization becomes too financially focused, growth, expansion and development can slow, again causing issues for the organization. Strategic opportunities can be missed because they may be deemed to either represent too much risk, or not enough return (margin) to be pursued. Being too safe from a financial point of view can be just as deadly to an organization as being too risky and focused only on sales.

With the increased global awareness and focus on the “cost of non-quality”, or more accurately the cost of not doing things right, there seems to now be an organizational drift toward becoming more engineering focused, since they are the organizational force associated with doing things right. I also think that this approach potentially has the greatest capacity for generating corporate issues in the future.

When an organization becomes engineering focused it has a tendency to lose sight of both sales and finance. With decreased input and parameter focus from sales and finance, engineering will continue to focus on accuracy and reducing the risk of an incorrectly engineered solution, almost to the point of trying to generate perfection in its solutions.

The issue here is that perfection usually comes at a very high cost.

Finance will continue to try to demand specific margin levels, while sales will want lower prices to enable the generation of orders. This is the recipe for the perfect organizational storm. Engineering generated increasing costs, finance generated desired margin levels, and sales generated reduced pricing demands to meet the market competition.

The point here is that the market, more or less, sets the market price for the organization’s goods or services. There can be some variations, sometimes based on the quality of your sales team, sometimes based on the quality of your solution, and sometimes it is based on other factors (such as the regulatory exclusion of a competitor from the market, etc.). If you raise your prices too much in response to the engineered increase in costs, sales volumes and hence margin values will decline. If you reduce margin percentages, again margin values can decline. This can become a lose-lose situation.

The organization won’t make any mistakes, but it may not generate enough business, or margins to survive for very long.

In allowing an organization to become engineering focused, you start down the road to becoming a cost-up pricing organization. This is the least market responsive type of organization. Since engineering nominally has no focus or interest in sales or margin, when an organization becomes engineering focused, it becomes almost entirely internally focused.

It is usually the position of the market that an organization that loses its focus on the customer or the market, doesn’t get to enjoy the benefits of that customer or market for very long.

Engineering in an organization is about reducing the risk associated with achieving a goal. But like everything else, this risk avoidance comes with a cost. It is not enough to tell engineering to make sure that the solution is correct. This direction invariably leads to the inclusion of all kinds of failure avoidance constructs, and their costs to be included in the solution. And since engineering can be a complex function, there are few outside of the engineering function that can understand or question it.

In the long past world of “Five Nines” of reliability, this was once the recipe for success, but in today’s “short life-cycle” disposable product world, few can afford it, and even fewer are willing to pay for it.

I mentioned earlier that engineers see themselves as the group that is responsible for solving the Time, Money, People resource equation. It is obvious that when none of these parameters are set, the solution is much easier to obtain. And without limits to these parameters, the costs of the risk-adverse solution can grow quite large. Organizations need to understand that the Time, Money, People equation requires parameters to be set. Time frames and budgets need to always be set before being handed to engineers to configure a solution.

Engineering is a key component to any solution. The functional internal conflicts between sales, finance and engineering will always come into play, and must always be balanced out. As organizations seem to continue to drift into a little more of an engineering-centric approach to customers and solutions, it should be safe to assume that left unchecked, the commercial and financial aspects of these solutions will re-emerge in the customer decision making process.

It is safe to say that you do indeed get what you pay for, but it is also safe to say that sales will have difficulty selling, and customers are probably not going to be willing to pay for an over-engineered solution of any type that does not take into account their commercial needs.

Business, Customers, Finance, Sales, Strategy

Esoteric Value

“Don’t sell the steak. Sell the sizzle.” is a sales canon that dates back to The New Yorker Magazine in 1938. Elmer Wheeler is the man credited with coining it. It seems Mr. Wheeler was one of the first pioneers in persuasive selling. He was one of the first to recognize the value in presenting a customer the choice in buying one thing or another thing (something and something) instead of the choice of buying or not buying (something and nothing). He was successful. Sales teams have been trying to emulate him, and his success since.

His approach works well when dealing with an end-user customer. The person buying the steak, or getting their oil checked, or buying a malted milk (these were actual examples in the 1938 article) can readily be replaced by those purchasing Mobile Phone packages, automobiles or Television / Internet packages for their homes. It is still about buying one thing or another, not about buying or not buying. These are consumers making discretionary purchase decisions.

For the most part these are all examples of Business-to-Consumer selling opportunities. The person buying is the person using the capability being sold. It is when you start looking at the idea of Business-to-Business selling that the concept of “sizzle” can become a little more esoteric. In business, there are very few discretionary purchase decisions that get made. It is usually decided that you can use it to make money or save money, or you don’t buy it.

Businesses for the most part are financially or profit driven. I say for the most part as there are several that purport to serve the greater good, and by their designation as a “Non-Profit” organization enjoy a different tax treatment. There are also those that are regulated as to how much they are actually allowed to charge and or make as a profit. Even so, these regulated firms are also somewhat profit driven.

What they are not is “sizzle” driven.

Yes, it is true that organizations are made up of people that can be influenced by something other than profitability, but the organization as a whole, through is management structure, its purchasing process and more importantly in many instances, its stock price will not be “sizzle” driven. Being fashionable or exciting or being a market or technology leader is interesting. It may have some ephemeral effect on the organization, or how the market perceives it, but in the end, it will be the financial performance of the company that dictates how it ultimately is perceived.

