Sales: What Works Now
For years the sales just came. Now it's the questions that won't stop coming. Here's how smart companies are tackling today's toughest selling challenges.
Last year Doyle Miller's worst nightmare came true. Sales, once plentiful, had all but evaporated at Optomec, the Albuquerque company where Miller is chief executive. Demand for the company's laser equipment was down, way down. "For the first time," says Miller, "there was nothing on the horizon to help cash flow." Meanwhile, Optomec's two salespeople were still collecting salaries. Out of desperation, the CEO hatched a drastic plan: put the salespeople on straight commission and take away their secure base salary. He knew that carrying out such a draconian decision would probably result in one salesperson's immediate departure. Miller didn't want that. But what, he wondered then, were his options?
Rich McElaney, the CEO of $3-million Micromarketing, in Chantilly, Va., also reached a do-or-die moment. After years of double-digit growth, Micromarketing's sales slid so badly in 2001 that McElaney grew concerned about the company's viability. He too made a plan. The CEO quickly helped his two salespeople focus on new market opportunities among their retail customers and then went about hiring more salespeople. McElaney's plan, though very different from Miller's, was also risky. What if the new sales opportunities didn't pan out fast enough to pay for the newly expanded sales force?
At no other time in the past decade have CEOs and company owners faced such a flurry of sales issues flying at them all at once. Is there something wrong with my selling approach? My sales force? Is my product mix still right? And the biggie: When will things turn around for my industry? Many entrepreneurs, accustomed to good times, have few models or memories to fall back on during this downturn. Some, like Tom Salonek, were just getting started in business 10 years ago. "It was me and the dog, and we didn't know any better," says Salonek, the owner of Go-e-biz.com, an Inc 500 company in St. Paul, Minn. As the years went by and his E-business consulting company prospered, Salonek turned over the role of selling to hired hands. But today he's back in the saddle, riding with his reps on sales calls again. "Now I'm involved with key accounts, and that matters to our customers. I used to think, 'Big deal if I'm there."
Big deal indeed. Salespeople clearly need all the help they can get. Many sales recruits in their twenties have no recollection at all of the last downturn. With a straight face, a young salesman at one company asked the owner, "Gee, what was it like in the recession of '91?"
The short answer: nothing like this recession. "I've been in this game for a long time, and I've been talking to a lot of sales VPs," says sales consultant Robert Miller, author of the classic tome Strategic Selling. "Everybody says exactly the same thing -- their biggest challenge is managing pervasive uncertainty." But it's more than that. Tom Hopkins, popular sales trainer and best-selling author of How to Master the Art of Selling, sees salespeople gripped with fear. "A lot of salespeople have been on the gravy train for the last 8 to 10 years. A lot of sales were handed to people. They are immobilized now."
Before, the sales just came. Now it is the questions that won't stop coming.
Q: Should I be hiring salespeople right now?
The answer is a resounding yes. "Always be closing," a character says in Glengarry Glen Ross. Always be hiring, says Steve Schmidt, CEO of $20-million Abraham Technical Services, in Maple Grove, Minn. "A lot of top-notch folks are currently available, and I would pour all available monies into latching onto some winners," says Schmidt. Others agree that now is the time to snag superstar talent. "Anyone who joins has to be stellar," says Andy Zoltners, a sales consultant, professor of sales management at the J.L. Kellogg Graduate School of Management, and co-author of The Complete Guide to Accelerating Sales Force Performance. His advice: (1) change your hiring process so you're interviewing higher-caliber candidates, and (2) pay more to get the best. "My attitude on compensation is, the sales force is self-funding."
McElaney of Micromarketing did his math carefully before he recruited a top-performing salesperson from one of his competitors. "The person has 18 years of experience in my industry. I knew I'd be forced to pay top dollar to do this. But I've done a lot of payoff models," he says. In his experience, new hires are doing well if they make enough sales to cover their salary and other fixed costs in less than 12 months while they're learning the ropes. His new supersalesperson, he estimates, will be paying his way on a month-to-month basis within 7 to 8 months. "A few years ago I would have dismissed this kind of deal as too expensive, but I did the analysis and was pleased to find it will only take a few midsize deals to pay back the investment," McElaney says.
