A Matter of Responsibility

I was reading an article today that said layoff's in the tech sector have reached a 3 year high for the first half of this year.  This is a trend I hate to see continue.  I know many people affected by these layoffs and I am hopeful for their speedy entry back into the productive job force.  Now onto the actual post...


For those companies who make money the old fashioned way... Your sales people are your channel to market, without them there are no sales.  I see so many tech companies laying off their sales people right now and I wonder, how do you reach the customers those reps reached?  I know, so reps under-perform and some hit incredibly difficult dry spells.  That's the nature of sales, not everyone can be a rain-maker.  But still, if those reps are your channel to market and they are no longer there, how do you maintain or grow your market penetration?





The rest of this is completely self-serving as Progentus has worked tirelessly to help sales people avoid the dry spells that often times end in disaster.  If you bear with me, I will not be pitching any products or services only imparting the knowledge I have cultivated over the last 12 years of working with technology sales people and tech sales companies.


I have spent the last decade listening to people complain (and you know who you are) that sales people just can't make the transition from product sales to solution sales.  These same people, of course, are the ones who reward the sales team for continuing with the behavior they spend all day complaining about.  This hypocritical thinking is root of the problem that holds sales people back from bridging the great chasm of product/solution sales.  Most tech companies are shooting to change the mix of product revenue and service revenue.  As most of you who read this can attest to, the product business has been and still is the dominant cash cow for the industry.  The problem is a very product-centric company has a much lower market capitalization than a company of equal size that has more service rolled into its sales mix.  I am using Market Cap pretty generically here to talk about a company's worth in terms of sale value if it was to be acquired.


So this drives most companies to look at how they change the mix... Say to get to 80% of revenue from product sales and 20% from services.  There is an easy way to achieve the mix... Sell less product!  That strategy will surely shift you from a product heavy company to a service heavy company.  Of course it creates a big problem, going from a billion dollars of revenue with $20M in services to a $600M company with $60M in services (a 90/10 split) means giving up 40% of your revenue.  Most people don't want to do that.  There is a lot more than this to look at to determine what a company's worth is, but very simplistically let's look at the numbers.


$1B @ 15% Profit = $150M in profit.
$600M @ 15% on Product/40% on Service = $105M in profit.


So the market cap of the companies demonstated above would be 1x for the $1B company or $150M and 2x for the $600M company or $210M.




It's easy to see why so many people are trying to change the mix.


The last time I looked, a company with a 50/50 split of products to services is worth 6 - 8 times their annual profit.  This is driving a trend in the tech industry that causes good sales reps to change jobs, company's revenue to drop and almost everyone to reevaluate what they want to be when they grow up.


As a company, don't we have a responsibility to ensure we give our teams every opportunity to succeed?  When did the bottom line become more important than the means to get there?  If sales people are your channel to market, you owe it to them to help them be effective.  If you do that, Mr. $1B company your net worth will grow. ($1B @ 90/10 = $175M in profit = $350M in market cap).  I know it's not easy, but it's worth the investment of time and energy.  The biggest piece of advice I can give is this:


Don't force your sales reps to learn a new way to sell.  People rarely will break out of their comfort zone unless they are suffering tremendous pain.  Let them succeed in the organic way they have in the past, just give them the tools and support to translate their success to your new direction.  They got you there once, they can do it again if you give them more than a chance.  It is your responsibility to do it.