If you want to stay in business, profitability will be key. It is about making money, and about how those things that the organization purchases can be used to make more of it, this quarter, this month, today.

Steve Jobs is famous for many quotes. Part of one of his more famous quotes contains the following line:

“Our job is to figure out what they’re going to want before they do”

This is spoken like a true technology genius, especially when he is referring to a set of consumers and end-user customers that are not technology geniuses. Jobs was brilliant at anticipating consumer “wants” (as opposed to needs – no one “needs” an iPhone, or an iPod, etc.) and then putting together a product package that would then create a new market.

He identified what you would want and then created the package that you wanted it in. Like I said, he was a genius.

However, when you are working with businesses, it is somewhat different. The businesses normally require something called a “business case” (see what I did there? Business – business case? It’s important.) before they are going to spend money on anything, whether it is a new hire, an internal development, or an externally supplied product or service. It has to make business sense, or more simply put, it needs to generate more value for the business than it costs the business to do.

There is a myriad of ways to describe the generation value for a business, but I have found that they can usually be simplified down into one of two categories: Value can be created by enabling the customer to generate more revenue, or value can be generated by enabling the customer to reduce their costs. Both of which usually result in greater earnings and profits, which ultimately increases the value of the company (usually in the eyes of the shareholders or owners).

Many times, companies like to tout their future capabilities when selling to other companies. It is important to have a direction and strategy for the future when talking to customers. They too want to know where their suppliers are going and what they expect the market to need or want in the future. But there is a significant gap between the value of a business case for today, and the value of a business case for the future.

The business case of today involves products and services designed to meet defined requirements, solve existing issues and deliver present value in the form of increased sales or reduced costs. The needs exist. The products exist. And the relationship between them can be well defined. The amount spent, and the value received, either immediately or over the defined period of the business case can be calculated. It is truly the decision between buying one vendor’s solution and buying another vendor’s solution (again, the decision between buying something and buying something else).

It is when new products or capabilities are introduced ahead of or in anticipation of the business customer’s need, that the business case relationship can become somewhat esoteric.

When trying to anticipate the business customer’s future needs, the impetus is on convincing them that your specific view of the future is to correct one. They must then balance that out against their customers needs, wants and desires to see if that anticipation makes sense in the form of a business case.

Many times, there can be a general consensus among the supplier organizations about what the future state of an industry may look like, but unless that vision can be quickly converted into increased customer revenues, or reduced operating expenses, the future solution will have to wait. Most organizations can no longer afford to spend money in anticipation of what they think their customers will need or want. They would rather wait and make sure it is what they need or want.

Remember present value is always better than future value.

Part of the issue with “future” products is that they don’t necessarily translate to definable value. They are usually described as “platforms” for the future, or that they will enable “future applications”. In short, they don’t clearly define and quantify how the business customer is going to generate new revenues and how much those revenues might be, or how they are going to reduce their costs and how much those cost reductions might be. They have only half of a defined business case. The purchase or the cost half.

They do not have the benefit half of the business case defined.

Without the definition of those future applications or services or values or cost reductions it is difficult to make a case where an organization will feel comfortable spending today’s money on an undefined future value. In short, very few businesses will gamble today’s money on an undefined future value. It makes much more sense for them to actually wait on the future than to bet on the future.

As I said earlier, companies are in business primarily to bring value to their shareholders and their owners. The do this by generating earnings and profits. They do that generating greater value on products and projects that the money they spend executing them. They make more money than they spend on these ventures.

When a business is trying to sell a good or service that cannot clearly define the value that it will generate for the customer, either in the present or the future, it always makes more sense for the customer to wait on that particular buying decisions. This is the definition of deciding between buying something and not buying (buying nothing).

Regardless of the sizzle that a company may claim that accompanies their product or service, in the case of buying today based on predicted future needs and capabilities, the steak, and its relatively definable value will usually be of much more interest to the business customer. Especially when it comes time to review the value generated for the customer. And even more so when that sizzle is still just a future sizzle.

Leadership, Product Life Cycle, Questions, Sales, Self Analysis

What Can They Sell?

Over time I think I have the opportunity to sit through innumerable Product Line Management (PLM) meetings where various product managers described and extolled the virtues of their specific products. These meetings seemed to follow a similar pattern: The product manager described the product, told everyone how much better it was than anything else they had ever produced, how much better it was than any competitor’s product, how big the market was for the product and how much the company would sell and make from the product. Then they would spend the rest of the meeting describing how the sales team was supposed to sell the product in order to take maximal advantage of all the product had to offer.

What I think I learned over time from attending these meetings was that there invariably was an inverse relationship between the volume of information provided by the product managers regarding how to sell their product, and the actual success that their product resultingly enjoyed in the market. The more they described how they wanted and expected the product to be sold, the worse the chance the product had of ever being successful.

Could this be because we had people who were experts in the product, and not experts in sales, trying to dictate to the people who were experts in sales, how they should go about doing their job?

I would say yes.

Too many times it seems that we have product and technology experts trying to explain why the product or technology in question could and should be sold in ever greater quantities.

Customers are not usually buying the technology. They are buying what the technology delivers. Back in the dim, dark past, both 8-track tapes and cassette tapes delivered portable, recorded music. It was demonstrated that cassette tapes delivered an inferior recording technology, yet they were unarguably viewed as the preferred delivery medium. They were smaller, and hence viewed as more portable than the 8-track competition. In this case it was not the technology that won the decision criteria. It was the portability.

