4 Focus Points for Investor Due Diligence of Sales Operations Teams

Are you investing in companies on a regular basis that have a sales operations team? Here’s four things to look for when conducting due diligence on a sales operations team.
As an Angel, VC and Private Equity investor, I’ve conducted due diligence on over 100 + companies and given my skills I always examined the Sales Operations group as closely as the Financial Controls group. So Why is it that almost every VC or Private Equity investor examines all facets of their target businesses with a microscope except for the sales function?
Given that one of the most indispensable determinants of a company’s future success is whether its sales organization is performing at high level or not. When the sales engine is tuned up and performing well, profitable revenue is almost guaranteed. However, during the initial due diligence process, the proficiency of the sales organization to drive future sales and the accuracy of sales projections are rarely, if at all, challenged or analyzed thoroughly.
Based on my experience, the absence of a sales process is prevalent in small to medium founder-based enterprises (including start-ups). With no metrics to guide them, there is limited accountability and as a result a narrow or partial vision of future sales.
Utilizing a metric-driven analysis of a company’s entire sales operations is essential for Revenue Leaders and Investors. This sales management strategy will provide the owners and investors with a complete and more accurate view of the business’ revenue-generating capabilities.
Here are some red flags that indicate that sales operations does not have or are tracking the wrong performance metrics:
1. When a sales organization consistently does not achieve the desired results.
2. When sales projections are based upon the current book of business and do not take into consideration historical data.
3. When the sales pipeline is too optimistic.
4. The sales team is unable to scale existing clients.
It is essential to conduct a quantitative, in-depth analysis of a company’s key sales drivers. Your analysis may open the door for opportunities that offer significant revenue growth or show that the revenue projections are unlikely to materialize or are at risk.
According to the book The 4 Disciplines of Execution by Chris McChesney, Sean Covey, and Jim Huling, the authors discuss the difference between lag measures and lead measures, both of which are important metrics used in sales. The authors define a lag measure “is the measurement of a result you are trying to achieve”; while a lead measure “foretells the result.” When the due diligence process is conducted in a sales infrastructure, both lag measures and lead measures should be utilized. For instance, the data that comes mostly from lag measures, like the past financial performance of the company should be complemented by an analysis of the sales engine that may reveal critical lead measures that are more indicative of future revenue performance.
while lag measures such as sales revenues are easily available during due diligence, sales activity levels are less so
In markets with complex sales, the sales team can generally not control the volume of sales revenues as these results or outcomes require decisions made outside of their span of control control; instead, the sales team can control their level and volume of inbound and outbound contact activities with these prospective customers. So while lag measures such as sales revenues are easily available during due diligence, sales activity levels are less so.
There are four elements of sales operations that are collectively critical factors in a company’s success. These four elements should undergo an in-depth analysis and benchmarked against other top sales organizations. These are infrastructure, organization, process, and support.
1. Infrastructure
All highly-productive sales organizations should have a solid infrastructure in place. Developing a highly effective infrastructure will improve the team’s sales capabilities, will enable better sales performance management, and improve the execution of the sales force. The sales team will only reach its maximum potential and achieve consistent results if they have the infrastructure to support them.
A good sales infrastructure should include documented policies, procedures and activities related to sales performance, compensation, pipeline review, and market/competitive review. Not every sales team uses advanced technologies like local presence dialing or AI, but most, if not all, should have some core tools like CRM that are available to all team members.
2. Organization
When examining the organization you should be searching for these key elements as part of the sales culture: sales structure, territory design, sales management, and sales personnel.
The sales structure should be organized in such a way that will ensure maximum efficiency. The sales structure should also be designed to look at each individual as a team member with a significant role to play, and it should be seen in the light of the rest of the organization — as an all-important cog in the machine. This includes the sales team’s Sales Story (New Sales Simplified, Mike Weinberg) used in its messaging and methods of approaching new and existing accounts.
Territory design is not as straightforward as assigning geographical coverage to the sales team. Apportioning territories require an understanding of factors such as the approach to strategic accounts, competition, and expertise areas. Whatever the territory design, the main goal is always to find as much profitable business as possible. Account-based Management has become a new “buzzword” in sales literature, but it’s just another way to discuss how accounts with multiple contact points should be managed within the organization.
An effective strategy for sales management involves setting goals for team members, providing sales support, training and monitoring the team’s results. It also involves creating or updating the sales team culture and strategy. Questions you should be considering include:
· Do Account Executives (AEs) and Sales Managers have written and definable goals?
· How do Sales Managers interact with AEs, Sales Develoment (SDRs) and product specialists in aligning to the company’s vision and objectives?
· How much time by the management team is spent “in the field” talking to customers?
3. Process
Process includes sales process, lead management process, budget process, and forecast management.
Building a sales process is absolutely necessary for the sales organization. Since the sales process is a set of repeatable steps, the team can easily map out each of the stages by identifying key activities at each stage. For example, at the qualifying stage, sales teams with good processes will know what information is required to determine if their prospect in is the buying window.
An organized and effective lead management process, is designed to identify potential leads and engages with them in meaningful manners and channels. As a result, this lead management process , can ultimately contribute to more sales by creating more engaged prospect leads. A solid lead management process includes identifying and understanding needs, generating and collecting intelligence about leads, and scoring and nurturing leads.
The budget process includes all maters related to the expected volume of sales and selling expenses. A sales organization should have a certain procedure for the preparation of the sales budget. The process should include a review of past budget performance as well as the current and future factors of the marketing environment.
Good forecast management is also an essential part of the sales process. The forecasting process allows the sales team to evaluate current market trends so that informed decisions can be made about sales operations, customer orders, delivery of goods, customer orders, budgets, and inventory.
4. Support
Support encompasses the following areas: sales operations, sales support, systems, and sales enablement. A solid support team will allow the sales team to just focus on the business of selling as they service new and existing clients. Some support functions include keeping track of sales targets, scheduling, monitoring customer accounts, monitoring new sales leads, and managing the correspondence between the sales force and clients.
Parting thoughts:
As part of your investment due diligence, your sales management due diligence should look beyond historical financial performance and examine at least these factors: (1)the sales team infrastructure; (2) the organization’s culture (3) the documented sales processes, (4) customer onboarding/support and (5) the members of the sales team.
