Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Tag: direct sales

Should Your Sales Reps Cold Call?

In this article we’ll take a look at arguments on both sides, and recommend when and how much cold-calling makes sense.

This is an age-old question in sales. Some would say that’s what sales people should be doing. Others believe that if sales reps have to cold call, it’s an indication of poor marketing and very inefficient. I often refer to cold-calling as DOOR-TO-DOOR marketing, because you’re really combining the introductory marketing and sales functions in one phone call or visit. The question: is this a good or bad thing?

Many factors come into play when deciding how much cold-calling is appropriate for a particular rep/company/product/market combination:

Ease of Prospect Identification

This is a crucial factor when deciding whether or not to include a lot of cold-calling in your sales mix. If prospects are easily identifiable, it makes much more sense to start contacting them than if your reps have to dig for hours to find an appropriate prospect.

Commodity vs. Complex/Missionary Sale

It’s very difficult to cold-call prospects when selling technology products or services which are very new or difficult to grasp quickly. Prospects are all busy trying to do their jobs, are overwhelmed with offers via every media and contact method, and tend to tune out cold calls that aren’t of obvious use to them. In these cases, using marketing methods to educate and identify prospects first tends to work a lot better than strict cold-calling. For commodity items that people know they need, a timely cold call can lead to an immediate sale that a competitor might have otherwise gotten.

Cost Per Lead

How to divide your investments in marketing and sales is often driven by the relative costs of each. How effective are your outbound and inbound marketing programs? If your marketing cost per lead is very high, in some cases it might make sense to skip the lead gathering altogether and get right to the sales call. I caution that this usually isn’t the case, but it’s possible. Also, whether this makes sense also depends on many other factors such as those discussed here, notably the ease of prospect identification.

Market Size

This factor is most relevant with respect to cold-calling for tiny niche markets. For example, if you have a software product with a multi-million dollar price tag aimed at 100 or less total prospects. In this case, it doesn’t make sense to put much money into outbound or inbound marketing programs if these prospects are easily identifiable. Time to call them up or pay them a visit, as soon as possible!

Time of the Day/Week/Month/Quarter

If it’s the end of the day (literally or figuratively) and all the leads have been followed up on, it’s DEFINITELY time to cold-call. Every sales organization or individual rep should have a game plan on how to prospect on their own, when all the warm leads have been exhausted. It’s either that or it’s time to head to the golf course (which happens too often, and tends to not raise sales much!).

Big Ticket vs. Low Price

In general, sales forces are costly. If you have a product with low revenue per sale, it’s suicidal to rely strictly on cold-calling. Unless your reps are working on a commission-only basis (not recommend, for reasons outlined in other articles), it’s a prescription for a low or even negative margin sale. Low-priced products absolutely require an efficient marketing engine to generate a large amount of low cost leads which lead to easy sales. With a big ticket product, the economics work better and more easily allow a sales-intensive approach.

So what’s my summary view of cold-calling? It’s hard to generalize, as I’ve outlined with some of the factors discussed above. But I believe that there is a place for it in the overall sales plan. I also believe, however, that in most cases if reps are doing 100% cold-calling–or even the majority of their time–then the company is operating at far less than peak efficiency. A 100% cold-calling sales force is usually indicative of an institutional lack of marketing expertise. This usually means less revenue and profits generated for the company than would be with a more balanced sales/marketing approach. Integrated sales and marketing is what works best in the great majority of situations.

With respect to individual reps, if they are forced to cold-call often, you’re probably underutilizing them. But if a particular rep is reluctant or completely unwilling to cold-call when the situation demands it, you may have a rep to consider replacing. There are always exceptions to such generalizations for specific companies and market, but with cold-calling I believe they are few and far between.

I’ve outlined some ideas about when, where and how much cold-calling is appropriate in sales. This is a topic that is much debated–what’s been your experience? Post a comment below so we can have the benefit of your view.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on April 11, 2011
filed in B2C, Business Models, Startup/Early Stage, sales
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International Expansion: Partner or Invest?

This is an age-old question facing software and hardware companies. In this article we’ll examine the pros and cons, as well as the specific conditions that should drive your decision process.

