Building a $20 Million Sales Organization
A business does not last long without sales. Naturally, it is the single most important function of our organization that a customer is not paying us directly to advance. The better you are at building custom furniture — the more demand will be created and your craft will naturally progress. The better our software engineering skills — the larger and more complex our projects, often brought back to us by current clients, references, and so on. There’s a natural tendency to focus energy on the practices inside the company that are the real money makers.
There’s also the perception that all sales are a zero sum game — salespeople have to sell to clients even when clients don’t necessarily benefit from the sale. Car dealerships come to mind — while the customer ends up procuring a method of transportation, they transact at a disadvantaged state because the dealer attempts to maximize commissions in the process (misalignment of incentives and outcomes, because I sure am not coming back to buy again after being mislead). Founders of small businesses want to keep writing code, building custom furniture, and doing everything else we love doing as practitioners of the craft, but not selling. Until a day, that is, when we outgrow our organic capacity to close new business. Until a slow quarter forces a company to downsize due to the unpredictable nature of the sales practice.
What is the ultimate objective of sales? Bring in the dough, right? Providing revenue and projects for a business to operate, however, only covers internal needs and endorses a win-lose mindset in the team. We’re not used car salesmen — we want to be motivated and incentivized by our clients success!
We tied our sales strategy to things that are instinctive, natural, and would motivate our teams to make ethical decisions. To our culture and our values. Our objective — to enable our clients to sell more and be more profitable through technology, which essentially aligned to a core value of “Deliver results”. This shifts all of our thinking from “do what you need to do to make money” and into “we love helping our clients and a great consultative sales process is just the tool to guarantee those results”. Essentially, we invest into our sales process and tools because it helps our clients be more successful.
Monitoring Historic Performance for Insight
Our history is somewhat mundane, but worth mentioning purely for context of how we ran our sales. Since our founding in 2008 our revenue grew at a healthy clip of 40% a year, with Inc 5000 listing us at 472% growth during the past three years. We closed 2015 with $11.2M in revenue and have a plan and accounts in place to deliver around $16.6M in 2016. A few years ago I ran our sales department alone. Extreme hair loss and stress aside, it would be a massive exaggerations to say that it was a scalable model or that it met my own standards of quality. What happened very naturally was that my focus kept shifting between managing existing large accounts and jumping on inbound opportunities. There was no outbound strategy. This left money on the table as well as delivered mediocre customer experience due to lack of dedicated attention. And everything was always on fire.
We did learn a couple of things. Metrics always got us excited, so we monitored our pipeline, conversion ratios across stages, channels, number of meetings with a client prior to closing and so on. What we matured into over time was an average sales cycle of six months with roughly eleven touch points along the way. We also found that moving the opportunity through the stages increased the probability of a close. Also, the larger the initiatives we were pursuing — the longer the sales cycle (with $2M+ deals sometimes taking close to a year to close). One thing was becoming clear by the end of 2014 — even with our average deal size growing rapidly we would not be able to scale beyond ~$10M without additional help or change of process.
Structure of the Sales Team
We had a couple of challenges ahead of us. First, we wanted to give our top accounts the attention they deserved because we were under-servicing them and leaving revenue on the table by not seeking out additional work. Second, we had to process inbound business with adequate attention and creativity. And third, we wanted to shake off the dependency on inbound business because it was unpredictable and thus not scalable.
As it often happens in life, my business partner Martin and I went to Dreamforce right around the time we were seeking these answers. One of the speakers was a co-author of the book Predictable Revenue (Marylou Tyler and Aaron Ross) and spoke in great detail about scaling the sales organization through dedicated roles that matched our three objectives — farmers, hunters, and closers. Read the book — the authors do a much better job explaining everything than my summary below.
- First and foremost, Marketing performs some of the supporting outbound activities that a) create brand awareness, b) generate new leads, and c) warms up accounts to a potential conversation with the hunters. The team selects and invests into channels that have a track record of producing results historically. Paid search, organic search, ad words, advertising, trade shows, and all other marketing and PR venues that gets our message in front of clients we target as potential strategic partners. Important to note, but probably not in scope for this article, is that we monitor our “cost per lead” when we do this. E.g. based on total spend across all channels one relevant lead costs us ~$1,500. Seems like a large number, but when you consider the average deal size may be $0.5 million dollars — it is acceptable.
- Hunters are purely outbound individuals that are compensated based on striking up interest at target companies. They’re focused on outbound activity such as calls, emails, and events, but are not involved in closing deals. Think cold calling, LinkedIn activity, attending meet-ups, trade shows, and so on.
- Closers are folks that pick up the lead from the hunter and nurture it into a deal through our sales pipeline. They assemble the pitch team, build the proposal, provide consultative experience to the client based on their vertical, and so on.
- Farmers are Account Executives that have deep domain knowledge of the clients business and generate additional opportunities within the account throughout the lifetime of the partnership. They are the go-to person on the account, the good cop of the relationship that looks out for the clients needs first and foremost (Project Managers should be the bad cops, by the way). Since they get compensated based on retaining and growing the account spend throughout multiple years, their behavior is incentivized based on long-term client success and not short-term large deals.
- Sr. leadership, engineering, design, R&D and other departments support the sales process with tools, knowledge, prototypes and ideas only on relevant leads that mature into opportunities.