As an aside, I shudder at the thought of an 8-track tape equivalent of the seminal Sony Walkman…..

I am sure that there were probably innumerable 8-track product managers who spent inordinate amounts of time trying to explain to sales people why their product was better than cassettes, and then tried to educate them on how to properly see the superior product.

Believe it or not, I can remember all the way back to 8-tracks and cassette tapes, but only as a childhood user. But contrary to popular opinion, I was not in the business world at that time, so I really cannot confirm what if anything the 8-track product managers did or did not do.

To be fair, sometimes this product and technology driven approach works. Stephen Jobs, who seems to be rapidly ascending in the pantheon of business icons, was one of the notable exceptions to this standard. But even he did not approach his highly technical products (Mac’s, PC’s, iPhones, iPads, iPods, etc.) from a technology advantage point of view.

He made Apple products “cool”.

He relied on designs, user interfaces, displays, etc., as his customer product differentiators. He made them sleek and appealing so that customers would want them. He made them intuitive to operate. He knew that technological advantages would be ephemeral at best, and that design and cache would create a brand loyalty that would continue.

Jobs is famously quoted as saying:

“Some people say, “Give the customers what they want.” But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, “If I’d asked customers what they wanted, they would have told me, ‘A faster horse!'” (https://www.goodreads.com/quotes/988332-some-people-say-give-the-customers-what-they-want-but)

But, as I have said, the number of product technologists that can successfully do this has been limited. Even Jobs had to look back more than a half-century to quote Ford on his visionary product success.

So, what should a product technologist do in a situation such as this?

The simple answer, and the first place to start is with the sales team. Ask them what their customers need. Ask them what they can sell. Ask them how what they currently have can be better. Ask them can they sell it.

But just as the product technologists should not be allowed to try to dictate how a product should be sold, sales people should not be allowed to try and dictate what technology or product should be supplied. Henry Ford was probably right in that if he had asked the sales team what was needed, the response would have been a faster horse. The horse was the then best technology of the time. That response would have been technology dependent.

The proper response would have been the desire for the ability to travel faster and farther, with the ability to carry more people and cargo. That was indeed the problem Ford solved.

Too many times product and technologists seem to become too enamored with their own products and technologies. They can get caught up in the idea that the issue is the sales team’s inability to sell the product is a sales issue and not something else. Because the product or technology is so good, it obviously must be related to the sales team either not understanding or not being able to properly sell it.

I have found that by and large, corporate sales teams are usually pretty good at selling. If they were not, neither they nor ultimately the company would be there for long. The competition from other sales teams would see to that. This usually means that if there is some sort of an endemic issue with the sales levels for a product, that it probably has something to do with the product.

Again, one of the best ways to determine this is to ask the sales team. They are incited to sell the product. Their employment and ultimately their livelihood depends on their ability to sell. If they cannot sell the product on their own, chances are that a product technologist will not be able to generate a sales process that will significantly improve the market performance.

It seems that too many times sales teams are viewed as a group that can and will generate orders and sales regardless of products, market conditions, or competition. Sometimes this is the case. Many times, it is obviously not. However, it seems that it is usually the sales team that is the first point of examination if a product or technology is not experiencing the type of success or market reception that the product and technology teams feel that it should.

As I earlier noted, the sales team has the same tendency as the product group, except in reverse. They will almost always try to dictate the technology to use. This input will be based on what has worked in the past. This will result in requests for “faster horses” or “more flexible buggy whips”.

It should be the product team’s responsibility to decode the sales team’s customer product requests, to separate the technology from what is in essence the application. This is what Stephen Jobs was so good at. He could see what the customer would want as being totally separate from any technological constructs or limitations. He would then go about designing and creating the new products to meet these desires.

Unfortunately, Jobs was a pretty unique individual. So, for the rest of the product and technology teams, if you want to get a good gauge on a potential products viability and success in the market, it is probably a good idea to ask the sales team what can they sell.

Sales teams in general rarely lack opinions on what the product needs to be. The key will be separating what they say they need the product to do, as in carry more people and cargo, and go faster and farther, as opposed to what they say they need the product to be, as in a faster horse.

Even Jobs noted that the focus always has to be on the people as opposed to technology, as a recipe for success. He said:

“Technology is nothing. What’s important is that you have a faith in people, that they’re basically good and smart, and if you give them tools, they’ll do wonderful things with them.”
https://blog.hubspot.com/sales/steve-jobs-quotes

Achievement, Customer Management, Differentiators, Sales

Selling Products vs. Selling Services

In case some of you are not fully aware, products and services are different. They can be tightly integrated. They can be mutually dependent. But they are entirely different. This can cause businesses that provide and sell both products and services significant issues.

Customers usually like to have a single point of contact with their vendors and suppliers. If the customer is large enough, this point might actually be a coordination point for the vendor’s sales team, as opposed to a single sales point. This creates an issue for the vendors in that more and more in the age of increased specialization, they are they are driven by customers, and hence driving their sales teams to try and sell both products and services.