Two basic options confront a tech company considering a foray outside of their home market:

  1. Set up your own subsidiary hiring your own employees to “put on the ground”
  2. Partner with established traditional distributors or strategic partners in the target foreign market

Let’s look at some of the key factors to consider when designing an international business development strategy:

Available Capital

How much money does your company have available for international expansion? If the answer is “not much”, this alone can be the deciding factor in your decision. If capital is very scarce, you’re almost forced to start out using distribution partners. This isn’t all bad, in my opinion. Using partners initially when you are an international newbie is a much lower risk way to start, and allows you to learn this part of the business without “losing your shirt”. I’ve seen a number of control-oriented management teams invest large amounts of money by putting people on the ground in subsidiaries, only to waste it in spectacular failure. Often this failure is due to inexperience.

Product Price and Complexity

If you have a high priced, technically-complex product with a long sales cycle, you will tend to benefit more than others by having people on the ground in the foreign market. These are the types of products which are most often sold directly, even in home markets. In this scenario, even if capital is tight and you can’t afford to put down a fully-loaded subsidiary with a dedicated direct sales force in every foreign market, it still may make sense to put some folks on the ground. As an example, you might be able to afford a channel sales rep and a couple of field engineers to support a large network of sophisticated local country distributors and VARs, across an entire continent like Europe or Asia.

Management Skills

What is the skill set of your corporate management team? If no one on the team has any experience with indirect distribution, for example, it’s going to be pretty tough to successfully build a working distribution channel in FOREIGN MARKETS which are far from home, in more ways than one. In this case, the most cost effective thing to do is to add someone to the top management team with the requisite skills and experience, or at least retain a long term consultant. Going without this hire often seems the cheaper route initially, but in most cases this end up being “penny-wise but pound-foolish” in hindsight.

Local Market Cost Structure

Each foreign market should be evaluated individually before deciding an approach for that market. For example, in large emerging markets with low costs (such as China, India, Brazil for many verticals) it may make sense to put your own people on the ground, regardless of the distribution strategy. When costs are low and the market is strategically important in the long run, the relative benefits of having your own subsidiary are high. In a high cost market with lower sales potential (Switzerland and Norway may be good examples for some businesses,) relying exclusively on a dedicated local partner may be a better way to go.

Availability of Partners

In some cases what may be the best strategy for your company and market in theory is overridden by facts on the ground. Many vertical software and hardware markets have a well established set of distributors and resellers dedicated to their marketplace. In these cases it’s relatively easy to find an appropriate distribution partner. But what if you’re in a business in which this ISN’T the case, which is not all that unusual? Or maybe there is an established channel, but you’re late to the game and all the obvious “good” partners are tied up with your competitors. Sometimes you may choose to not enter that market immediately. But if the geographic market is considered strategic, then you will need to choose a course that looks sub-optimal in theory. That might mean biting the bullet and outlaying the investment to start your own subsidiary. Or, you might find a local entrepreneur with the skill set to set up a new distributorship. If it’s a geographic market that you just HAVE to participate in, then you will find a way!

There are obviously a wide range of combinations and intermediate options, but “partner or invest” represent the extreme ends of potential strategies. In many cases (particularly large, established markets) the optimal distribution strategy will be a combination of these two main approaches: pairing a wholly-owned subsidiary with local distribution partners. In smaller markets, partnering with an established distributor or strategic partner may be the only viable strategy. In other cases, the optimal strategy may be dependent on the specific factors of a particular marketplace (local costs, available partners, etc).

What’s most important is to closely analyze your specific company’s situation and vertical market, as well as the “facts on the ground” in each individual geographic market. Resist the temptation to simply copy your competitor’s strategy or fall back on approaches that you are comfortable with from other vertical and geographic markets. That is how you make mistakes.

What’s your approach to international expansion? Post a comment and share your own personal experience.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on March 13, 2011
filed in Business Development, Business Models, Corporate Strategy, Distribution Channels, VARs, enterprise software, hardware
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Selling SaaS through the VAR Channel

The move toward Software-as-a-Service (SaaS) is the strongest trend in the software business in recent memory. It changes the software business model in a number of fundamental ways. For the purposes of this article, I’m assuming the reader has a basic understanding of the SaaS business model. I’m also going to assume a basic understand of what a Value Added Reseller (VAR) is and does. I’ll focus on the fit between SaaS and the VAR distribution channel.