Q: I can afford to hire only one salesperson. How do I pick a winner?
A recession-proof way to boost revenues is to hire away from a competitor that top-level salesperson who has a ready book of business. Barring that, you're probably going to have to kiss a lot of frogs to find your prince or princess. Lots of salespeople are leaving or being laid off from big companies and failed dot-coms. But are any of those folks right for you?
"Good salespeople are usually 'expressive drivers' like me. And that's who I hire."
Meet Tony Natella, the master of sales recruiting. "Good salespeople are usually 'expressive drivers' like me," the onetime Inc 500 CEO says without a trace of modesty. "And that's who I hire." As you might gather from the psychobabble, Natella is a big fan of personality testing. But that's just part one of his rigorous screening system, which weeds out 29 of every 30 people who interview for sales positions at Diversified Communications Group, a $6-million recruiting firm in Bedford, Mass.
Personality tests are a "convenient way to categorize people, but they're not the absolute truth," says Natella, who puts test scores into context by comparing them with the average scores of his best reps. The bigger test comes when he puts potential salespeople on the phones for two half days to call potential clients. "We listen and give feedback to see how defensive the person is," Natella explains. Many candidates take themselves out of the running after a few hours. "The phone is the big differentiator. It's tough to fake it." As if the phone challenge wasn't enough, the final test is a face-to-face interview with Natella. "Part of being a great salesperson is being able to adapt your style."
Q: What motivates salespeople today?
Before September 11 and before it was clear the economy was in a recession, some salespeople yearned for perks like flextime and less travel. Be careful what you wish for. Now that travel hassles and hesitant customers have imposed more downtime on salespeople, the need for flextime has faded. Make quota and take Friday off? Forget about it. Today salespeople would be happy to just make quota.
The best way you can motivate salespeople now is to establish clear goals for the company and rational expectations for sales performance. In the current economy, for example, you may need to lower the bar on quotas. Or else kick in the incentive pay at, say, 60% of plan.
Training can also help keep salespeople on the straight and narrow and away from depressing thoughts. So fight the urge to delete all training from the budget. "Sales training has made the difference for us," says Verdie Williams, president of Facilitek Office Furniture Systems, a $20-million dealer of Haworth office furniture in Denver. "It has helped keep my eight salespeople focused. They're not distracted by headlines. Even though business is down, there are still projects out there. Training helps us listen better. We're thinking about ways to help customers rather than selling them." Must be working. After suffering several dark quarters last year, Facilitek saw daybreak: in the fourth quarter its number of new accounts was actually about 25% higher than the figure for the same quarter in 2000.
Williams uses a local trainer affiliated with the national Sandler Sales Institute. New recruits undergo Sandler training weekly while the whole sales team attends half-day sessions quarterly. In between, Williams holds weekly in-house meetings that reinforce the lessons and help keep them fresh. One Sandler theme is how to deal with rejection. "We talk about how to get back on track, how to focus again. Salespeople have to fight the urge to give the stuff away. Commissioned salespeople are under the most stress. We don't want our salespeople to feel like they have the world on their shoulders," Williams says.
Salonek, the guy who started out with his dog 10 years ago, finds that his salespeople need a daily pep talk. So he holds a "15-minute huddle" every morning. At 7:25 sharp, Salonek and his six sales reps use their cell phones to dial in from the road to the company's conference call center. They share their challenges and results from the previous day. "Someone will say, 'We got XYZ to commit yesterday, and that's another aerospace customer we can mention," says Salonek.