I’ll start with the easy one first: Products. Just about everyone knows what a product is. Now believe it or not, a quick Googling of the word “product” has delivered two entirely different definitions:

product; plural noun: products
1. an article or substance that is manufactured or refined for sale.
2. a quantity obtained by multiplying quantities together, or from an analogous algebraic operation. https://www.google.com/search?source=hp&ei=c7loWtCWIYT5_AaP04-ICg&q=product&oq=product&gs_l=psy-ab.3..0i131k1j0j0i131k1l3j0l5.553.1679.0.3106.7.6.0.0.0.0.178.623.0j4.4.0….0…1.1.64.psy-ab..3.4.621….0.Jn1vc8zzN28

All the math nerds out there need to settle down. We are going to concern ourselves with the first definition of a product.

For purposes of this discussion I am going to look at products as a tangible item of substance manufactured for sale. (In an increasingly software driven world this idea can be stretched to software in as much as software is now also generally recognized as a manufactured or refined product as well.) A product is something that is made. People can usually touch it. It physically exists. Because it is a tangible good, a value can more easily be assigned to it. If a value can be assigned to it, it can be sold.

This is one of the main reasons that products are generally viewed as being easier to sell than services. There is a physical, tangible good associated in the exchange for money. A customer gives the vendor money and in return the vendor provides the customer with a tangible good or asset that they can point to when anyone questions them about the exchange.

A good example of a product for money exchange would be the purchase of a car. You know the car you want, and you know the amount you are willing to pay. If the vendor can meet those requirements, you will make the deal. You can look at the various attributes and features associated with the car and ascribe incremental (or decremental) value to them.

Things like leather seats and nice stereo systems are quantifiable attributes to that car. Dents and scratches are detraction’s from the value of that car.

The car is a tangible good that can be examined, with its value understood and hopefully agreed on.

Now look let’s look at services.

Another quick Googling of “services” takes us to Wikipedia, another source of simple and basic definitions. Wikipedia states:

In economics, a service is a transaction in which no physical goods are transferred from the seller to the buyer. The benefits of such a service are held to be demonstrated by the buyer’s willingness to make the exchange. https://en.wikipedia.org/wiki/Service_(economics)

A service transaction is one where no physical goods are exchanged. There is nothing tangible that is being bought or sold.

Now I am sure there are many that are going to jump up (and subsequently down) and say that is not true. There are people, and time, and labor and all sorts of things that are being bought when a service is purchased.

I think you are wrong.

Do not confuse what the delivery of a service is, with what the actual purchase of the service is.

I think that the best way to illustrate what a service purchase is, is to begin with a definition of what is actually being purchased in a service purchase transaction. I would submit that a service purchase is actually:

The purchase of the expectation of an end-state situation.
(This is actually one of my own, and hence doesn’t have a citation for locating it on the web. That doesn’t mean that it doesn’t exist there. It just means that I thought it up. I guess someone else could have thought it up as well.)

I’ll use the car example to further this idea.

Suppose you are going to take your newly purchased car to a car wash. Are you actually purchasing the labor and use of the machinery that goes into washing and cleaning your car?

I don’t really think so. I think you are purchasing the end state expectation of a clean and shiny car to drive off in. You are not overly concerned as to whether it takes ten people to wash your car quickly by hand, or whether it can be run through an automatic car washing machine as long as the same end state expectation is met.

I think this is a key point, and adds to the complexity of a service sale. Selling a service is actually trying to sell an end state solution, or position, instead of a tangible good.

Two of the biggest issues associated with the service sales model for intangible goods are, the loss of control, and the matching and the meeting of expectations of the service purchaser.

When I was younger, I was pretty protective of my car. It was one of the biggest assets I owned. I was concerned about relinquishing control of my car to someone else, even to clean it. I went to self-wash car washes, or I did it myself in my drive way. I got a great deal of pride from cleaning it. I was of the opinion that few if any could clean my car as well as I could. I was not a good candidate to be a car wash service customer.

I don’t suspect I was too different from many others with their first cars – with the possible exception of my teenage son. His car is, and remains, filthy.

I also didn’t have as much disposable income at that time, which meant that I had other priorities than paying for a car wash. Times change but the analogy continues. Some people don’t want to purchase the service associated with a car wash. They would rather do it themselves.

The second issue associated with purchasing the service associated with a car wash is the matching and meeting of expectations.

What happens if you buy the car wash, and it comes back obviously washed, but with dirt and streaks? What about hand prints on the windows? Maybe they didn’t vacuum the inside.

They have provided the service you purchased, but they did not meet your end state expectations. The service did not become tangible (in the form of a not entirely cleaned car) until after it had been delivered. Their interpretation of what a clean car was did not match your expectation of what a clean car was.

This potential for mismatched expectations is why there are contracts and lawyers. I’ll save that discussion for another day.

In the age of increased specialization, sales teams are increasingly being asked to sell tangible goods (products) which have a pre-defined end state capability, along with intangible services based on meeting the end state expectations of the customer. No one will truly know what the end state is, or if the expectations have been met until after the service has been delivered.

When viewed from this point of view it can be seen that services can be perceived by the sales team as a higher risk proposition. Products have defined specifications and features. Their functionality is usually well defined. Customers also know this. If the product operates to these specifications, there should be no question regarding customer satisfaction.

They in effect know that they will get what they pay for, before they pay for it.

This is not the case for services. Customers can get contracts. They can get vendor assurances. They can get all kinds of management commitments. But they will not know if they got what they wanted, and expected, and paid for until after the service has been delivered.

The selling of the tangible and intangible seem to require different approaches and techniques. The tangible can be compared and relatively valued versus both the current capabilities as well as the competitively offered ones. The creativity associated with the tangible application can be a differentiator.

