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BSG From the Boardroom

A curated selection of executive opportunities, industry highlights, and unique insights in executive search.

    CEOs dish on How to Combat "Happy Ears" in Sales Pipeline Management

    OK, admit it.  As CEO of a growth stage technology company, when it comes to your sales team, they all have “happy ears.”  Joyce Durst, former CEO of Infraworks, an enterprise security software company in Austin, TX, used the phrase in describing the eternal sales optimism she and her VP Sales have to counterbalance every week during their Monday morning sales pipeline meetings with their sales team.  You know, this is the optimism that insists that the prospect call that just took place the week before is not only a “sure thing,” but is also a particularly big sized deal, and will surely close before the end of the quarter, with room to spare.   Unfortunately, “happy ears” are the occupational hazard of a good sales person.  These are the ones that as often as not has to take a partially completed beta product, dress it up, sell it into a market where no other solution like it has ever existed, persuade someone that the solution is a “must have,” and then also persuade the other buying influencers within the customer that doing business with an underfunded start-up with perhaps less than 12 months of cash in the bank is a capital idea.

    Working with growth-stage CEOs as executive recruiters, we’re often helping to hire sales VPs that will be able to build and manage a company’s sales pipeline.  Certainly hiring the right VP Sales is an important first step in sales pipeline management.  However, once you’ve gotten the right person in the seat, we asked a dozen or so early-stage technology CEOs what other tools, processes, and mistakes they’ve used or made that have led to their “best practices” for effective sales pipeline management.

    TOOLS (technology)

    Regardless of which tools were the favorites of each CEO, there was agreement that data hygiene was critical

    Chuck Dornbush, CEO of Athenium Software, put it succinctly, saying, “Make sure the data is well organized, and frequently reviewed.”  Another location-based services CEO added, “no matter what CRM tool you use, as CEO you need to make sure every sales person is using it, and using it the same way." Vinit Nijhawan, former CEO of Taral Networks, emphasized that sales people hate to use a system at all; you're lucky to get them to enter the data once, and you'll never get them to double enter for forecasting purposes.  So you need to use the same system for lead tracking and reporting/forecasting.”

    PROCESS BEST PRACTICES

    Meetings 1x-week—sales people defend their new pipeline additions

    One of the above CEOs stated simply-- “Know the basics, and do the basics.”  In more detail, he and several others sketched the basics out.   Have a weekly sales meeting.  For sales people to have a prospect “make the pipeline report,” they need to defend their putting the prospect into the pipeline, akin to a team interrogation.

    7 categories involved in qualifying additions to the pipeline

    Many of the CEOs talked about the minimum information requirements for a prospect to be added to the pipeline report.  Although some CEOs had four steps, and others had up to 40, the core must-haves most often included the following 7:

    1. Budget—-- Is there an earmarked budget set-aside for this category of expenditure?

    2. Need –Is there a compelling need driving the prospect to make this purchase?

    3. Time urgency—--Is there something that creates a sense of time-bound decisioning, or is this an important-but-non-urgent agenda item?

    4. Internal champion—--Is there an individual inside the prospect who's willing to go the extra mile and spend the political capital required to “fight the good fight” internally within their own organization?

    5. Decision making power--—Who holds the real “power” to make the decision?  Can a clear decision-making organization path be mapped?

    6. Clear ROI—--How is the prospective customer going to measure “success” for this product or solution?

    7. Trust-- Both in the relationship between the individual sales person and the individual representing the prospective customer company, and the prospect's relationship with you as a company with whom to do business… do they trust your products, your company, and your sales people?

    Tim Butler, former CEO at SiteScape and now CEO of growing RFID company Tego, said that as a reminder for his sales force, they have adopted a pneumonic, BUTANE--—budget, urgency, timing, authority, need & event.

    Stages of the sales pipeline

    Joyce Durst has her sales team and VP Sales apply a ranking/scoring system for each sales prospect.  If the customer is 50 points or less, they remain on the prospects list only, and don't move onto pipeline report; if more than that, 50-70, they're pipelined for NEXT quarter; if 70-90, they're qualified as “committed;” If 90-100, the prospect is considered “ready to close.”