Another antidote for tough times: weekly and even daily rewards to keep the salespeople psyched. Activity-based pay is an old idea whose time has come again. Salonek, for instance, closely monitors contacts made on the phone and meetings arranged. A salesperson who has been at the company a year or less can net $20 a day for making the daily contact goal. The incentives keep changing; sometimes the reward is simply a free lunch for the winning team. "That makes it more playful. We're not just gutting it out," says Salonek. Some of his special perks -- like naming a salesperson in company promotional materials -- don't cost him anything. "They earn the right to have marketing done on their behalf," he says. "The ads are an expense we would have incurred anyway."
In the end nothing excites salespeople as much as unlimited earning potential. Translation: no cap on how much money they can make, even if it means your number one salesperson becomes your highest-paid person. If you can illustrate to sales reps how they stand to increase their take substantially as the economy picks up, you've got their attention. McElaney tells the salespeople he hopes to snag from bigger companies, "There's no cap on what you can make and no such thing as sales territories. It's open season." That message goes over particularly well right now. "Freedom is a powerful enticement," he says.
Q: I know I need help, but I've tried to hire salespeople in the past, and they never last. Where did I go wrong?
Lots of entrepreneurs expect salespeople to just do their thing with little help from the top. Or they wonder why all salespeople can't just sell, say, the "Microsoft way." Sales veteran Marty Sunde understands that perspective. He spent 18 years at IBM, including a stint as vice-president of Big Blue's North American field operations. To this day his business friends bug him for the "IBM solution" to sales management. Instead, Sunde takes his buddies through the basics.
First and foremost, are the sales goals realistic? That's what he asks when entrepreneurs complain that their salespeople are paid too much and work too little. "A big source of the problem is the company owners haven't forced themselves to sit down and say what their expectations are for the sales function," Sunde says. "It's not an indictment of these leaders. They're so stretched. They want at least one area to run itself."
Sunde has an exercise for you: "Mentally assign yourself the job of lead salesperson. Ask yourself, If you had 100% of your time to devote to sales, what would you do? Who would you talk to? Where? How long would it take you to convert an order, and how big would the order be? I force my company-owner friends to think this through, and I take notes for them. I get them to describe the selling process and assumptions they're making about how products will be received by potential buyers. If you did this many sales calls a day, would you get burned out? How much can one person handle? In other words, you need to ask how much your sales clone is worth to you. I have to force company leaders to quantify all this. Then they realize that it would be wonderful if they could get someone who could do 80% of what they could do personally."
Make those goals part of your modus operandi. At Scientific & Engineering Solutions, in Annapolis Junction, Md., "the company culture is to have everyone bringing in business," says CEO Reggie Daniel. No matter that most of his 130 employees are tech heads, not sales jocks. Through the initiative of one technical staffer, Steve Newcomb, the company turned a small contract into one that landed $700,000. Newcomb's reward? A trip to the Super Bowl. And oh yeah, he collected the commission on the sale. Daniel says he had no problem paying Newcomb a large bonus check. "He did it all, and it's not his job to sell," Daniel says. Newcomb recently got a promotion, too. With employees like Newcomb it's no wonder the company has grown so fast -- 30% last year, to $21 million in revenues.
REGGIE DANIEL: "Our company culture is to have everyone bringing in business."
"I like to see technical people spread their wings," says Daniel, "and they should have access to the business world." His three salespeople and a selected 15 nonsalespeople get paid commissions or bonuses based on the profitability of the sales they help close. While salespeople rely on commissions for about 50% of their compensation, the tech folks have much less income at risk -- at most 25% of their yearly pay. "At first it makes them nervous," Daniel admits. "But for some people once they taste [incentive pay] they do very well."
Q: How does a young company get a break in this environment? Clearly, having a good product isn't enough.