 The VAR channel has been a major factor in the B2B software business for a long time. There are tens of thousands of VARs, most of them now focused on specific vertical markets. While it is still possible to find a horizontal VAR, in a market of any size you’ll likely find a nice number of VARs specializing on that segment of customers. As a result, anyone who is selling software (whether via traditional licensing or SaaS) would love to have this stable of key market influencers representing their product. Let’s take a look at the situation:

 Major SaaS strengths

  •  Simplicity of startup for the customer – For many SaaS apps, getting started is as simple as signing up, obtaining a user name and password. Contrast this with the lengthy, complex and sometimes extensive setup and configuration period for some B2B apps. (This strength is a potential problem for VARs).
  • Available from any web browser - This is one of the great capabilities driving the SaaS revolution. Of course, traditional apps can have a web-based interface as well, but SaaS apps by definition are web-centric. Browser-based apps can limit functionality in some cases, but is becoming less of an issue all the time.
  •  Simplicity of maintenance for the vendor - This is a big one. With traditional on-premises apps, the vendor has to deal with “pushing” updates to the client, often into wildly varying hardware and software environments. With SaaS, the vendor presses a button and the new version is universally available to everyone. This is a huge advantage leading to reduced rollout costs for the vendor, and less pain for the client. (Also a potential problem for VARs) 
  • Less IT infrastructure required by clients - Theoretically a company could nearly eliminate their IT department by adopting all SaaS apps. As a practical matter, this isn’t happening in companies of any size, and likely won’t. But any reduction in reliance on perennially overworked IT departments is usually seen as a good thing. (Potential problem for VARs, but also an opportunity)

 Major VAR motivations

 Sell Services (not products) – Contrary to the expectations of channel neophytes, VARs are generally seriously interested in products to the extent that they have the ability to generate service revenue for the VAR. (Early SaaS models eliminate many traditional service revenue streams)

 Secure ongoing revenue – VARs don’t own intellectual property(products) to stabilize long-term revenues as a rule, so they’re always interested in ways of “smoothing out” their business with predictable, ongoing revenue streams. (SaaS eliminates much traditional service revenue, but subscriptions open up new possibilities)

 Maintain client control – VARs are very sensitive about retaining control of the relationship with their clients. They view these relationships as hard-won, and without owning the intellectual property, they are probably the most strategic aspect of their business. (VARs shy away from vendors who try to wrest account control from them, and many new SaaS vendors have this “direct-first” mentality).

 The Gap

 The problem as discussed in the above paragraphs is that the ways VARs traditionally make money (installation, training, integration, customization, support, client control) have been eliminated or severely reduced as opportunities by first generation SaaS vendors. Frankly, it’s never been easy for any software vendor to recruit VARs who are “active” with their products. The current situation sets up the typical first generation SaaS vendor as an arch- enemy to VARs. The SaaS vendors aren’t attractive partners due to the lack of potential service revenue (and often aren’t looking to partner), but are targeting the VAR’s customer base. To some, it looks like the end of the VAR channel for anyone running a SaaS-based company. Sound like a caution sign to SaaS vendors, one which makes the vendor focus strictly on direct selling? Maybe–but let’s explore a few ideas for changing the equation.

 Ideas on how to bridge the gap and attract VARs to your SaaS offering

 There are some forward-thinking SaaS who have been able to leverage the VAR channel for their companies. But at this point, they are few and far between. For many of the reasons stated in the above paragraphs, there is no established, tried and true model for attracting VARs to a SaaS offering today.

The biggest thing I’d like you to consider with respect to the sentence underlined above, is that when things are least established, there is the MOST opportunity for newcomers. Since there is no established perfect SaaS/VAR cooperative business model yet, no SaaS player is dominating in this still very influential channel. For a newcomer, this creates great opportunity and potential payback for creative approaches. Let’s take a look at a few such ideas to attract VARs:

 Design your SaaS offering from the ground up for easy customization and integration

Unfortunately I don’t see many SaaS vendors considering channel strategy when designing their first product. In the early days of SaaS, enabling customization and integration with other products was tough to do. Now the tools are there to make it very possible, but it’s a lot harder if you try to do it “after the fact”, once your architecture has been set and the first commercial release is done. This one step can be a huge asset when you are later trying to design programs attractive to VARs, and it can of course be a huge advantage with certain end users as well.

 Offer solid upfront margins, but focus on downstream revenue streams for your VARs

I recommend offering competitive upfront-sale margins, but going overboard here can be a waste of resources. Remember that VARs don’t build their business on upfront product sales revenue. Focus on finding ways VARs can make money dealing with you after the initial sale is complete. As an example, how about sharing downstream subscription revenue–but only if the VAR creates X amount of new sales revenue for the year? This is an example of a win/win which could lead to great loyalty to your offerings, tying the VAR’s interest to your business in the long run.