The intangible is a little more difficult. It requires the defining of a future end state that doesn’t currently exist. Promised savings or improved efficiencies associated with a service cannot be realized until the service has already been implemented. And the fear then is that if the expectations are not met, it is already too late.

Defining and then codifying a viable end state solution will be the key to a successful services sale. How shiny is the washed car supposed to be? Are all the windows to be washed? Are best efforts to remove stains from the carpet good enough, or are you actually committing to replacing the carpets if you cannot in fact clean them appropriately.

Being able to identify the steps and milestones required to reach that end state will be required if customer expectations are going to be met, and a successful services transaction is to be completed.

And selling that kind of intangible is pretty different than selling a product.

Creativity, Customers, Finance, Leadership, Sales, Value

Would You Like To Buy The Brooklyn Bridge? – An Infrastructure Sales Story

I have been thinking a lot about infrastructure lately. There are many different types of infrastructure out there. While I am primarily in the High-tech infrastructure environment, almost every other industry has its own type of infrastructure (think oil, airlines, brewing, etc.) and for me, it is hard not to think about things like the Brooklyn bridge when you start talking about infrastructure. I think by way of analogy, I’ll stay with bridges in general and the Brooklyn bridge in particular for this discussion, because it enables me to make the general points I want to make about infrastructure sales and business decisions, and there are a ton of very cool facts that I was able to discover, and hence would like to share.

“The Brooklyn Bridge looms majestically over New York City’s East River, linking the two boroughs of Manhattan and Brooklyn. Since 1883, its granite towers and steel cables have offered a safe and scenic passage to millions of commuters and tourists, trains and bicycles, pushcarts and cars. The bridge’s construction took 14 years, involved 600 workers and cost $15 million (more than $320 million in today’s dollars). At least two dozen people died in the process, including its original designer. Now more than 125 years old, this iconic feature of the New York City skyline still carries roughly 150,000 vehicles and pedestrians every day.” Or so says History.com. (http://www.history.com/topics/brooklyn-bridge.)

I find this to be very interesting. Here is some infrastructure that was built 135 years ago and is still in service. In fact, it could be said that based on its load and traffic, it is doing more now than it was doing 135 years ago when it was put in service. It cost $320 M in today’s dollars, but probably could not be built for fifty times that ($15 Billion) today. It was basically designed to last 100 years, but at 135 years it is still going strong.

Please note these facts. I will be getting back to them.

When it comes to selling infrastructure, there is one man that historically stands out, head and shoulders above all others: “George C. Parker (March 16, 1860 – 1936) was an American con man best known for his surprisingly successful attempts to “sell” the Brooklyn Bridge. He made his living conducting illegal sales of property he did not own, often New York’s public landmarks, to unwary immigrants. The Brooklyn Bridge was the subject of several of his transactions, predicated on the notion of the buyer controlling access to the bridge. Police removed several of his victims from the bridge as they tried to erect toll booths.” (https://en.wikipedia.org/wiki/George_C._Parker.)

What this teaches us is that if you are going to sell infrastructure it is important to identify the proper customers.

What this also shows is that George was a man who was way ahead of his time. If he was selling infrastructure today he probably would be incredibly successful selling infrastructure to those that are actually in that business, and would not have to spend the last eight years of his life behind bars in Sing Sing prison.

It is also important to understand the engineering associated with some of the existing infrastructure (at least in the US, and probably elsewhere – look at the London Bridge for example), as people go around trying to make a case to replace it. The engineering associated with older infrastructure usually far and away exceeds the stress requirements that were to be placed on it. This probably cannot be said today. As costs have skyrocketed, engineers are now designing and building structures as close to the required loads and specifications as possible in order to keep those costs low. That means they also do not last.

In other words, in the past infrastructure was usually built to last. In addition to old bridges, think about all the pictures in magazines (and on the web) of the old copper pot stills being used at the various breweries (my personal favorite), and bourbon and scotch distilleries. I am sure that all the manufacturers of commercial distillery equipment would like to replace them, but I suspect that also isn’t going to happen any time soon.

Again, looking at our favorite infrastructure example: “(it employed) a bridge and truss system that was six times as strong as was thought it needed to be. Because of this, the Brooklyn Bridge is still standing when many of the bridges built around the same time have vanished or been replaced.” (https://en.wikipedia.org/wiki/Brooklyn_Bridge.)

For comparison sakes, a newer piece of infrastructure, the Tappan Zee bridge was put into service, in the same area, about 70 years after the Brooklyn bridge: “As another example, the original Tappan Zee Bridge was opened in 1955, and construction of its replacement is now underway. A 2009 New York state report on the original bridge described its design as “non-redundant,” meaning that one critical component failure could result in large-scale failure; the bridge was featured in a History Channel show entitled “The Crumbling of America.” The new bridge is being designed with a 100-year lifespan; info about the “New NY Bridge” is available” here. (http://www.mondaq.com/unitedstates/x/287844/Building+Construction/Lifespan+of+a+Bridge+Span.)

And there is also: “After years of dawdling while the bridge crumbled, state officials say they are rushing to complete a review of the most feasible solutions to the problem of the Tappan Zee. But a decision is still two years off and a new bridge would require eight additional years and as much as $14.5 billion to build, they say.” (http://www.nytimes.com/2006/01/17/nyregion/a-bridge-that-has-nowhere-left-to-go.html.)