    Athenium CEO Chuck Dornbush finds that it's critical to “set entry/exit rules litmus tests for each stage.”  One CEO established the rule that “you couldn't allow a prospect into the pipeline until at least their forth stage--qualified, demonstrated, formal price quote, and funds allocated. “

    Other critical ingredients

    Categorize every lead as “hot, warm, cold”

    In addition to assigning probabilities as a percentage, try using some sort of ranking system.  Tim Butler uses another version-- possible, likely, & probable

    Add non-sales peers to pipeline meetings…

    One of the CEOs stated  that it was very valuable to bring non-sales functions into sales pipeline meetings.  He added that personal accountability generated by sales people committing to forecasts in front of non-sales peers in a weekly/monthly meeting environment can do a lot to reduce the “fudge factor.”

    Get the customer prospect to serve as proxy VP Sales for you…

    Former Pantero CEO Pano Anthos who now is CEO of Hangout added a trick of the pipeline trade he's found very useful-- —“The customer needs to sign OFF on moving from one step to another.  Have the CUSTOMER via email play a proxy VP Sales role for you.”  Do this by having your sales person ask for a confirmation by email that the prospect has indeed passed from one stage of the sales pipeline to the next, whether confirming the ROI value proposition, or the budget allocation, or any of the other stages listed earlier.

    If no date for next prospect action step, off it goes…

    “Every prospect has to have an action item by date, or qualify it as 'dead,'” another CEO offered up.

    Kill the bad deals early…

    Many CEOs listed this as critical to effective sales pipeline management.  Slow prospects should be turned over to the inside sales team.  Prospects that are particularly non-committal should get put in direct mail “tickler” mode.   “Stop spending the time on them, trying to actively manage them to close,” Marc Tremblay states, and adds that, “if feasible, you want to focus your sales team more on hunting than farming if you can.  You can get tied into prospects who may take two years to close… “  They may close, but “I always get my man” isn't the most efficient proverb for sales.

    Expect the unexpected…

    When ending the quarter and/or the year there will be sales people who will say, “we'll absolutely close these deals….” Even when all indications say they're done, assume that some percentage will fall out, no matter HOW good they look.  Jim Lawton,  a veteran VP Marketing at a number of venture-backed growth-stage software companies who has seen a lot of sales pipeline management approaches states the reasons can include someone at the prospect company “getting sick, leaving the position, dog ate my homework… expect just about anything.”

    “3x coverage” to mitigate the unexpected …

    Continuing, Jim Lawton added, “If I'm trying to hit 3 million in quarterly sales, I want to have 9 million in the pipe.  Living on luck is tough, and you might hit a quarter or two with a thin pipe where you muscle the prospects and get a blue bird or two, but you'll never make this repeatable.”

    Consider having TWO sales pipelines

    No, this isn't two separate sets of books, nor is this a tool meant to be used deceitfully.  However, one of the CEOs offered up the fact that—--early on at least--there was a pipeline they kept internal, and one the executive team shared with investors that better illustrated the potential traction of their products.  The internal pipeline was more conservative.  As they grew the business, there was a natural convergence of the two into one.  Controversial, yes.  However, in order to manage burn-rates, and make sure you live to fight another day, it's a survival tactic that no doubt many CEOs use, whether they admit to it or not.

    Other Considerations

    When to begin trying to do sales forecasting

    Once you're at what's often referred to by venture capitalists as the “scaling stage,” most CEOs list their pipeline out and begin assigning probabilities.  However, Vinit Nijhawan cautioned that, “You rarely ever hit the forecast you set up.  After you get your 3 or 4 customers, you feel there is a market for your product, but actually what you've done is gotten the really early adopters.  And CEOs then start to scale too early, hiring resources, and making decisions that are difficult to undo.  Instead, you need to be in that strategic marketing role in sales longer than most start-ups might think.  Don't even OFFER sales pipeline reports.  It's not an issue with the start-up's products, it's the market.  Quarter-over-quarter projections are almost impossible.”  So where is the line, and where do you know that you have a product that the market is ready for?  “THAT is the art in sales pipeline management,” says Anthos.  “It's definitely not a science.”