 Instead of building a large in-house consulting team, use VARs to help fill IT gaps for your customers

VARs have a lot of capability to offer services that your end users might require and demand. Rather than competing with VARs (and using scarce capital that could be deployed elsewhere), take a look at creating programs to utilize the best of your channel partners as your outsourced consulting team.

 Create a program to enable the outsourcing of upfront product training to your VARs

Initial product training is a great example of a “consulting service” to outsource to your channel. Most product groups see training as a necessary evil and an afterthought, often giving it away for free–while providing it with insufficient attention from the end user’s perspective. With the right tools, a VAR could turn this into a profit center for their business, reducing your utilization of key resources on a non-core activity, while tying the VAR tightly to your products.

 Be careful to allow your VARs to continue to lead in account management activities

In everything you do, keep in mind that the VAR is paranoid about account control (with good reason, unfortunately). Remember, you are in a business partnership with the VAR, and you need to trust them to do the right things for your joint business interests in the account. If you don’t feel like you can trust a particular VAR in this regard, don’t change your program to wrest account control from your channel. Stop doing business with that VAR.

I’m optimistic that adopting a few of these ideas can give you a leg up over the competition in building a productive channel business. I hope that you’ll find this article provocative, if not accurate in your view! This is an emerging, rapidly changing environment. Please post a comment with your own thoughts to expand the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

2 Comments by admin on July 18, 2010
filed in Business Models, Corporate Strategy, Distribution Channels, Product Marketing/Management, SaaS, VARs, enterprise software
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Compensating the High Tech Sales Force

A very controversial topic within many software and other tech companies is how to best compensate the sales force. How much is required? How much is too much? What’s the best mix of salary and incentive comp?

If you’ve read anything I’ve written before, you’ll find my next comment familiar:

It all depends on your particular situation.

There is no across-the-board best practice for optimizing your sales force’s performance via compensation strategy. Every company, market and competitive landscape is different at any given point in time.

Let’s take a look at some of the more common variables and how they might affect your compensation strategy:

Established brand vs. startup
If you’re a startup, plan on paying your sales reps more. It will be harder to attract great reps as a startup, unless you are in a special situation with an incredibly hot new product (of course, every startup CEO thinks this way about their product!). You may need to pay reps a higher base, and certainly richer commissions than your established competitors. Some of this can be mitigated if you are offering an equity opportunity, as discussed later. But for sure, prospective reps need to believe that there is a good chance they can make more money at your startup, or you won’t be able to compete with established companies for the same level of folks. That’s just a fact of life.

Price Point
If your price points are higher, you may need to pay a higher base salary, if the total number of sales made will be low. Lower price points lend themselves to higher commissions and lower bases, because the rep will be able to start making money sooner, and more regularly.

Length of sales cycle
The sales cycle aspect is pretty straightforward, and tied closely to the price point discussion above. Price points and sales cycles almost always have a direct relationship. High price points lead to longer sales cycles, and low price points to shorter cycles. It’s harder to compensate heavily on commission if there is a long sales cycle, because sales reps need to eat regularly, too. If you have a product that takes a long time to sell, make sure that you have a decent base salary for your reps, if you want to keep the good ones.

Growth vs. harvest
Companies generally highly value reps that can sell new products and into new accounts–they want to pay for growth. So the more you are asking your reps to do what is considered to be the hardest thing in sales — sell “new”– the higher the commission structure should be. Selling “new” is the highest form of risk in sales, and it should be compensated by the highest reward. Selling established products and selling into established accounts (harvesting) is not as risky, and as a result can often carry lower commission structures.

Initial sale vs. ongoing revenue
Similar to the growth vs. harvest discussion, sometime you are selling a product that has upfront revenue as well as ongoing revenue, typically from updates, replacements or services. You generally want to pay higher commissions for the upfront portion than you do the ongoing revenue. A good example of this is a traditional software license with an annual maintenance fee. If you pay commissions on the maintenance portion at all, in most circumstances the payout should be lower than the incentive on the upfront license fee.

Commodity vs. missionary sales
Commodity sales lend themselves to high commissions and low (sometimes even zero) base salaries. This is because sales cycles are usually short for commodities, and since they are by definition in big markets it’s easier to make a base level of sales and resulting commissions, even for a new rep. By the very nature of commodities the rep’s service is often a major differentiating success factor, so a comp mix toward commissions rewards the exceptional rep to really work hard. Missionary sales, on the other hand, require a great deal of patience by the rep, as well as a lot of hand-holding and relationship building. To keep good sales reps in such a situation, it’s important to have base salaries which are adequate to enable the best sales reps to exhibit patience with the long sales process. Missionary sales are an area that really demands both high bases and strong commission structures, as they are one of the most demanding forms of selling.

