What are the organizational implications as a company grows?

The evolution of the sales function in growing companies can become quite complex depending upon the industry and customers served. Several of the big questions that should be considered at each growth inflection point revolve around what approach to selling to customers is likely to work best. Options often split easily into two big buckets: should the company sell its offerings directly via a direct sales force, or indirectly through other channels? The answer is predicated on a number of different variables & considerations, including but not limited to whether the company is selling products or services, selling to a business versus a consumer, what is the price range of the offering, and in what geographies are offerings sold.

KEY VARIABLES IN DETERMINING DIRECT OR INDIRECT AS BEST

Product or service?

One of the first critical considerations in determining whether a direct or indirect sales approach is best is whether a company is selling a product, service, or combination of both. Often services are easier to sell using direct sales tactics. And the more expensive a service gets, the more success is achieved via direct sales initiatives.

Selling to a business versus a consumer?

A second consideration in determining whether to sell direct or indirect is whether the product or service is being sold to a business or a consumer buyer. There are many examples of direct selling of consumer products across the last 100 years. Encyclopedias used to be sold door-to-door. Cosmetics were sold using what was termed “network marketing” popularized by the likes of Mary Kay & others. Even the selling of high-end knives was met with huge success via a mass army of Cutco sales representatives. While there are good examples of success using either sales approach to sell almost anything, the Internet & e-commerce have more recently often disintermediated the direct selling approach of consumer products. There are however some general principles at work that can help assess which channel may work best, and, more often than not, consumer products don’t sell at scale as well using a direct sales approach. Rather, either indirect, channel, or e-commerce have become the most popular. Indirect can be defined as selling products through a dealer, a distributor, a retailer, or via an e-commerce reseller. When working with an indirect sales strategy, the maker doesn’t usually have last-mile responsibility for marketing and selling the product or service to the end user. Additionally, a maker’s products might go through several levels of reseller channels before they get to the end user—first to a wholesaler, then potentially a regional distributor or dealer, and ultimately to a retailer or last-mile reseller.

In what geographies are products and/or services being sold?

There are other considerations to factor in when deciding how best to go to market with a product or service. And in certain circumstances, the best answer might be “both.” More on this below. But first, it’s worth exploring in more detail each sales channel and further nuances that reside within each of the DIRECT and INDIRECT selling strategies.

DIRECT

With direct sales, the company sells directly to the end customer. Depending upon the industry, this can be achieved by either or both direct methods:

• A direct sales force
• E-commerce

Inside Sales vs. Outside Sales

Often there is an economics calculation run on which direct sales approach is the right one. See the MARKETING section for more on helping tease out some of the decision-tree options involved in crafting the right go-to-market strategy. In the marketing section, considerations are discussed around 3 key factors impacting both marketing approach and sales structure:

• Is the business selling a product or service?
• What is the product or service price range? Sub- $2,500, $5,000  $25,000, and greater than $25,000?
• Is the customer a business customer (B2B), or a consumer (B2C)?

Selling price range

If what is being sold is on the lower side, it often doesn’t make sense to sell with an outside sales approach. This is because outside sales usually come with a much higher per-employee carrying cost.

INDIRECT

Indirect sales can be achieved via several channels:

• Distributors

Distributors are often called “independent representatives” and sell more than one company’s product. These distributors focus on customer relationships into which they can sell multiple lines of products that are noncompetitive. Good examples can be found in the healthcare provider industry like hospitals and medical practices. Distributors develop relationships with these customers and then bring in relevant products to service the healthcare provider’s needs, both durables (equipment) and consumables (single-use supplies like bandaging or other disposables).

• Dealers

Dealers differ from distributors in that they often have a closer relationship with the company’s products & services, often working exclusively on behalf of a company. A dealer often purchases inventory from a distributor, and then sells it directly.

• E-commerce/third-party e-commerce marketers

For some products and services, e-commerce may be the primary or supplemental channel of choice as it generates the greatest reach, and best automated purchasing platform to reduce the cost of sales. There are several options when undertaking e-commerce as an indirect sales channel. The first is to set up the e-commerce capability on one’s own website. A second is to sell through a larger e-commerce “portal” (e.g. Amazon). A third is to enlist the help of an e-commerce marketing entity that will effectively be the e-commerce outsourcing partner for this channel.

