Too Little Revenue? Before Firing Sales Reps, Look At Your Value Chain

So what is the one thing that I most commonly hear when having an initial discussion with prospective software CEO clients? It is something like: “We have no sales”, “Our sales are below expectations”, “We aren’t meeting our Series A revenue milestones”, etc. You get the picture. The lifeblood of ANY company is sales. There are almost NEVER enough sales in any company. Either you don’t yet have any, they are too meager to fulfill your dreams, or you have boatloads of sales – but are just greedy for more! Occasionally I’ll run into a manufacturing-based tech company that temporarily has far more demand than the ability to fill orders, but we call that a “rich man’s problem”! It’s not generally a problem that you tend to see in the average SaaS or mobile software company, where the “delivery link” in a software product value chain analysis is normally much less complex than in a hardware-based business. While too much demand still technically qualifies as a problem, it’s a much more pleasant one! And it’s generally more straightforward to fix than that more common “too little sales”. But I digress…we’re focusing on sales shortfalls in this article.

So, too few sales. Who’s the first that gets blamed for this situation (or at a minimum the first area scrutinized)?

The SALES department, of course. Why wouldn’t it be?!! Yet in fact, many times that is the LAST place that I look to solve the situation, not the first. This may sound odd to you. Let me explain…

Your entire value chain must be “clicking on all cylinders” for sales to happen, not just your sales department

Starting from the very beginning of defining the potential market, planning the initial product offering, coding the product, testing it for bugs, etc, etc all the way through the sales process itself and even customer success, once the product has been delivered. For example:

• Was the original definition of the product appropriate given the needs of the target audience?
• Is the user interface intuitive, or at least not unusable?
• Is the product “full of bugs”
• Were enough development resources devoted to introducing the product in the timeframe necessary to achieve market acceptance?
• Is the marketing budget adequate to achieve the stated goals?
• Do you have the right marketing staff?
• Are you generating an adequate number of leads?
• Is the definition of a “lead” defined appropriately and are the leads of adequate quality to allow the sales folks to close sales?
• And many more, this is just a sample of activities that often go wrong earlier in the value chain

Any and all of these complex steps can kill a sale BEFORE THE SALES REPS EVEN GET INVOLVED, if each activity isn’t being performed at least to some reasonable, minimum level of competence. If any of these multiple steps aren’t discharged at this minimum level to enable reps to complete a sale, that link of the value chain is broken, and no sale will occur.

The Sales department is at the END of the value chain in any product-based sale

Looking first at sales activities and personnel when there is a shortfall in sales seems logical when thinking about the problem simplistically. But this is starting at the END of the value creation chain process, not the beginning. Of course, you can start your investigation at the end and work backward, if you wish. But I find that reviewing the value creation chain sequentially from the beginning is much more logical and simpler to follow. In addition, in most tech companies, sales don’t make up anywhere near the majority of the complete sales creation value chain. It’s actually much earlier in the tech product value chain where the most important links reside – in the product development process.

In a software company, product development is usually the most important component in a value chain analysis

I’m not talking simply coding here. Holistically, the product development process requires considerable support in the form of research, product management, project management, and more. There are many ways to screw up software product development beyond just writing bad code. I won’t go into more details here, as this is a complex topic with a lot of different angles. You can check out this product planning article as a first step, if interested.  Suffice it to say, in a product-based software company if you don’t get the product “right”, usually little else will matter. Silver-tongued devils in the sales department will have little success selling a bad software product. Some may disagree with me here, but that’s just a fact of life in high-tech product businesses. To clarify, I’m not saying that sales, as well as other downstream customer and market-facing activities, aren’t important – THEY ARE. Effective branding, adequate marketing budgets, sales force skills – all of these and much more matter a lot in your ultimate success – don’t ignore them! But the possibility of success in these later-stage value-creation activities is highly contingent upon a minimum level of competitiveness being built into the product itself during the product planning and development cycle.

Work from the beginning of the value creation chain and go forward when evaluating a sales shortfall

I have a workflow that I typically use in any sales shortfall analysis, assuming no upfront “hints” as to where the most significant issues lie. Sometimes in my initial discussions with senior management, a particularly weak link in the value chain becomes quite apparent. But again, more often than not the CEO believes that the sales shortfall is a “Sales Department issue” and either wants to either start there or focus exclusively on that area in a mobile software or SaaS value chain analysis. Unless there is good, obvious data pointing to this, I try to dissuade them from this approach and ask them to be more open-minded about where the issues may be. So without any good reasons to deviate (or a hard client directive), I usually use the rough order below to direct my analysis:

1. Product Research (usually led by a joint venture of Product Management and lead developers)
2. Software Development
3. Go to Market
4. Ongoing marketing/lead gen
5. Sales!
6. Delivery/Customer Success/Account Management

 A full, objective third-party value chain analysis is often eye-opening to senior management

Look, no business is perfect – at least I haven’t seen one yet. That’s particularly true for less mature early-stage companies. There are generally issues that can be improved upon in every department of every company, no matter how large or small. Continuous improvement is the essence of executive management, in my opinion. Once you think you’ve “made it” and just sit back and relax, you’re positioned for a fall. SaaS and mobile software businesses for sure are constantly changing and evolving, especially due to changing technologies and dynamic market segment conditions. If you believe this, looking for and finding these issues are nothing to be embarrassed about. The more you find the better! Although it certainly doesn’t feel great to find issues in your mobile software or SaaS value chain, this is the first, ESSENTIAL step to improving your value creation process. And guess what, that’s actually what leads to solving that sales shortfall that was the initial cause for concern!

Yes, value chain analyses such as I describe in this article can be (and should be regularly) conducted internally by software product businesses. But I believe strongly that bringing in a third party with some frequency, certainly in times of crisis at a minimum, can add a lot of value to debugging the value creation chain:

• Third parties can provide a fresh, outside viewpoint and can generally be more objective about the “baby being ugly”
• A skilled consultant is usually able to be more honest and transparent than an internal evaluator, as they aren’t subject to internal political factors (EVERY company has politics)
• The right consultant has analyzed many companies and is aware of common patterns to look for
• A skilled consultant can bring in new best practices from companies residing in different market segments or operating styles

That’s my case for a regular evaluation of your mobile software or SaaS value creation chain in a software product business, including getting a third party involved when you have serious concerns about revenue shortfalls. Please add to this discussion by posting a comment with your own experiences, viewpoints, and questions.

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