Hunters vs. Farmers
Hunters obtain new accounts while Farmers maintain and maximize the sales into existing accounts. These two situations require two different sales personalities, and the compensation packages should be different as well. The hard-charging hunter will require a decent base salary, but really needs the high commission structure to keep him motivated. The Farmer is likely to be a more stability-oriented, relationship-building style of rep. A relatively higher base and lower commission structure is usually more comfortable for reps in situation.

Equity
In most cases, the playing field is slanted toward established companies when it comes to compensating and attracting sales reps. Equity participation can be the great equalizer for startups in compensation. Every company has a different view of how broadly to offer equity. But a startup that offers equity participation to its sales force can often give up less in cash compensation. For risk-taking reps, equity can even be the deciding factor in recruiting, in some cases. The lure of equity that might grow into a significant stake at a successful startup can help pull a rep from a more established job.

So what specifically should you be paying your reps? Laying out actual numbers is beyond the scope of this discussion, because there are too many factors and potential situations to generalize. All the factors above come into play in structuring a sales compensation package, as well as factors such as inside vs. outside sales. Every situation is different, and competitive factors also come into play, if you’re competing directly with your rivals for reps. Local market circumstances, as well as the overall economy, can also play a strong role in setting the final package.

Above all, if you want to optimize the performance of your sales force using compensation as a tool, you must do your homework. Don’t just quickly come up with something that “sounds good” or is “how you’ve done if before”. Analyze the situation of your unique company at this particular point in time, and at certainly consider at a minimum the factors mentioned above.

That’s my thinking on how to compensate your sales force–what’s yours? Post a comment below or shoot me an email if there is a particular situation you’d like to discuss.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter.

2 Comments by admin on August 17, 2009
filed in Distribution Channels, Startup/Early Stage, sales
tagged , , , , , , , , , , ,

Inside TeleSales versus Outside Sales in Software and High Tech Companies

There are many ways to deliver your software and technology products to the market. For example, one and two step distribution through third party channels, direct marketing/sales over the Internet, OEM relationships and many variations of these, as well as other methods.

One classic method of delivering products to the marketplace is by using a direct sales force. Within the direct sales methodology, two of the most popular variations are an outside sales force and an inside telesales group.

Inside sales forces utilizing telesales are cheaper per rep, so your cost of sales is reduced, and you can potentially afford more reps. Outside sales forces can provide additional credibility and stronger relationship with the account. How do you choose between the two methods? Does it sometimes make sense to use both? Let’s take a look at some of the key aspects to consider when making this decision:

PRODUCT COMPLEXITY AND LENGTH OF SALES CYCLE
Probably the most important consideration in this discussion is the complexity of your product offerings, and the corresponding typical length of your sales cycle. Simple products with shorter sales cycles obviously lend themselves to the less expensive telesales approach. If you have a complex product that requires more in the way of hands-on demos, application engineering and other high-touch sales support, an outside sales force may be warranted.

BRAND STRENGTH AND STAGE OF COMPANY LIFECYCLE
Another important factor is the position of your company in the marketplace. Take an example of two companies selling the same product, to the same market. The newer company with less market presence and a weaker brand may require an outside sales force to maximize its market penetration. The more established brand and company might be able to get by with a lower cost inside telesales approach in similar circumstances.

PRODUCT PRICING
Product price is another important element in this discussion. All things being equal, higher priced products are more likely to require outside sales, while more modestly priced ones may be able to be sold effectively with only an inside sales force. Low price products, unless sold in high volumes, may just not profitably support the use of an outside sales organization.

TARGET CUSTOMER PROFILE
Is the target company large or small, is the prospect themselves young or old, progressive or traditional? It’s important to understand your customer profile and buying style in deciding how best it will be to sell to them. This is of course often decided on a case-by-case basis for individual customers. But in making this decision on how to structure your direct sales force, it’s important to characterize your target market in aggregate. For example, if the bulk of your target market is older, traditional companies and you are trying to sell to their IT departments, you’d better strongly consider building an outside sales force. Many of these customers come from the old “Glass House” era that was dominated by IBM, and are used to having sales people physically call on them. On the other hand, your prime prospects may be in a newer, SMB market segment that has prospects who are more comfortable with remote communications methods. These folks also have less staff, and less corresponding time to meet with outside reps. These targets may be well-served by a competent inside sales force.