HYBRID SALES CHANNELS

As mentioned above, there is often a compelling case to combine sales approaches in the same markets. It could be that as a company grows it decides to build out a 3 or 4-pronged sales strategy combining some or all of the following: direct sales in circumstances where customer ownership is critical to the future of the business; Indirect sales when targeting lower priority customer segments, smaller markets, geographies, or business sizes; and E-commerce when selling either directly to customers via Internet presence, or via third-party e-commerce marketers. The following is what some of these hybrid combinations could look like, where each hybrid structure begins with a direct sales force targeting customer groups with whom the company wants to retain the closest control and contact —

• Key customer industries or segments
  • Example hybrid sales strategies
    • “We want to sell to all hospitals directly, but will engage an indirect distributor model to sell to private medical practices & providers”)
    • “We want to sell into the government sector directly, but will sell through resellers, distributors, and channel partners into the commercial customer segment”
  • Key geographies
    • Example hybrid strategies
      • “We want to sell direct in the U.S., but will use dealers or distributors to sell overseas”
      • “We want to sell direct in those geographies where we have a lot of customers concentrated, but in those more rural markets, we’re going to use a channel distribution method to reach those customers” (our customers seem to cluster in “NFL cities” and so we’ll go direct there, but sell through the channel in all other markets)
    • Key customer sizes
      • Example hybrid strategies
        • Selling directly to the enterprise business customer (“large business”) while pushing out to dealers, resellers, and distributors the small-medium business customer and SOHO customer (small-office-home-office)

A term that has become popular to describe multi-channel sales strategies that cover most if not all channels is called “omnichannel.” First coined in the marketing function as “omnichannel marketing,” it’s carried over into the sales function to describe taking multiple simultaneous approaches to selling.

Note of caution here is important: the more multi-layered a sales function becomes, the greater the chance of what is referred to as “channel conflict.”

The Evolution of Sales Talent as a Company Grows

In addition to determining whether a company is going to sell direct, indirect or a combination of both, there are several additional growth inflection points in a business where sales is likely going to need to be reimagined.

“Hunter” vs. “farmer”

This is a term often used to describe two different sales responsibilities that become quite important to consider separating as a company grows. At the beginning, when initial new customers are the primary objective, the focus on sales talent that can convert the first generation of customers is critical. Often referred to as “lighthouse” customers, these “logos” once converted help a company achieve the tipping point for other customers who are slower to bring on board. And these sales talents are often called “hunters.” However, once a meaningful number of new customers have been acquired, layering in a second sales team—often referred to as “farmers—can be very important for several reasons:

• First, it frees up the “hunter” sales team to go out and land new logos, instead of ministering to existing customer account management responsibilities.
• Second, “hunters” are often more motivated by finding “new,” breaking new ground, and blazing new trails. They’re a bit of a pioneering mentality. Conversely, “farmers” are strong at relationship management, and often better suited for the “expand” portion of the “land-and-expand” sales playbook.
• Third, “farmers” usually are compensated with a more modest incentive structure than “hunters,” and therefore allow for more flexibility in pricing and margin retention as a customer relationship grows, sales volumes grow, and often customer pressure for volume discounting sets in.

Type of Sales Skill

There are many different sales personas that a company may transition through as it grows its customers, products, market, and global footprint.

Earlier in a company lifecycle, sometimes referred to as the “Emerging” stage, one of the key skills a sales maker needs to possess is that of selling the “what if.” “What if I could [solve this problem for you]?” The goal of selling this way is to test the product-market fit. How do customers respond? Are they eager to buy it if it could be made? This sales approach can be called the “Evangelist” seller. It is as much market research and field market testing as it is sales. This is because sometimes the product doesn’t exist yet, in software industry vocabulary referred to as “vaporware.” Or other times, it exists, but only in alpha or beta phase, not ready for prime time/commercial release.

At the next stage of company success, the opposite of this type of seller persona is often the case—one instead predicated on a pre-existing set of “lighthouse customers” that have already been won and can be used as references. This seller persona is very good at selling the “FOMO” (fear of missing out”). “These companies are already our customers & clients, should you be too [or worry about being left behind with a growing chasm of competitive disadvantage]?”

A third sales persona adopts what has been called the “Challenger” selling model. This is a more recent sales technique where the seller is trying to push into a fairly mature market, often with a lesser ability to expand the total industry CAGR, but rather has to “steal [market] share.” The Challenger Sales Model was created by Matthew Dixon and Brent Adamson. They introduced this sales approach in their 2011 book "The Challenger Sale: Taking Control of the Customer Conversation." The model is based on research conducted by the Corporate Executive Board (CEB), which is now part of Gartner. The Challenger Sale posits that the most effective salespeople (Challengers) succeed by challenging customers' thinking, offering unique insights, and taking control of the sales conversation.

