Tomicide Solutions February 2009: Do We Really Need Rainmakers: The Rain They Bring Is Good, But The Draught They Leave Behind When They Leave Can Kill Your Business

By Tom "Bald Dog" Varjan

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This topic has been bugging me for a while, and have been wanting to write about it, so I think with the economic downturn it's more than appropriate.

When IT companies want to increase their sales, the first thing they often do is to hire more salespeople and give them new types of financial incentives to perform better.

The hiring means is that they hire all Tom, Dick and Harry who's willing to work there, and put them on straight commission, so it doesn't cost a penny for the company to have these sales folks.

And this action raises two issues...

Personally I have my doubts about both, but we'll examine some pros and cons further in this article.

I think it's important to get a perspective by looking at some statistics. Yes, I know that a long time ago Aaron Levenstein's (Former associate professor emeritus of business at Baruch College, from 1961 to 1981) taught us that...

"Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital."

Nevertheless, statistics can be good starting points to compare things to....

Cahner Research's study found in 2001 that...

Hiring expert Geoffrey Smart reports in his book Topgrading, that the typical mis-hire rate for businesses is 50% and for salespeople it's around 75%. When assessing the damage caused by a mis-hire, it's fair to use a four multiplier. That is, if you expect a salesperson to produce what corresponds to a $100,000 income for the salesperson in their first year, then the cost of mis-hire is approximately $400,000.

The typical annual attrition rate for salespeople is 43%. In Making the Number: How to Use Sales Benchmarking to Drive Performance, authors Greg Alexander, Aaron Bartels and Mike Drapeau report that, on average, 27% of salespeople fail to produce enough even to cover their costs of employment.

And add to all this some research done by Mac McIntosh...

So, now we've seen how expensive it is to try to increase sales by increasing headcount. But there is another sinister aspect of the "rainmaker" approach.

And that is that as you're growing your rainmaker capabilities, that is, looking for more rainmakers to make more sales, you're not growing your company's internal capabilities to acquire clients. And sadly, without this capability a business is really just a hobby. What it also means is that this hobby-business has no inherent value, so it cannot be sold.

Now some people may say that, "Yeah, but we're doing great work".

I'm not doubting that. You can be a great subject matter expert, but it's all useless if your business doesn't have the built in organisational capability of acquiring clients in a reasonably consistent and predictable manner.

When thinking of business development, which is really the continuum, from first outreach to the market to repeat business, we can think of it in two ways...

  1. Individualising the business development process using an army of rainmakers - Short-term individual performance

  2. Institutionalising the business development process using a business development system - Long-term organisational performance

And here we have to look at profitability. Many IT companies choose the rainmaker approach because they know all they have to do is to hire an army of salespeople and send them out to bring in the purchase orders. And yes, they do.

The problems lie in the statistics above...

Pareto's 80/20 rule tells us that 80% of the salespeople produce 20% of the results. Fine. But 27% your salespeople don't even produce enough to cover their costs of employment.

Now we are in deep shit. And on the top of all this, the annual attrition in your sales force is 43%.

How can you rely on a "rainmaker system" with such dismal characteristics? We know from marketing 101 that a good brand is all about consistency and predictability. Just look at McDonald's. It's consistent and predictable. It's the same inedible grease-soaked stodge wherever you go. It's consistently and predictably horrible. But it's not the horrible part that makes the brand but the consistency and predictability. Cynically speaking, it's the consistency that convinces people that they're buying quality, so they keep buying horrible junk food and people are getting fatter than ever.

So What's Wrong With The Rainmakers Approach?

I believe the major problem with the rainmaker approach is that by relying on salespeople with impressive contact lists and even more impressive client-wooing capabilities, your company fails build business development as a strong institutional competency. And without a strong ability to acquire clients consistently, predictably and reliably, a business is worth nothing. Not a sausage.

Granted, your salespeople are working hard to maximise their commissions (paying commission is another huge error), but since they are money focused, any of your competitors can give them offers and if those offers are even just a tiny bit better than your offer, then they pack up and bugger off.

Now this alone is a big enough problem, and the average annual attrition of salespeople is 43%. How can you run a business when half of your company's "face" gets replaced every year? It's bloody hard.

And there is another problem. When salespeople leave, they take their clients with them.

Yes, we can say that clients belong to the company but let's look at another number here.

The typical B2B sale can take somewhere between nine months and three years to complete and involves over 20 people only on the buyer's side. And while digging through this maze, taking their risks, investing their times, efforts and money, salespeople don't get paid a dime. Only once they've completed the sales equation and money has exchanged hands, that's when salespeople get paid.

After all this work, risk and investment, do you think it's fair that salespeople say they own their clients not their companies? I say yes, they own them. So, when salespeople leave the company, do they have the right to notify their clients and encourage them to follow them? Absolutely.

During their employment these salespeople take one-sided risks and make a one-sided commitment to make money for their companies. The minimum they can do is to retain the revenue-generating capability to themselves.

Using Aesop's story with the goose and the golden egg, it's only fair that salespeople (the geese) share the eggs (sales revenue) while with their companies while they are employed there. But there is no bloody way they hand over the goose when they leave for a better offer.

And while I totally agree with salespeople that they want to enjoy their geese's eggs on an ongoing basis, I think it's rather dumb of business owners to use this traditional and rather fickle and unreliable approach to build their companies.