HYBRID SALES STRUCTURE
In some cases a mix of inside telesales and outside reps works best. Here are two examples of when this might be optimal: 1) Outside reps for Major Accounts, Inside reps for the rest of the territory and 2) a product with a low sales price that lends itself to an inside sales force, but the product is something that major accounts can use in great quantities, justifying an outside sales force to call specifically on these accounts.

COMPANY CAPITALIZATION
How much money does the company have? Sometimes, there just isn’t enough capital to initially invest in an outside sales force, even if the situation ideally calls for it. In these cases, it makes sense to start with an inside sales force, and do the best you can. There are many ways to compensate in this situation, even if it’s not ideal. We’ll cover the details of this scenario in another article. Suffice it to say that it’s preferable to get by with a sales structure that may not be optimal, rather than bankrupt the company with an outside sales force that it can’t yet afford. I’ve seen this occur more than once in my practice at PJM Consulting.

SUMMARY
Like any other key structural decision that senior management faces in developing a software or technology company, it’s important to carefully consider the details of your particular circumstances. Many times managers will quickly settle on replicating what they know, and are comfortable with from their past experience, or simply attempt to copy what the market leader does. Both of these approaches leave you vulnerable to a potential critical strategic mistake. Be thoughtful upfront in your approach to how to structure your direct sales force, and you are likely to be rewarded with optimal push in your chosen market segment.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on February 5, 2009
filed in Corporate Strategy, Startup/Early Stage, sales
tagged , , , , , , , ,

Structuring a High Tech Sales Force

There are many ways to organize a sales force. In my opinion, there is no one “right” way. There is only the BEST way for unique circumstances of your current company.

Like most aspects of developing a software or technology company, there are guidelines, but no exact roadmap to building a successful sales force. In my practice at PJM Consulting, I often suggest that a management exercise like structuring a sales force should begin with a series of questions:

What stage of development is your company in?
This important, because an early stage company may not have the resources to fully fund the outside sales force that may be ideal for its situation. Or the company may want to sell primarily via an inside sales force, but hasn’t had enough early success or nailed down the sales process sufficiently, to sell effectively through this less “high touch” method. Stage of development can be as important as what the ideal “steady state” organization would look like–don’t over shoot your development stage in designing your sales organization.

What are you asking your sales force to do?
Are you using your sales force primarily as closers, supported by strong marketing, etc — or will your sales force be doing a lot of cold calling, handling the customer “cradle to grave”? In general the more you are asking your sales force to do, the more “high touch” the structure needs to be.

What markets are you targeting?
In some markets (such as many enterprise IT market segments) an outside rep knocking on the customer’s door is absolutely expected, and essential. In other markets (like many SMB markets), this type of attention would be considered a nuisance, not a service. It’s important to understand what the target customers want and are expecting in a sales interface.

What are your product price points?
The implications of this question are usually well understood. High priced products can support a more expensive outside sales force, and may require one to make the sale. Lower priced products can’t usually be sold profitably this way, and an inbound or outbound telesales operation is often the optimal structure.

Is your product more of a commodity sale, or is there a longer, more complex sales cycle?
Commodities lend themselves to lower cost inside sales, as well as a higher mix of channels. The more complex your sales cycle, the more likely your company will need a captive, outside direct sales force.

This is just a sample of key questions to ask yourself as you design your sales function. There are many more relevant questions that should be asked, depending upon the specific situation. I won’t attempt to cover them all, or this article will become a book. Once you’ve done a good job of asking and answering the relevant questions, it’s time to actually start designing your organization. Below are some of the personnel types and organizational structure that a software or tech company would typically consider as part of its sales organization:

SALES REP TYPES

Outside Reps
This is the classic sales rep style that has been around since the beginning of time. In the “old days” even consumer products were often sold this way (those of a certain age can remember the “door to door” Fuller Brush Salesmen). But this is the most expensive form of sales person, and depending upon the market, products and other factors, is not always the most efficient or even effective. There are still a lot of companies that sell almost exclusively through outside direct sales forces. But in companies where they direct outside sales reps do exist, they are often used more sparingly, in combination with other types of reps and channels.

Inside Reps
This is a favorite form of rep for commodity products, companies that sell heavily through third party channels, and inexpensive, higher volume products. Inside reps can also be used effectively in a “teamed” approach with outside reps, helping to optimize a territory. They may source or qualify leads for the outside reps, handle smaller accounts in the territory or generally act as a “junior sales rep” to the more senior outside reps.