While these three seller personas demonstrate the evolutionary growth and need for reimagination of the sales team and their approach to the market, there are many more sales models and seller personas that may be ideally suited for different stages of company growth.

Sales Makers vs. Sales Leaders

One of the biggest challenges in a growing organization that needs to grow its sales force is finding good sales manager/leaders. Often, a company is tempted to promote the best individual sales maker into a management role. The positives of this move? It’s promotion from within so good for company morale, the new sales manager has built as a prior individual contributor great product knowledge, customer following, and cross-functional relationships within the company to help remove or reduce obstacles to getting a sale closed. However, a lot of research has been done disproving this “promote from within” as the best and natural course when it comes to the sales function.

One author who has written extensively about the potential pitfalls of promoting top-performing salespeople into sales management positions without proper consideration or training is David J. Cichelli. He is a recognized expert in sales compensation and sales effectiveness. In his works, such as "The Sales Growth Imperative" and other writings, Cichelli addresses the complexities of sales management and the distinct skill sets required for sales leadership compared to those needed for success in direct sales roles. He emphasizes that success in sales does not necessarily equate to success in sales management, highlighting the importance of selecting candidates with the right qualities for management roles and providing them with appropriate training and support.

Changing Sales Territories

Often as a company grows, the initial larger territories should be re-evaluated to determine whether meaningfully more sales revenue can be generated by increasing the concentration of sales assets. A popular growing pain with a company occurs when sales makers reach their earnings “happy point.” If this occurs before the territory is saturated and market share is maximized, then there is meaningful revenue left on the table.

Changing Sales Compensation Plans

Certainly, when sales territories change, it may impact incentive compensation. A sales maker may have to work harder for the same earnings as their territory shrinks. Further notes on the changing landscape for sales incentives as a company grows.

• Incentive compensation ceilings: Sales compensation early in a company’s lifecycle is often “uncapped,” and if a sales maker sells a lot, they make a lot. It is not unusual to have sales team members who are “evangelical hunters” earn more in annual compensation (base plus incentives) than the CEO of the business. As a company grows, often incentive caps become more popular, again in an effort to pull back some of the sales margin to the company rather than the sales maker. Challenges in capping sales incentives, however, include the possibility that top performers will leave in search of younger companies that have yet to place any incentive limits on superstar sales performers.
• Base to incentives ratios: Earlier in the company lifecycle, usually the ratio of base salary or “guaranteed draw” to incentives is in the 50%/50% to 65%/35% range. However, as a company grows, there is often a movement to higher guaranteed compensation and somewhat lower incentive earnings plan. Common ratios base vs. incentive compensation fall in the 70/30 to 75/25 ranges.   This usually reflects the fact that a company’s products & services are now better known, they’re easier to sell (requiring less on the incentive side to motivate the sales maker), and the company has an ability to fund guaranteed sales compensation, while reducing top end incentives, therefore increasing sales margins.
• Channel conflict & incentive compensation: One of the challenges in a growing organization is managing incentive sales compensation when multiple sales channels are operating simultaneously. Often, a best practice is to compensate existing sales makers with smaller but consistent incentives over sales that occur through other channels beyond their own direct efforts. This could be sales that occur through indirect/channel sales partners like dealers or distributors, or that take place in a geography outside a sales maker’s assigned territory but with a company’s headquarters location residing within their territory. Examples could be sales that occur outside the U.S. but where the global headquarters is located in the U.S. in a sales maker’s territory. Another important consideration in crafting a successful sales incentives framework surrounds customer referrals. It is often best to pay a lower sales incentive to a sales maker who finds an opportunity outside their core focus in order to motivate them to refer it to the sales asset who is most likely to be able to prospect and close that new customer. Without referral incentives, all too often customer prospects end up orphaned because of a lack of WIFM (“What’s-in-it-for-me).

As a company grows, other titles and responsibilities may be combined within the VP Sales role. One of the most popular is to create a “Chief” role out of sales, often called a Chief Revenue Officer, or Chief Commercial Officer. The CRO may have increased responsibility beyond just sales to include marketing, business development, partnerships and more, effectively being held accountable for anything and everything that drives potential revenue. The Chief Commercial Officer may also include functions like customer success, professional services, and customer service.