Pursuit of Strategic Accounts
Pretend you’re generating ~100 leads a month from both inbound and outbound activities. Each needs to be tracked, called, processed, met with, response defined, pitched, negotiated, and so on. That’s an expensive and labor intensive process, considering some of the leads may be just kicking tires or looking for a service that has no alignment with your overall strategy. Both in terms of your attention as well as number of resources you need to throw at it to create quality for the client throughout the pipeline. Question — are all of the leads then worth your attention? If not, how should different leads be treated? Should we hire more people to process, or be better at determining which business to pursue? Especially if the pipeline is a bit weak this quarter, do we take on jobs that don’t align with our strategy or invest into larger future deals that will help us make up the difference?
Real questions we debated ourselves. We ended up identifying our target buyers, verticals, and budgets very clearly and then eliminating opportunities that did not fit within our model early on. Important note: when I say we eliminated opportunities, I mean that we disqualified self-funded startups that were broke — not well funded projects that may not have been “exciting” for us. We’re very pragmatic about new business — if the client can pay their bills and we are a good fit — we do the job. I see a lot of irresponsible behavior from boutique agencies that make new business decisions based on attractiveness of project alone. From a mechanics standpoint, your sole purpose as a sales organization is to make sure there’s plenty of coal in the furnace so that the expensive consulting resources are never idle. I will concede that as a growing company we did have to define ourselves as we went. Some leads we get today may have seemed a good fit in the early days, yet are automatically disqualified as we mature and average complexity increases. But let’s get back to defining the profile and it will make more sense.
We started asking the following questions on all new leads that reached our doorstep, sometimes using past experience from our most successful accounts to validate:
- What is the role of the primary decision maker during a purchase?
- What industry vertical the company falls into and does it align with our expertise?
- What is the company size — revenue, assets under management, etc.?
- What is the project scope and does it align well with our delivery model
- Is the budget and schedule defined? Does budget align with the typical project we do?
- Is there a quantifiable value that would be created for the client were this project to be completed?
Side note — you may want to build a lead scoring model to get you in the right mindset. There are plenty of articles and books on that out there.
Asking these questions for new business as well as on an annual basis allows us to very clearly define the alignment between the company seeking services and our vision. It also allows us to predict the probability of closing an account based on fit. The better the match — the more energy we invest into an opportunity that could become a multi-year strategic partnership. For example, any time we have a CTO from a Fortune 1000 company in the financial services vertical reach out to us we drop everything and support the sales workflow with designers, engineers, Product Managers, and senior leadership because we know it’s a perfect fit that will blossom into a mutually beneficial partnership long-term.
So to stay effective we need to understand who we sell to, what we’re good at, what verticals we have domain knowledge in, and what criteria of the lead is important for us to effectively predict probability of a close(and then invest money into supporting the sales process).
For reference, we had a total of 500 leads in 2015 out of which we found 60 to be relevant to us and we closed 12 accounts out of the 60 relevant leads that then generated a total of $5.8M of new revenue (accounts we carried over from the previous year account for the remaining $5.4M).
Ideal Deal Size Based on Strategy and Maturity
I’ve covered the processes we’ve followed to separate signal from noise in terms of opportunities we should pursue. There’s another important variable that is largely strategy dependent. Let’s pretend my annual revenue goal is $20,000,000. Using my own example of Devbridge Group I can theoretically deliver two hundred software projects at $100,000 each or ten projects at $2,000,000 each. Just like in the tablet market, you can sell tablets for $50 or $700 each, but those choices will likely determine delivery process, material quality, expertise needed, target market segment, and many other variables. What we’ve found to date is that our sweet spot is delivering innovative, custom enterprise products. Delivery requires large cross-functional teams, an iterative process, and deep practice expertise in UX, engineering, and Product Management. Building small applications, while possible with the same resources and skill set, is wasteful and generates a very significant amount of operational overhead. For the record, our first application in 2008 was built in under a month for $5,000. I also realize our current average project may seem infantile for a global behemoth like Deutsche Bank that spends $100 million with one vendor. To sum this section up — sales strategy should evolve and pursue the business you deserve at your current organizational maturity level.
Increasing Value through Sales Process
Sales can be perceived as a wasteful, time consuming process that delays value-to-market. A new startup in Manhattan laser-scans a 3d model of your body and crafts a perfect fitting suit in just one day — no adjustments or additional visits to the tailor needed. I like 100% cotton Calvin Klein undershirts and I have an annual recurring order that places automatically with Amazon. Amazon, in this instance, has created a value-add tool for me to actually avoid the sales process. I don’t shop for undershirts anywhere else. Ever.
In consulting services (be it innovation, software product delivery, etc.) value is perceived as the finished deliverable — the application, website, algorithm, and so on. How do you accelerate delivery of value to a client when a typical time-to-market for a $2 million project could be a year? That’s a long time to go just on trust alone. Since i’m in the business of consultative selling, every single one of my interactions with a customer should create additive value to the overall deal and accelerate value-to-market:
- Can we accelerate market, user, and functional validation by building rapid prototypes?
- Can we leverage an iterative process to improve upon the original idea and deliver more value for established spend?
- Can our process support micro-releases so that partial value could go to market in a quarter of the time?
- Can we equip our clients with tools that help them embrace our process, gain trust, and focus their energy on long-term strategy vs. project minutiae?
We’ve implement these and many other ideas and, frankly, none of them seem all that revolutionary. They simply follow our company values. Hopefully my experience with Devbridge Group gives you some insight, but I doubt that two companies in the same industry ever follow the same exact path. Feel free to reach out to me regarding parts of the article that I should elaborate on or even spin off as separate posts and I will gladly share. If you sell for the right reasons it is a very rewarding experience. Good luck building your sale sorg and closing those deals!