Strap on Your Helmets
How is hard-charging Pat Cavanaugh managing hesitant customers and longer sales cycles? He's forecasting 40% growth in 2002.
Pat Cavanaugh is the CEO of an eponymous promotional-products company based in Pittsburgh that had $9 million in sales last year. Cavanaugh the company recently made the Inc 500 list for the third time. Cavanaugh the CEO has been ranked among the top salespeople in his industry.
Inc readers may recall him as the hard-driving, self-assured road warrior who never met a sales prospect he didn't like. (See " The Nonstop, 24-7 CEO Salesman," August 2000.) Things have changed. Sort of. Cavanaugh still adheres to a demanding schedule of phone calls, face-to-face appointments, and road trips in search of new business. But even he has realized that in this economy you've got to work smarter, not harder. Which means that sales planning is more crucial than ever. How do you set a realistic sales goal -- and stick to it -- when so much is in flux? We asked Cavanaugh how he's come to grips with uneasy customers and discouraged sales reps. Despite the daunting challenges, he is still going for 40% sales growth for next year -- an audacious aim that's sure to win him more fans as well as some foes, says Inc senior writer Susan Greco, who caught up with the CEO in late September.
Inc: How do you create a credible sales plan in this economy?
Cavanaugh: For us, the process hasn't changed. When we set the sales goal, we still consider historical data. We look at the performance of each individual profit center and each sales rep. Then there are new services we're trying to promote. Our goal this year was $12 million, and we'll hit it. Our goal for next year is probably going to be $16 million to $18 million. We're hiring more sales reps right now.
What has changed is that we've had to redefine our client base and go back to industries that are not as affected by downturns -- like health care and pharmaceuticals. The economy has forced us to focus on new areas. In the past year we've added three new revenue streams that we're aggressively pursuing. We're taking advantage of our excess capacity in our fulfillment center, for example, to offer a new service, so our warehouse is now a profit center.
The same with our IT and graphics staff -- there's so many billable hours they need to get out. We say to customers, "OK, we know you're not buying pens from us right now, but can we help with your logo design?"
Inc: When do you make your sales forecast for the year?
Cavanaugh: Typically, we put our forecast together in mid-November. Before that, in July, the management team identifies new services and starts to interview clients and do a competitive analysis. In early November we do a soft rollout of new services, and we get feedback from the sales reps. They know their new quotas by mid-December. Once January 1 comes around, it's "Strap on your helmets."
Inc: What would you say to CEOs who are still struggling to come up with a viable sales plan for 2002?
Cavanaugh: There's still time. Review by quarter the past 12 months. Benchmark your results against your goals -- see where you were high and where you were weak as a company. Do the same exercise with each of your sales reps and each of your clients.
You also want to factor in what your own industry and the industries you sell to are projecting for growth. Most people are comfortable with 10% growth -- for whatever reason, that seems to be the number. Wall Street wants to see 20%. It's so industry specific. For some companies the worst-case scenario may be to stay the same -- no growth. Ask your clients what services they are looking for, and then see if you can provide those services and provide them profitably.
Inc: Do you ever change your sales goal midstream?
Cavanaugh: We never change the goal. Never. It's a mentality. If you change the goal once, it gives people a crutch. Even if we're way off base -- and we haven't been, knock on wood -- we don't change the goal.
Cavanaugh: We set a goal for the year, but there's a lot of maneuvering and tweaking that goes on weekly, there really is. There are a few battles you may have to lose to win the war.
Inc: Do you adjust individual sales quotas in bad times?
Cavanaugh: Yes. We'll keep the same aggressive goals as a company, but by rep, everyone's going to be different. We will change the individual reps' numbers either higher or lower within a quarter so they can just hit the goal or pull a little more weight. Some reps are behind this year, and that has meant a lot of extra work for me and for the other reps. But there are times when my numbers are down and I've asked someone else to step up.
Inc: Have you found your customers more reluctant to reveal their plans to you?
Cavanaugh: You can get information, but the information is more vague: "Everything's on hold." We're hearing that from our sales prospects more often. It really tests a company's ability to be flexible and come up with creative ways to get that customer to spend dollars with you. If the customer won't, you need to move on to another client or another industry where you'll get those opportunities.
That's why getting new sales appointments is critical. I have one rep, Rick, and one of his clients spent $100,000 in 2000 but spent nothing in 2001. But Rick's sales still increased about 30% this year because he made sure he hit his new appointments every week.
Inc: You're spending more time helping your reps. Does that detract from the time you have to sell?
Cavanaugh: Yes. It's a fact I don't enjoy. What company owners need to remember is, don't cut into your prime selling time. If you need to motivate people or go on an appointment, do it in off-peak times. Don't cut into your time, or the whole ship goes down.
Inc: Are you budgeting more or less for marketing expenses in 2002?
Cavanaugh: More. Companies right now are probably budgeting less overall. But I think companies that have been through this before understand that if they're able to spend dollars in a situation like this, they're going to reap the benefits when [the economy] comes back out. You've got to have intestinal fortitude. Before, we were spending 3% to 4% of total sales on marketing, including the staff. Now we'll probably spend 8% to 9% so we can promote our new services.
Inc: Are you seeing longer sales cycles?
Cavanaugh: Definitely -- and in our industry, a good three to four weeks longer since last March. Before, the average was four to five weeks to close a sale; now it's eight weeks. I saw that coming, so we did a ton of sales attacks in the first quarter. Our travel budget was up so much, I cringe when I look at that number. But the effort resulted in a number of new, profitable accounts.
Inc: Are customers requesting longer payment terms?
Cavanaugh: Yes. When large companies are dealing with a small company, for some reason they think that adds 15 days to their terms. One thing we've done is get more aggressive with collections. Last April we hired someone just to collect money, and that's helped dramatically.
Inc: Does your M.B.A. come in handy in times like these?
Cavanaugh: Hell, no! Business school has given me a reference point and models I can use when things are difficult. But nothing can really prepare you for the real thing other than getting out there and doing it.
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