Hybrid Reps
This rep type is my own invention (the term is at least). This rep is part outside rep, part inside rep. A rep of this type would be appropriate for those “tweener” products and markets, which don’t fit neatly into a pure inside or outside model. For example, software products with an average sales price of $5-10,000–too low cost to be sold strictly through an outside sales force, but maybe too complex or expensive for a pure phone sale. Hybrid reps spend most of their time in the office on the phone, but also travel modestly, approximately one trip/month. Example trips might be to staff trade shows, visit channel partners and call on major accounts. This type of rep may be very appropriate for early stage companies that can’t yet afford to build out full inside and outside sales organizations.

Sales Managers
This is pretty self-explanatory, but not every tech company can afford a classical, full-time sales manager. Often you will see individual reps reporting to a manager of another function in startups, and occasionally you will see the concept of a “producing manager”, who has line sales responsibilities in addition to management. This personnel type is very important to setting the tone for your sales organization, and is applicable to managing all rep types within any organizational structure.

Sales Administrator
A specialist that you tend to see in larger sales organizations, or at least those that have a lot of complexity (a lot of return activity, inventory management, repairs, rep splits, etc.)

SALE ORGANIZATION TYPES

All of the organizational types listed below can be commonly found as the dominant sales organizational type in many companies, as well as in combination with each other in larger, more complex companies:

Region-specific organizations
This is probably the most common organizational structure, which may include any of the sales reps types, who are assigned to specific territories. In many cases I favor this arrangement, as it tends to be the most unambiguous to measure and manage. The downside is that certain regions can prove to be much more naturally fertile than others, which can make the management process more difficult to do fairly. You also may lose the advantages that certain reps may have in terms of contacts or vertical market knowledge which lies outside of their geographic region.

Channel-Specific organizations
This is the second most common sale organizational type, which of course tends to be found in companies which make strong use of third-party sales channels. There may be a direct sales force, a VAR or retail sales force, an OEM sales force, and so on. Sometime there is an “intermixing of these organizations, for example, an “overlay” VAR channel rep as part of a direct sales force.

Industry-specific organizations
Likely the least common of organization types, but one which is very appropriate in certain circumstances. For example, a tech company which has very different value propositions in a number of vertical industries, where “insider status” in important to selling into a particular vertical market, or the product offerings are arranged by vertical market.

SUMMARY
There are many possible sales organization types and styles for software and tech companies. Many different ways of organizing can work–and the people you have are always more important than organizational structure to your ultimate success. But by carefully considering your company’s specific situa
tion, and matching your organizational structure to your market, products and available resources, your company will have the best chance of achieving sales optimal results.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

1 Comment by admin on November 5, 2008
filed in Corporate Strategy, Distribution Channels, General Management, Operations, Pricing, Retail, Startup/Early Stage, enterprise software, sales
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Channel Conflict

In my consulting practice I’ve done a lot of work with software and hardware companies in channel development.  One of the hardest things to manage while growing a channel business is the inevitable conflict between all the players throughout your various distribution methods, including your direct sales force.

Of course, my colleagues in the channel might say you can limit this conflict by using the channel exclusively. That is the nature of channel conflict—all parties want the business for THEMSELVES. Much smoke is always blown by the various interested parties about what is right and fair, and commitments that were made and so on, but let’s face it—it’s basically self interest. They just want the business for themselves.

So what’s a company to do? Just sell direct, or just sell through VARs, or just sell through retail? Unless you have strict exclusive territories throughout your distributions system, problems will still arise. You’ll always have some kind of conflict (two direct reps or two resellers fighting over who should have an account), but at least you would eliminate cross-channel conflict, which can be particularly complex and nasty.

Limiting yourself to a single channel focus certainly may make your life less complicated, and less rife with conflict. But unfortunately, in most cases, you’ll be leaving a lot of money on the table. If you rule out any natural channels that can sell your product, you won’t be maximizing your return on your heavy investments in product IP, which should be one of the fundamental concerns of any business.

HAVE YOUR CAKE AND EAT IT TOO

So I say, sell through every channel that makes sense. If done poorly, it can and almost certainly will, be very messy. You’ll be sorry you did it, and probably become a convert to a single channel, or at least less complex, distribution model. But it doesn’t have to be so. Yes, you CAN have your cake and eat it, too.