    Strategic consideration in building the sales pipeline--—proper reference customer sequencing

    Another wrinkle in building an early-stage sales pipeline CEOs mentioned was the proper ordering of reference customers.  There is a step before managing the pipeline process or implementing some tool to help in pipeline forecasting.  This is determining what is the optimal sequencing of customers you go to in order to create proof points and references to scale customer acquisition most efficiently and effectively. Do you sell big customers first, then the small customers, or smaller customers and build up to bigger ones?  CEOs concurred, —“It depends on capital resources available.”

    MISTAKES & LEARNINGS

    3 reasons deals don't happen…

    Three major reasons deals don't get done--

    1) Budgets are frozen

    2) Technology shifts

    3) Competition-- you get beaten

    However, there are a number of other reasons in addition to these three that were honorable mentions when talking shop with these CEOs on mistakes they've made and subsequent lessons learned.

    Delegating too much pipeline management to the VP Sales…

    The CEO usually gets slammed because s/he trusted a VP of Sales that hasn't sufficiently vetted the prospect added Anthos.  Make sure you ask the tough questions of your VP Sales as well if you have one.

    The pig stuck at the back end of the python…

    Chuck Dornbush emphasized that he learned early from making the mistake of having prospects move only in a single direction, saying,   “There needs to be two-way triggers at either end.  Something can go from a higher stage to a lower stage, not just upward.  You need to be disciplined in reclassifying each prospect.”

    Forecasting off new sales people…

    Joyce Durst learned that with new sales reps, it's very difficult to “learn them” in terms of their different realism/optimism quotients.  Until you have a good read, go conservative.

    Trusting the “happy ears”--making a process exception…

    One of the CEOs paraphrased what he's heard so many times from his sales team—--“Although our average sales cycle time is 6 months, I'm REALLY confident this one won't be the 'average'… let's fast track it; am sure it's going to close… “  This is equivalent to the pig not entering the python through the mouth, but surgically implanted close to the tail.  And is just about as unrealistic to happen with a python as with your prospect.

    Targeting the wrong people…

    Other CEOs recounted a common sales problem where a sales team was targeting the tech person with a sexy demo-able product, getting great interest, and then recognizing too late that this function had no budget authority.

    Relying on sales channel partners' own pipeline discipline…

    Another CEO commented that to qualify leads from a sales channel partner, it's like the game of telephone.  What is spoken to the first person in a line of people is never what ends up being the message received at the other end… optimism breeds like rabbits.  CEO Durst maintains that if a prospect has been brought in through an indirect channel partner, “and they've gotten us involved, the sales channel rep is put through the same pipeline “challenge” as those sales executives who are selling direct.

    Be more aggressive about accurately qualifying the leads early…

    Tim Butler recounted a circumstance where the prospect was qualified by the sales executive as a potentially very large order.   Because of this, extra resources, time, and effort were leveraged against the opportunity.  It “starts out as a big huge deal, and ends up as a small deal with 'potential down the road,' which creates a real mismatch between deal potential to sales effort.  Cost of sales ends up way too high.”

    The “close” as drug for the sales team…

    Butler added that not only can you spend too much on resources out of balance with the size of the order, but often the sales team has a natural tendency to want to close a transaction just for the high that comes along with it, regardless of the deal's size.  “You end up expending too many resources on the smaller deals just to close them, and therefore starving the larger deals of resources.   There is a natural tendency to lose discipline in prioritizing prospects.  The 'close' is a drug.”  Tim suggests developing incentive structures to get the sales team to do a better job of pipeline prioritization.

    Giving away the store to make the deal happen…

    Often a hidden gotcha in trying to close the deal in technology sales is the development and customization resources committed to the prospect. This can quickly turn a good deal into red-ink resources sinkhole.

