A few years ago, I worked for a large company that acquired a series of software startups it planned to integrate into its hardware portfolio. My product team was responsible for the integration, product management and transition of the software startups. It was a painful process which taught me a lot about sales behavior.
Imagine a Fortune 100 company: large, established, incumbent. Also stale, bogged down in red tape, and struggling to innovate. Large companies typically innovate by acquiring smaller companies. This often makes great sense on paper – larger companies gain access to technology and talent they don’t have, and smaller companies have an opportunity to cash in on their hard work and take their products to a much larger audience using an established sales channel. But what looks good on paper can quickly go astray if you don’t understand sales and the tools they use.
In this case, my team was responsible for integrating the products and portfolios of the four or five smaller companies we’d acquired. Luckily, these products complimented one another and the larger company’s hardware devices. In essence, our new software portfolio provided ongoing systems management for hardware that was the mainstay of the larger company’s business. We had a great opportunity for success by piggybacking our software on the millions of dollars in hardware deals that were in the works.
To make this picture even more attractive, the larger company’s hardware business was undergoing a long, slow decline in revenue and profitability. Hardware sales averaged single-digit gross margins while software sales achieved typical margins of 40 to 60 percent and higher. We anticipated an easy win … until we began training the larger company’s sales teams.
Our decline wasn’t this pronounced…but it was close!
We knew we had an issue the first time we trained one of the new sales teams at a “lunch-and-learn.” While the sales team ate pizza and spaghetti, John, one of my product managers, explained how a new software item complimented 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.Â 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, 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 de-prioritizing 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’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.
1 Name changed to protect the innocent
2 This is when I realized that I prefer smaller companies to larger ones