5 Tips For Evaluating the Performance of a Sales Function
As reported by numerous media outlets and as any Private Equity professional will tell you, merger and acquisition volume has increased significantly in the past year. Money is flowing “freely” and as a result, the competition for small to medium size businesses has become intense and the cost has exploded to unrealistic multiples of EBITDA.
With this kind of competition, investment entities (PE, Hedge Fund, Strategic, etc.) must look for businesses with strong products and/or services…but are perhaps having challenges scaling or have plateaued with the market. As you can imagine, these are harder to find. And once you do, what is it going to take to get the challenges corrected in order to resume growth?
The first response by potential investors is to immediately look at the operations. While there is certainly an art to proper manufacturing, supply chain, and overall Sales & Operations Planning (See 5 Tips for Evaluating the Performance of a Manufacturing Target), operations is more process-based and can be baseline measured in line with KPIs…capacity, inventory, etc. The challenge is how to evaluate the customer aspect of the business.
Often during diligence, the sales “department” is overlooked. Investors look at the product, the channels, and sometimes the customer mix…but that’s usually because they “have a guy” that came from that industry. They rarely evaluate the sales process itself to determine what changes will be necessary after acquisition in order to drive the top line and take pressure off the operational efficiency.
Why is it that the most important part of a company’s momentum…the customer activities…often play second fiddle? The reason is that it’s a much more nebulous set of activities. In first or second-generation companies, the founder was a consummate “sales guy” and built the company on good products and entrepreneurial selling. As a result, nobody knows this industry and customer better so let’s squeeze performance out of the back end.
The problem with this mentality is that entrepreneurial selling can only last so long. It is based on hard work, volume of activity, and relationships. All of which are talent-based and not scalable. Remember…PROCESS is scalable and TALENT is not! So whether you’re looking at a low-to-medium-market manufacturing company or a multi-billion dollar services entity, there are some specific things that potential investors should look at or question when evaluating a “stagnant” front end of the business. Based on our experience, here are a few tips for how to evaluate sales:
- Don’t believe them when they say “we’ll be fine if we just change the compensation structure”
- Compensation is a tool; it’s not a driver of predictable, profitable growth. You have to know what these people should be doing before you know what you’re paying them for
- Can they explain exactly HOW the customers are buying?
- Do they know what the typical sales cycle is, how long, and who’s involved in the buying process? (Finance, IT, Marketing, Procurement, etc.)
- Do the desired daily sales activities (job description and required selling process) match the buying process?
- Is this a “consultative” sale or “transactional” sale? They are VERY different job descriptions and the desired activities should be outlined clearly
- Do they have the tools necessary to manage the sales process?
- Revenue is a result of the right activities; hence, you cannot manage to revenue. The company should be able to clearly articulate the activity measurements and the tools (play books, CRM, comp plans) that drive behavior and sales management decision-making
- What is the role of sales management?
- This role is not simply for the most tenured or successful sales rep. They are people managers who should guide and manage…and not have conflicting motivations between business and rep performance
As you can imagine, getting answers to these questions is only the beginning to evaluating sales performance. There are tricks to outlining the desired activities and driving the correct behavior. But it will give you an idea of how sophisticated (or not) the process is and what is needed on DAY 1 in order to get the growth you need. Just hiring someone who’s “been around and knows the industry” is not the answer. Sales people and leaders can be taught an industry but teaching someone a new “type” of sale takes much longer and is dependent on the level of talent. Which, as you remember, is not scalable. Take the time to learn about the sales end of the business and don’t be afraid to seek help from outside resources when trying to figure out what’s going to drive the right behaviors.
Steven Baumgartner is one of the founding partners of Blossom Growth Partners and a published expert in sales and go-to-market strategy execution. To learn more about Steven and Blossom Growth Partners, visit us at http://www.blossomgrowth.com