“The bridge was built on a very tight budget of $81 million (1950 dollars), or $796 million in 2014 dollars.” (https://en.wikipedia.org/wiki/Tappan_Zee_Bridge.)

This would indicate that more recent infrastructure is usually neither designed to last as long as some of the older infrastructure, nor is it as reliable and cost effective as some of the older, over-engineered variety.

This would lead many to the position that for some of the older infrastructure, it would be much more economically feasible to repair it, upgrade it, maintain it, than it would be to replace it. This is despite what many of the current infrastructure suppliers might want or even indicate. If it is working and can still continue to work, why would anyone want to build another bridge, right next to the still working one, to carry the same traffic.

However, just because it was initially built well doesn’t mean that it shouldn’t or doesn’t need to be maintained. Infrastructure requires continued investment in order to maintain it: “The repairs, ordered quietly last October by the city’s Department of Transportation, are intended to fortify the concrete-reinforced steel-mesh panels beneath the bridge’s traffic lanes, which were found to be deteriorating by construction crews at work on a repaving project last July, officials said yesterday.….. the city’s Transportation Commissioner, attributed the problems to ”normal wear and tear” on the 115-year-old bridge…..He added that the steel girding and concrete that must be repaired, which were put in place during a 1954 repaving project, ”were installed with a life expectancy of 60 years,” and had therefore fulfilled most of their engineering mandate.” (http://www.nytimes.com/1999/02/05/nyregion/as-concrete-falls-city-moves-to-fix-brooklyn-bridge.html.)

And of course, 20 years later more maintenance is needed on the Brooklyn bridge, only now, the cost is climbing: “The cost of repairing the Brooklyn Bridge is expected to hit $811 million — a roughly $200 million increase from estimates made only last year, The Post has learned. When the mammoth project to renovate the 133-year-old span began in 2010, the price tag was even lower — $508 million.” (http://nypost.com/2016/11/11/brooklyn-bridge-repairs-expected-to-cost-811m/.)

So, where does all this bridge information leave us when it comes to selling infrastructure?

I think the first thing to note is that unless the infrastructure is at risk of immediate failure, such as the Tappan Zee bridge is deemed to be, it is going to be very difficult to replace. You may be able to add to it. You may be able to augment it. But the financials usually do not make sense for a full replacement. It is going to be a tough sell to get a customer to buy something that does much the same as the thing it is trying to replace.

It also looks as though capacity is going to be the prime driver for infrastructure expansion and augmentation. The more cars that want to get across the river, the bigger the needed bridge, or the more bridges that are needed. New features and elegant designs of bridges are pretty cool, but the objective is to still get cars across the river as efficiently as possible. Form is nice, but it is function that predominantly drives infrastructure acquisition.

And I think finally, there is an excellent business to be had repairing, maintaining and improving the existing infrastructure. As we see above, even incredibly expensive bridge repairs are economically preferable to what would be the exorbitantly expensive cost of replacing the infrastructure. The Tappan Zee replacement bridge is expected to cost between $4 Billion and $15 Billion. The original Tappan Zee cast $81 Million. The financial math becomes pretty obvious, pretty quickly.

Focusing on how to improve the existing infrastructure, extend its life and help it to be used or run more efficiently are going to be keys to a customer first mentality that the good sales teams are going to need in order to be successful.

I think this is going to be especially important as customers are rapidly learning that the new infrastructure they buy today is not going to last as long as the old infrastructure they already have today.

If you don’t believe me, just look at the bridges.

Alternatives, Budgets, Competition, Finances, Sales, Solutions

For the Money

“One for the money, two for the show, three to get ready, and four—-to—-go—-!”

In case you are wondering, the earliest attribution for this phrase that I could find is in the children’s book, “Striking for the Right” By Julia Arabella Eastman, in 1872.

Some of you however may be more familiar with the 1955 variation that Carl Perkins included in his song “Blue Suede Shoes’:

“Well, it’s one for the money,
Two for the show,
Three to get ready,
Now go, cat, go.”

I think Elvis did it better than Carl, but that really isn’t relevant to today’s discussion.

In either case, as you might guess, my focus here is going to be on “for the money” as I think we may have lost track of this part of the phrase, particularly as it relates to sales.

A phrase that is generally thought of as a countdown to the start of a children’s race or contest, is becoming more and more germane to the increasingly high-pressure contest of business to business sales. However, in many instances it appears that organizations are skipping the first line of the phrase and focusing on the second, third and fourth lines. Now usually to some form of hardship.

As we go through what might be described as tectonic shifts in the business, capital and sales markets and processes, brought on by the evolution of the cloud, the Internet of Things (IoT), and the multiplicity of other technological discontinuities they have engendered, “for the money” is probably going to take on an increasingly important role, particularly in the sales process. It is probably time to start steering away from the age old, tired sales phrases associated with focusing on quality, or value, or any other direction from a past time.

We have all been aware of “Moore’s Law”, which in its simplest iteration generally states that new products arrive with essentially double the previous product’s capacities every eighteen to twenty-four months. What this postulate also infers is that products can be expected to become obsolete every two years as well. This is now an important concept since previous views of product life expectancies were once much longer.

The difference now is that as new capabilities and applications are developed, they are more and more dependent on the latest generation of technology for their functionalities.

As an example: What would you pay for a car today, if you expected that in two years it would not be able to efficiently run on, or possibly even be able to access the new highways that are being built? What would you pay for that car if in two years it would not be capable of allowing you to drive to all the new destinations that would be available then?