There are many potential channels for your products: direct, OEM, one-step through VARs, 2-step through distributors/VARs, retailers, independent sales reps, strategic partner referrals, affiliates and more. In extreme cases, ALL of these potential channels may be appropriate ways to deliver your product to the market. The question I am often asked by clients is “How do you make it all work without it blowing up in your face?” The way you can do this is to live by two very simple rules:

1) DON’T EVER SCREW A REAL BUSINESS PARTNER

It actually sounds pretty simple and easy. Yet humans can be greedy creatures, and just a little greed in partnering can quickly ruin reputations for a long time. There’s the greedy VAR who thinks he deserves a piece of every deal with any customer within a 500 mile radius of his office—a customer he might have only sent a piece of mail, or cold-called a year before.

But more seriously, it only takes one weak-willed sales manager at a manufacturer or software developer, trying to make quota or maximize his income, to cause real havoc. If he attempts to cut a channel partner out of a deal that they drove, or had legitimate influence on—this is a mortal sin. Your channel partners will be outraged, and they will spread the word and not soon forget. Your reputation has been tainted, and that crucial trust that is necessary to make any business relationship work is now gone. Everything becomes harder. Partners aren’t willing to share information about what’s going on in accounts—maybe even withholding names on potential new deals. A struggle for account control, rather than teamwork, becomes the rule of the day.

So if it is a REAL partner, one who is trying to drive business to your mutual benefit, do whatever it takes to make it right. Give up short-term profitability to maintain a long-term profitable relationship. Don’t ever, ever screw a partner in the name of short-term gain. It can ruin your channel business long term.

2) DO ALLOW BUYERS TO PURCHASE THE PRODUCT FROM WHOM THEY WANT TO BUY IT

If you are honest and fair with people, potential channel conflict shouldn’t unnecessarily stop you from maximizing revenue by using multiple methods of delivering your product to the market. There is a range of customer profiles in the market.

Some want to buy everything through their trusted VAR/Integrator, who helps give them a third party evaluation of the product’s virtues. Others want to deal directly only with the manufacturer or developer of the specific product they are purchasing. A third category of buyers likes to buy as much as possible through their favorite large manufacturer—this is a great reason to OEM your product to the IBMs of the world. In each of these situations, the channel that is best positioned, via relationship or type of support, should and usually will get the deal. If your product isn’t available in that channel, you may not get the deal.

The last category of buyer, however, is different. This is the bargain basement buyer, the one who couldn’t care less who he buys from, as long as he gets the lowest price. These are the people that can wreak havoc on a multi-channel distribution system, if you aren’t careful.

BEWARE THE BARGAIN BASEMENT BUYER

It’s this price-conscious buyer that will often bring cross-channel conflict to the forefront. Since they are seeking the lowest price, they end up shopping the purchase across many potential sources for the product, creating great price competition among your channel partners. This is where conflict is often born. There are many tactical mechanisms to limit these situations (such as deal registration), which I won’t delve into. The main thing to have thought out is where these customers should end up buying. There are two basic approaches:

1) Tell your value-added channels that this price conscious buyer, who isn’t looking for any added value, isn’t going to buy from them. You might decide that this buyer is going to find the lowest price at retail (if that’s one of your channels), or maybe direct if they buy in volume. In this case, it’s important to set those expectations up front when you recruit channel partners. Let potential partners know where they fit, and where they don’t. They can walk away if they don’t like it; otherwise they’ve been warned. This is being fair and honest. Before potential partners invest in selling your products, they should have the real picture of what they’re getting into.

2) Conversely, you can strive for street price equity between channels. This gets tougher to do the more channel types you have, and also the larger your channel is in general. But it can be done. The main thing here is to avoid giving incremental channels discounts based upon volume. If you do, incentives are created for a channel player to discount to achieve volume—thereby lowering their costs, so they can win more business via even more aggressive discounting. This leads to a continuous downward spiral in your street price, and to unhappiness and channel conflict to such a degree that will drive you to drink, or at least a career change. It will get ugly. But if you limit your channels to those that truly are strategic for your product, and which add real value, it can be managed. The key is to set discount schedules based upon value-add and associated costs, rather than revenue or unit volume.

So there you have it. Sell through all the channels your product belongs in. Be honest and fair with you partners. Sounds pretty easy to me! Let me know how it sounds to you-post a comment below to add to the discussion.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

5 Comments by admin on July 31, 2005
filed in Business Models, Corporate Strategy, Distribution Channels, Retail, VARs
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