You're not kidding. Talk to Jana Machin and Julz Chavez, of Get Real Girl Inc., in San Francisco. Their product line -- sports-action dolls that look as if they could give Barbie a run for her money -- has won kudos in the toy world. What's more, some of the best independent reps in the industry are pounding the pavement for Get Real Girl. In the past year the sporty dolls (Skylar, the Snowboarder, and others) have blazed their way into national chains such as Target and Toys "R" Us as well as onto the shelves of hundreds of independent toy stores. And yet Machin, the company's president and CEO, and Chavez, its conceptual designer, will quickly tell you those accomplishments are not enough.
A few years ago, when Chavez first dreamed up the doll business, she and Machin couldn't have imagined how apropos their company name would be in a downturn. Both women are out doing floor demonstrations at stores like FAO Schwarz every chance they get. In fact, most of the company's seven employees are actively selling or making contact with customers. Just after Thanksgiving, four of them tag-teamed on the telephone to reach 500 independent specialty toy stores to make sure those retailers were stocked up with the Get Real Girls for the holiday rush. Machin says such outreach efforts "help the small stores want to make you a success."
"Having the best reps is most important."
Unwittingly, Get Real Girl has adopted the strategy pushed by prestigious consulting firm McKinsey & Co. In a recent report titled "Selling in a Downturn," the essential message was this: you've got to work all the angles. Most successful companies are successful in more than one sales channel. The problem is, of course, if you try to be everywhere at once, you could end up just spinning your wheels.
Machin and Chavez, who worked for large toy companies in their previous lives, knew what they had to do first. "Having the best reps is most important," says Machin. "You want the ones who talk to retailers most often." Rather than building a sales force from scratch, Get Real Girl hired a sales executive and signed up 15 well-known independent-rep groups employing about 75 salespeople.
Since signing up the reps, Get Real Girl has pursued sales channels as far away as Ireland and as close as its own front door. Last fall the dolls started selling at Smyth's -- Ireland's answer to Toys "R" Us -- as part of a holiday test with Hasbro International. Now Get Real Girl is negotiating an expanded deal with Hasbro for distribution into other countries. In a more unusual twist, the company also forged a holiday deal with Avon and its network of door-to-door sales reps. But bigger isn't always better. Realizing that Get Real Girl wasn't then ready for the inventory demands of Wal-Mart stores, Machin instead sold product to Wal-Mart's online operation in San Francisco, where her company "could break in gently." In early December, Machin personally set up hundreds of dolls for a one-day sample sale that took place with other companies sharing space in an industrial building in San Francisco. She sold some 350 dolls. "It gave us some cash and lots of exposure," she says.
Q: Are my salespeople feeding me a line? How do I know? How does anyone do accurate forecasts these days?
Salespeople are known for pumping out what the CEO wants to hear. That practice -- some call it the "sunshine pump" -- could spell death for companies that depend on accurate sales forecasts in a time when making any forecast is difficult. The best way to know if salespeople are taking you for a ride is to go along for the ride. Go out on as many sales calls as you can. Be there with your reps. You'll walk away with a much better understanding of what they're up against and how to better position your company in the marketplace. You'll also have a better answer for your banker or angel investors when they ask for the new forecast (and they will).
Keith M. Eades, a Clemson business professor and president of Sales Performance International, in Charlotte, N.C., has a few golden rules for sales forecasting in difficult times. One of his most useful rules, boiled down: Separate sales goals from sales forecasting. "Sales goals should be motivational and exceeded; sales forecasts should be based on accuracy and predictability. Because sales goals and sales forecasts are so closely linked or associated, salespeople and sales managers are encouraged to play games or tell management what they want to hear. Inaccuracy is encouraged if not rewarded. Particularly in tough times, you want to get the salesperson out of the forecasting business."
But to some experts, forecasting has taken on an entirely new meaning. James Taylor, former marketing chief at Ernst & Young, who now is a consultant specializing in marketing strategies for national companies, says you can't do sales projections the old way. He even says that in a constricting economy what companies need to forecast is not new sales to new customers but how much they're willing to spend to retain valuable existing customers. Especially in bad times, Taylor says, the central question isn't "How many new customers can I catch with new products?" It's "How many customers am I willing to lose money on?" Taylor explains: "When times are tough, you've got fewer new customers coming into the market, so you have to worry more about holding the loyalty of your most valuable customers. The critical ability, then, is the prediction -- or forecast -- of loyalty. How much did it cost you to win the loyalty of your customers? And how much of that money are you willing to give back to keep them? That's the central question today."