    Taking high level executive enthusiasm as surrogate for following the process…

    One CEO talked about a bad experience where they had been trapped several times selling to the pharma industry by taking their high-level executives making global commitments to move something ahead.   They allowed themselves to believe that --because they liked and trusted the people—they didn't ask the standard questions like where is the clear path to success, budget allocation, or who's going to pay for it.  Don't take in good faith that senior level staff executives have access to whatever budget they want.

    Beware of “false summits”…

    One CEO recounted a story where it took more than a year to close a prospect, and the process reminded him of a mountaineering term where you think you've reached the top, only to learn it's just a “false summit.”   On three separate occasions, he thought they'd identified the decision-maker only to learn that it was just the next layer up in a longer process.  He emphasized that you have to ask the questions flat out, “Is the money coming from YOUR account… ?  Are YOU the one who's going to sign the PO.”  It simply isn't enough to ask, “Are you going to be the one making the decision?”

    Beware of “technology shifts”…

    Another CEO offered a particularly gruesome tale of what happens when you get blindsided by a tectonic shift in the technology landscape.  It was a billion dollar technology corporation and a million-plus dollar deal.    The CFO who needed to sign off on the purchase order had a heart attack and the deal got shelved for six months.  Sure enough a technology shift occurred.  He stated that he felt that CEOs don't smell technology shifts early enough.  And he got caught developing his software solution on the wrong platform.   His learnings were multiple—Tech shifts happen all the time, so you have to have contingency plans.  There has to be a realization that you “eat your old,” not “eat your young.”  What technology companies do more often is eat their young by canceling development projects before they make it out of the womb.  They're not willing to suffer short-term pain for long-term gain.

    Beware of acquisitions…

    Jim Lawton recounted a story that--—although having a silver lining—--made him very aware of the unpredictability of closing a customer.  Jim's company had done a pilot, the ROI was there, they were “cruising through the sales process, and dotting i's and crossing t's all the way along.  Even the CFO says it's doable.”  Then Lawton learns that the prospect has been acquired  possibly scuttling any chance of a deal.  In this case, however, the CFO recognized the potentially significant benefits for the acquiring company as well as for his own – and working closely with Lawton's team, developed a pitch that extrapolated the results and opportunities in a broader context.   The CFO was became the internal champion, and pitched the solution to the CEO of the acquiring company, which ultimately gave its approval for the investment to be made in Lawton's technology.  Lawton's lessons for managing the sales pipeline at risk? 1) Short term ROI levels the playing field of change.  2) Understand a prospect's own agenda – in this case, the powerful ROI provided on plank in a platform for lobbying for job security and new opportunities  3) Never give up on a prospect, even when the odds seem insurmountable.

    Your sales force needs to be able to sell both outside AND in…

    Another CEO recounted hiring a sales executive who had been an engineering support person and wanted to transition into sales.  He was the antithesis of the sales guy; wasn't well groomed, didn't look good, was a bit clumsy in social skills.  The CEO's instinct was that this person could do the solutions selling required, and the candidate could really understand the customer, because he'd BEEN one at one time.  The first deal this sales person brought in required some custom work from engineering.  It turned out that he was really good on the customer side, but HORRIBLE inside the company, building the support  & coalition required to deliver the ultimate product promised to the customer.  The CEO's take-away from this experience is  that a good sales person doesn't just have to be good selling on the outside, but also on the inside.  And this is particularly true in start-ups because inside resources are ALWAYS over committed, so skills required to lobby for mind share within your own company are essential.

    Have more than one touch point within the prospect…

    As a punctuation to all the feedback CEOs offered on the topic of sales pipeline mangement, yet another CEO gave their worst mistake, and how it's changed their sales pipeline management process forever.  Her sales team had identified a prospect's CIO as the power and the champion within his company.  There were continued promises that the purchase order was forthcoming.  After several exasperated attempts to determine the hiccup, they learned that the CIO had “fallen out of favor” with senior management because he hadn't delivered on another technology implementation, so wasn't going to be given any authority to take on more responsibility.

    [Originally authored for publication in Mass HighTech]

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    -by Clark Waterfall on Sep 27, 2010 2:40:32 PM

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