It’s time to get your Ph.D. in Sales Comp
A few years ago, I was working for a large company here in Austin. This company had recently acquired a series of software startups and was attempting to integrate them into their larger hardware portfolio. The product team I managed was responsible for the integration, product management, and transition. What I learned during this time about Sales behavior was a shock to my system – and may help you as well.
Imagine a Fortune 100 company: large, established, incumbent. Also stale, bogged down in red tape, and struggling to innovate. A typical move for a large company is to inject innovation through the acquisition of a smaller company. Often, this makes great sense on paper – the bigger company gets access to technology and talent they don’t have, and the smaller company now has an opportunity to both cash in their hard work and take their products to a much larger audience via an established sales channel. If you’ve worked in the industry for any length of time, you’ve been through this cycle from one side or the other. Unfortunately, what looks good on paper can quickly go astray if you don’t understand Sales and the tools you are giving them.
In this case, my team had responsibility for four to five smaller acquisition company products and portfolios. Luckily, the larger company had done a good job acquiring companies in the same area who had complimentary products, both to each other and to the larger company’s hardware devices. Essentially, our new software portfolio provided ongoing systems management for the hardware that made up the mainstay of the larger company’s business. If we could simply start to attach our software to the millions of dollars of hardware deals that were already happening, there was a great chance of success!
To make this picture even more attractive, the larger company’s hardware business was undertaking a long, slow decline both in revenue and profitability. They were averaging single digit gross margins on hardware, whereas our software was achieving typical software margins in the 40-60% range and higher. By all rights, it was going to be an easy win…until we starting training the larger company’s Sales teams.
The first time we trained one of our hundreds of new Sales teams, we knew we had an issue. We did a “lunch-and-learn” where we fed the team pizza and spaghetti, while one of our product managers did a demo of the product and talked about how it was complimentary to the products they were already selling into their accounts. The Sales team was polite and listened while they ate for about thirty minutes. Then, everything went wrong.
At the end of the presentation, the Director of the Sales team stood up. He looked straight at my product manager and said:
“John1, I want to thank you for that great presentation. I think we all now have a clear understanding of your product, its pricing and competitive positioning, and how it can help the company. I understand that the CEO has identified this as a strategic product. And you know what? We are never going to sell it.”
Needless to say, that was not the reaction for which we were hoping.
John tried to recover by asking the Director why he felt that way, and the Sales Director responded by saying:
“To your credit, this does seem like a really good product. But, it doesn’t match up with how my team is rewarded. Right now, software sales represent 10% of our quota, and hardware is 90%. If one of my guys blows up his software number and misses his hardware number, he is fired. If he blows up his hardware number and sells zero software, nobody cares.”
Very quickly you can start to see the problem – even though the company had spent millions of dollars on this acquisition, they had not put the tools and behavior modification in place with their existing teams to make it a success.
At this point, we needed to get educated (quickly) on how Sales at this company was motivated. Our next stop was Finance. We scheduled a meeting with someone that Finance identified as the “Genie of Sales Compensation.” When we sat down with the Genie we asked her to show us how Sales was motivated, quota’d, and bonused. That was when she opened her manila folder, and took out a taped-together 3×3 matrix of legal sized paper, upon which was printed in 6-point font an Excel spreadsheet containing approximately three dozen rows representing the different sales teams, and about fifty columns representing various ways the Sales teams were measured. Some Sales teams had thirty or more variables to determine their quota attainment.2 In short, you needed a Ph.D. in Sales compensation to understand this system.
Many people refer to Sales as “coin operated,” by which they mean that Sales operates in whatever way will help them get the most coins. This is exactly how you want Sales to act, but it reinforces that if you aren’t very clearly part of their compensation, they won’t spend time worrying about you, regardless of how strategic or important to the business you think your product should be.
In the end, we found that adjusting the Sales teams compensation models to account for our products was so fraught with politics and peril that it was doomed to failure. Prioritizing our products in terms of comp meant deprioritizing someone else’s products, and every Sales comp line had an advocate in the form of a powerful executive for some other product. That is when we realized that we needed to sidestep the issue by creating our own overlay Sales team that was only measured on our products. This worked, but only after a lot of pain and suffering.
This month, Pragmatic Institute’s bloggers are going to be writing a lot about various Sales tools and ways we can enable Sales teams. Remember however that the number one most powerful Sales tool in the Product Team’s bucket is the compensation model. If you get this wrong, or your product is not represented in it, it will not matter how slick your competitive training is, or how good your positioning is, the strength of your competitive analysis, or how well you priced your product. As the CEO of your product, you must understand how your team is motivated – and take corrective action where required.
What other challenges have you run into with Sales, and how did you overcome them? Weigh in below in the comments section.
1 Name changed to protect the innocent
2 This is when I realized that I prefer smaller companies to larger ones
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