Q: Is E-mail replacing direct mail? Is direct mail going the way of the dodo bird, or what?
Direct mail has suffered some huge blows, namely, higher mailing costs and the anthrax scare. And the anthrax scare will drive up costs further as the U.S. Postal Service integrates new security measures and equipment. What that means for entrepreneurs is pretty devastating: they can no longer rely on direct mail to launch a new business or grow an existing one.
"It looks like our golden age of direct marketing is coming to an end," agrees Steve Leveen, the owner of Levenger, a 14-year-old catalog of reading-and-writing-related products in Delray Beach, Fla., and former Inc 500 company. The company did not suffer any fallout from the Florida anthrax cases, but Leveen harbors grave concerns for the future of direct mail. He predicts that E-mail marketing will supplant direct mail.
"It's becoming more and more expensive to acquire customers the old way -- by mailing catalogs to unsuspecting recipients," he says. "It's kind of a crazy way to run a business. Response ranges from 1% to 5%; so from 95% to 99% doesn't result in any action and quickly finds its way to landfill. I have to believe postage rates are going to go up radically in the next several years. The anthrax scare is just going to turn up the heat. Companies and individuals have one more incentive to get away from snail mail. And they've become more comfortable shopping online." More than 30% of Levenger customers now order on the Web. "Companies like ours are making much more active attempts to reach current customers by E-mail," Leveen says. "It's more targeted, and we can account for past purchases. We're using technology to be small. We can simulate the small-town merchant. Internet marketing puts a whole new spin on the idea of 'It's cheaper to keep the customers you have."
One caveat: E-mail is not yet a great tool for acquiring new customers. "A paper catalog is still our main way to entice new people to order and to go to the Web," says Leveen. Old technologies, he adds, have a way of sticking around like the fountain pens Levenger sells. "Rising costs will open windows for companies that can mail more economically. There's always an opportunity for new companies to go against the trend."
Q: What selling tactics are out?
Customers are on edge, and you've got to tread lightly. But there's still much debate about what exactly is in or out. "There was a period of too much overselling, teleselling, and selling the future," says Joe Lassiter, who teaches sales management at Harvard Business School. "Customers are not going to tolerate intrusive selling anymore. And they're going to demand that the existing product work and not the next release."
Robert Miller, the shaman of Strategic Selling, will be happy if he never sees another PowerPoint presentation. You may love your product, but flashing one product slide after another is a quick way to never get asked back again, he says. Buyers just don't have the time or the appetite for the kind of self-centered sales pitch Miller fondly refers to as "show up and throw up." He is just as passionately against cold calling, which he labels "barbaric." "Cold calling is a total waste of time," says Miller. "I can't believe anyone still does it."
Robert Miller, meet Robert Pfender.
Pfender, co-owner and director of sales at Cargo Express Inc., an international transportation brokerage based in Yardley, Pa., routinely cold-calls the owners of prospective customers. In so doing, Pfender goes over the heads of those companies' traffic managers, who typically negotiate the rates for transporting their goods around the globe. He explains why he still values a selling technique so many love to hate: "When we go to the regular channels, they'll simply tell us, 'Oh, this is our rate.' You run into a lot of apathy. That's the biggest thing that salespeople in this business are up against. If you tell a traffic manager he could save $10,000 to $100,000, he doesn't really care, because he's not going to benefit from it, and if there's a screwup, he'll take the blame. The owners are extremely aware that there's a lot more to this business than price, and so we approach them from a management perspective. Those are the guys who are willing to pay for premium service, and those are the guys we're interested in. We're not bottom feeders, even in tough times." Cargo Express grew nearly 4,000% from 1996 through 2000, reaching $18 million in sales.