Would it change your car buying patterns? Probably.
Would it change how much you would be willing to spend on a car, knowing that your time horizon for needing to purchase the next new car – which would then allow to run on the new highways and go to the new destinations – was going to be so short? I think so as well.

Such is the situation for just about every company and organization when it comes to their information technology needs.

Eureka. This sounds like every vendor’s paradise. Knowing that your customer is going to have to buy a new product every two years. What could be better?

I guess the first thing would be to make sure that all capabilities and applications that are developed are equally applicable across all customers.

Uh oh. That doesn’t seem to be the case since different companies need and demand different capabilities. And since vendors do not have infinite resources to develop all possible applications and capabilities in parallel, we cannot expect a continued alignment of applications, capabilities and the platforms required to run them.

And since customers do not have infinite capital to be able to afford each and every application, capability and platform as they come out, we return the new catch phrase, “for the money”.

Customers do not want the best solution.

I know this sounds like heresy but this has been proven time and time again. They want the best solution – for the money. They do not want the best service. They want the best service – for the money. Value and quality are good, but they are table stakes, not differentiators. And make no mistake about it, since the product life cycles and associated obsolescence are now so short, there is corresponding less money for each customer to spend on each purchase iteration. With the reduction in customer capital available to purchase each new product iteration the question is no longer how much functionality can a customer afford, but what is good enough to serve their purposes for now.

Whether it is said or not, it should be implied that every sentence used in communications between the vendor and customer, should end with the phrase “for the money”.

With this concept in mind it becomes a little easier to understand the changing landscapes for sales in the business to business world. Buying new higher capacity platforms in anticipation of being prepared for future applications or capabilities probably will no longer occur. The fear of platform obsolescence before the capabilities are available, along with new constrictions on purchase funds will probably preclude that.

Future capabilities will be purchased in the future, when they have been developed and can demonstrate immediate (not future) value to the customer.

Because of the direct relationship between purchase capital and product capability, reliability, capacity, speed, etc., all those factors have become negotiable as “for the money” comes into play. Communications networks that had essentially one hundred percent reliability and twenty-year life expectancies are being superseded by far less reliable but faster terrestrial and more convenient but equally less reliable wireless networks. They are good enough, at a far lower cost.

Personal computers and laptops that used to cost thousands of dollars are now costing a couple hundred dollars and are expected to be outdated, and disposable within two years. They are not repaired, they are replaced, at a far lower cost.

I have said that if customers are not buying it is probably because the sales team has not generated the appropriate business case for that customer’s business to justify the purchase. Immediate expenditures will require immediate value generation to offset them.

For the money is emerging as the prime parameter associated with this same customer business case sales process. Customers are recognizing that the lowest common denominator functionalities are what are required for their business. By way of example, Sprint seems to have fully embraced this approach to wireless services in that they are openly touting that they are “within one percent of the coverage / reliability” of their competitors, but only half the cost.

Their catch phrase is: “Why would you pay twice as much for only one percent more?”

We had all better take note of this approach to the market. In case you are wondering, Sprint grew more than any of its competitors in the last quarter. (https://www.cnet.com/news/even-sprint-topped-at-t-verizon-in-customer-growth/). And this is after several previous poor quarter performances.

In the article, it is noted:
“…Sprint with a campaign that essentially boils down to this: We’re good enough for your business. The company’s commercials play up its half-off plans versus the competition (the rates go up after two years) and a mere 1 percent difference between the quality of its network and that of Verizon.”

The key comment for me is “…good enough for your business.” I think this approach is becoming the new norm. Being the best is great, but being good enough, for half the price, is probably going to be better. It seems to be resonating with the market as they continue to attract new customers.

There will always be exceptions to every norm. There will be those customers that truly want the elevated capabilities, and will be willing to pay for them. There are those that want luxury cars as their form of transportation, when there are almost any number of less expensive models that will deliver the same functionality at a far lower cost. Most companies, like most of us, do not have the luxury of preferring luxury.

They are moving more and more toward the Sprint model that good enough, at half the price, is better than the best at double the cost. As budgets continue to constrict, for both consumers and companies, the comparison of what is wanted versus what is good enough for the money, will continue to change the landscape for sales. It is probably time for many businesses to change their sales model to focus on what is good enough for the money.

Finance, Markets, Sales, Strategy

Why They Aren’t Buying

There are all sorts of allegories for sales. Hunting, farming, fishing, and a large list of others. They all seem somewhat out-doorsy and active (as opposed to passive – waiting for something to happen), but I think you get the point I’m making. Sales also seems to run in streaks. Some days it seems you can’t miss and all you need to say is “sign here, press hard for three copies”. And other days it doesn’t seem to matter what you do. You don’t seem to be able to close a door, let alone a deal.

We all like to think that it is superior salesmanship, or possibly a break-through product or technology advantage, when sales are good. We also like to point to inferior marketing and support, or a weak product offering when sales are not up to expectations.

When sales are not up to desired levels, it is usually left to management to blame poor salesmanship for the results, since both product technology and support are not readily changeable items in any short-term drive to improve sales.

I think the reality of sales booms and sales busts are more associated with those factors that either occur or evolve on a market wide basis. The deregulation of the mortgage industry led to an explosive growth in housing sales as people could then buy more house than they could normally afford, via balloon payment type and other exotic mortgages. This worked well until payments came due and real money was not available. The well documented housing bust and broader economic recession ensued.