Q: How do I compensate my salespeople when I can't afford to pay a big base salary, equity counts for less than it used to, and the reps aren't making their numbers?
There are many ways to structure sales compensation. If the process is new to you, get a good book like Compensating New Sales Roles: How to Design Rewards That Work in Today's Selling Environment, by Jerome Colletti and Mary Fiss. Once you have a "comp plan" in place, there are basically two schools of thought on how to proceed in times like these. One is not to change the plan on principle. The other is to keep the basic plan intact but add incentives as needed to keep salespeople in the money.
Sure, you're desperate to cut costs right now, and we'll get to that in a minute. But should you use the comp plan as a way of dealing with the economy? Philosophically, it's not a great idea, says veteran salesman Steve Schmidt of Abraham Technical Services. "The temptation is to try to reduce sales compensation in real good times and to try to alter it again in bad times, but that creates instability," he explains. Schmidt, who currently employs 16 salespeople at his company, says that in 10 years of business he's never lost a single salesperson to the competition. "I believe the reason for this is that we have never changed the comp plan. Both my partner and I have been burned at past sales jobs, and we have staked our company on treating salespeople fairly and consistently."
Instead of changing the plan, consider a tactic that's worked well for the advertising sales force at the New York Times. A few years ago the daily newspaper created something it called a "push goal." The idea was to spur on the ad-sales teams when economic conditions changed dramatically. A flat bonus amount is paid to teams that hit a new goal, which is set higher or lower, depending on the external circumstances. "It was designed to motivate all teams where economic conditions had changed for the worse," says Anthony DiCio, who created the incentive bonus during his four years overseeing the 215-person Times ad-sales force as director of finance and administration. DiCio says he also created push goals for teams that met their original goals before year-end so that they would continue to strive to bring in new business.
But what about now? What if your cash flow is so low or sales are down so much that you feel you must change the comp plan? Be clear about what you're doing and why. Growing companies typically don't pay a big base salary -- maybe 40% of total compensation. So a move like cutting out the base could send your salespeople bounding for the door. But there are ways to conserve cash without penalizing good salespeople. Gary Artis, CEO of business consulting firm Artis & Associates Inc., in Charlotte, N.C., gave his four sales reps a choice this year: take the security of having a base salary or take more risk and ultimately make more money. The company now has two basic tracks: 100% commission and small salary plus commission. Within each track, the reps were asked to select their expected performance level. Reps who opted for 100% commission and who perform at the highest level stand to increase their pay by 25% this year because Artis also increased the commission rate they can earn. Salespeople can also take a draw (or a monthly advance against their commission checks).
If Artis's sales reps exceed their goals, there's no cap on their earnings. Artis says this year is only the second time he's changed the sales-comp plan in the company's 12-year history. "We had to take control," he says. "I just hope the salespeople will be honest with themselves and the company."
The Artis approach is not for the fainthearted. Doyle Miller of Optomec was greatly relieved when he didn't have to go with a commission-only plan for his two salespeople. An 11th-hour sale saved the day. "Don't take risks by putting people on 100% commission," warns Kellogg professor Andy Zoltners. "I just wouldn't do it. If you overincent salespeople to oversell, they're just going to piss off customers, and you might lose those customers forever."
Bottom line: before you start mucking with the plan, you have a choice to make, says Harvard Business School's Lassiter. "You have to decide whether you want to have conversations about compensation or booking business. I believe you should keep compensation simple and spend more time talking about how to get the orders. Others believe in a highly tunable pay system that motivates behavior. The debate is as old as the Bible."
Susan Greco is a senior writer at Inc. Editor Christopher Caggiano, contributor D. M. Osborne, and reporter Kate O'Sullivan also contributed to this story.
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Special Report: Sales-What Works Now, Part II