Going a little further back into the end of the last century, was the telecom boom associated with deregulation. Companies suddenly found themselves with the opportunity to enter communications markets that they had previously been restricted from. This market attractiveness was further exacerbated by all equipment supplier’s willingness to lend these new companies the funds that they would need to by their equipment to enable access into these new markets.

This too worked well until the then new market was flooded with new competitors. The result was that there was not enough business to go around and no one had the real money needed to make their loan payments on their equipment. The well documented telecom bust then ensued as well.

In both of these examples, as well as many others across many other industries (banking, oil, etc), there were some very good times to be in sales, which were then followed by some very trying times to be in sales. It didn’t really matter what your individual effect on the sales process was.

I bring up these kind of market wide events not because I want to examine them, but because I want to exclude them from any discussion regarding why customers may, or more importantly may not be buying now. When various markets are thrown out of equilibrium by any number of market affecting legislative changes or other events, it seems that standard sales logic just doesn’t apply – usually to the eventual detriment of all involved.

I want to briefly look at why in a stable market, sales may not be achieving your desired goals.

I think that when you look at sales there are basically three aspects that need to be in place to be successful. Some may point to a multiplicity of other factors, but I think when you net them all out, you get back to these three basic ones.

The first is relationship. I know. This is trite. Relationship blah, blah, relationship. There is a reason everyone says it is important. That’s because it is. Do you trust the guy that sells you a car? No? That’s partly because you know that once he sells you a car, you are no longer his problem. You are the service department’s problem. He is probably not going to talk to you or try to sell you anything else for a while, unless you decide you need another car.

In the business to business sales world, most sales people cannot achieve their targets by simply selling something to a customer every three or four years. They have to face their customer continually. What they do after the sale is probably more important than what they do before the contract is signed. That is if they hope to get another sale.

That is how a relationship is built.

The second is the ability to solve a customer’s problem. It might be a problem they didn’t know they had. Faster, better, cheaper are always items that come to mind. Understanding what a customer wants to do as well as why they want to do it are keys here. It is in essence providing an answer to their question.

The third is providing the customer with the proper reason to buy your solution. This is usually known as a business case. If you are ten percent faster, but twice as expensive, is this acceptable? It’s hard to say at this point without more information. However, it’s a much easier decision if you are ten percent faster and the same price as a competitor.

Having a great relationship with your customer, and a great product are no longer enough. There must be a strong enough financial reason for a customer to buy. The customer must expect a sufficient return on the monies that they invest in a product in order to get them to spend those monies.

This customer return can take several forms. Does it reduce their costs of operations? Does it allow them to gain more customers? Does it allow them to get more revenue from their existing customers? And just as importantly, when does it allow them to recognize these returns. These are all very definable and quantifiable numbers.

If they are not, then in today’s business climate and environment, you may have an issue closing a sale. Quantification of customer value is rapidly becoming the key to sales success.

It should be noted that saving a dollar this year is far more preferable than potentially saving ten dollars, five years from now.

It seems that suppliers can get seduced by the elegance of their own technical solutions to their customer’s problems. They have a tendency to forget that just because what they are offering may be technically better than what the customers may currently have, that no longer means that a sale is assured. If the customer cannot identify the quantifiable benefit and returns associated with the proposed purchase, and when these returns can be expected, then the expectation should be of a difficult or delayed sales process.

Just because they trust you and what you are offering is better doesn’t mean they will buy it.

It appears that it is more and more about money, and more specifically today’s money when it comes to sales. Preparing for future opportunities, or addressing potential opportunities, or enabling future applications may no longer be a good enough reason for a customer to part with their limited amount of funds set aside for such expenditures. Customers are recognizing that if the sales discussion involves future benefits to them, then it also means that the actual purchase decision can probably be delayed to that future time when it coincides with those future benefits.

In today’s business environment, if companies are going to spend their money, they need to know what they are going to get in return. Not just the product or service that they are purchasing, but the quantification regarding what the purchased items will mean to their bottom line. How much of a reduction in costs. How many more customers. How much more will they be able to charge.

If today’s product will enable an as yet undefined application or future capability, then it is probably wise to assume that today’s customer may in fact wait to purchase that product until that future application or capability is defined and the market for and value of it can be quantified. Being bigger, better and faster for the sake of being prepared for the next big thing and the potential associated end user demands that go along with it, is probably no longer going to be a good enough reason to purchase.

If your customers aren’t buying, and there is no discernible, market wide issue causing a broader customer industry slowdown, then it is probably a good guess that the appropriate customer spend business case has not been made or met. As markets evolve to this technical solution – appropriate business case model, the solution price will remain a key aspect of every opportunity, but not so much from the aspect of how much a customer has to spend, but more from the point of view of how much the proposed solution must recoup in value for the customer, and as previously noted and just as importantly, how long it takes the customer to recoup it.

It is also possible that this lack of an appropriate specific return customer business case can turn out to be the broader customer industry slowdown, since all customers seem to be heading this direction. It can also depend on the relative competitive starting point for each customer in their respective markets.

It doesn’t seem that being bigger, better, faster or prepared for the next new thing will remain as good enough reasons for customers to buy. It appears that it will not be what the proposed customer solution operationally or technically does, but more what it financially does for the immediate benefit of the customer’s bottom line that will be the purchase decision criteria.