So, why do so many IT companies play this rainmaker nonsense? Tom Peters calls it autocorrelation. Companies in the same or similar industries are looking at their competitors and automatically imitate what they do regardless whether or not it works.

And they never find out whether or not it really works. According to a survey by Alterian, only 47% of the 1,545 surveyed marketing professionals use analytics to measure their online campaigns, although 62% of respondents plan to increase their online spending.

All right. This is online, but I reckon the off-line results are pretty similar. The CMO Council reports that...

As we can conclude from the statistics above, most companies don't make a concerted effort for business development. Their best practices are to hire more salespeople and promise them bigger carrots if they bring in revenue. But besides the sales folks, no one is involved in generating revenue.

But then my thought is this: Anyone who is not involved in generating revenue should be immediately laid off and retained later as a subcontractor for specific projects on an as-needed basis. I've seen far too many technology companies where the first person they hire right after founding the company is a graphics artist or webmaster. No one knows how to market online, but they think that a webmaster or graphics artist will solve the problem.

But in the rainmaker approach business owners can dump full responsibility on salespeople, while the rest of the company chats around the water cooler and the marketing folks can work on the next catchy slogan and fancy graphics.

And you've just read it in the Alterian survey that 53% of companies don't track their results. Yet, 62% want to spend more on marketing. So, I wonder what percentage of the non-trackers are planning to spend more on activities whose results they don't even track? This is ground-scale stupidity, I guess this comes with size. The larger the company, they stupider its business development becomes.

Now let's take a closer look at...

The Systems Approach

The greatest advantage of the systems approach is that you can keep the headcount low and yet to achieve impressive lead generation, lead nurturing and lead conversion results.

Back in my homeland, in Hungary, my brother and his former colleague-in-employment, Tom formed an engineering company in the early 90s designing, building and servicing plastic manufacturing machinery of all kinds. They always had various numbers of employees anywhere between 10 and 35.

And a few months ago they realised they were not experts at managing people, they downsized the company, so now it's only the two of them. Nevertheless between the two of them, they produce the same revenue they used to produce when they had 35 employees. The only difference is that their margins are significantly higher than before and it's only the two of them to share the bootie.

Business development is the same. What we need is not headcount, but systems. So, instead of commission-crazed salespeople pushing prospects forward in the sales funnel, a system can help your prospects to progress in your sales funnel at their own pace.

And some people say that at that pace they wouldn't have enough work. To that I say, they are just plain overstaffed.

There is a synchronicity between the buying process and how people change. In the behavioural change area, the model developed by Dr. James Prochaska and Dr. Carlo DiClemente is broadly recognised and applied to how human beings change. So, let's see the stages of change...

Thinking Process Buying Process Synchronicity
Buyer's Thinking Process Company's Buying Process
Stage 1: Pre-contemplation - Blissful Ignorance. At this point people are not convinced they need to change at all. Definitely no change is in the pipeline within the next six months.

Stage 2: Contemplation - Sitting On The Fence. Convinced but not committed. Change is planned within the next six months. Uncertain whether or not to change. Not considering change within the next month.

Stage 3: Preparation - Testing The Waters - Making a plan to make the change within the next 30 days. Some behavioural changes have already taken place.

Stage 4: Action - The change is taking place in the past six months. Already in the process of change.

Stage 5: Maintenance - Forming a habit after the change has been made for over 6 months. Continued commitment to sustaining new behaviour.

Stage 6: Termination - Leaving the past behind and live in the new world with no danger of ever returning to the old habits.
Early Stage

Step 1: "Disturbing" buyers' comfort with various educational pieces, like white papers, articles, podcasts, videos, seminars, workshops, etc.

Step 2: Your educational pieces open buyers' eyes to the problems they're having, and they make mental commitments to change their situations.


Middle Stage

Step 3: Buyers start exploring possible solutions (starts searching on the web).

Step 4: Buyers committing to specific a solutions.


Late Stage

Step 5: Buyers build their business cases to justify their decisions and investments.

Step 6: Buyers gain the needed support for the change, select the most valuable solution and move forward to implement the desired changes.

The inherent problem of the rainmaker approach focuses on Step 6, and by this time buyers have developed their criteria for solutions in their heads, and all they are looking for is a pair of hands to do the heavy lifting on what they've thought up. So, this is why at this stage the work is price-sensitive commodity.

And this is the stage where significant value can almost never be offered because buyers have already scoped up the project. This is similar to self-diagnosis performed by patients who merely order their doctors what to prescribe.

But the good news is that steps 1 to 5 can be done 100% on autopilot. It takes bit of upfront work but the system is yours and you are not in the mercy of salespeople coming and going, taking their best clients with them.

And one more point. At this point your company has an internal capacity to consistently and predictable generate new clients. This capacity translates into an organisational asset, making your company a sellable entity if you choose to do so.

Some people may say this systematised sales cycle is pretty long. Well, it depends. If it's automated, you don't even realise what's going on. But if each step requires human effort, any sales cycle is too long.

I've just started working with a company whose VP of marketing joined my newsletter three years ago. And the company has just become a client. Would you say my sales cycle was three years? Maybe! But I've never invested any special effort in this company. My newsletter goes out to some 4,000 small and medium sized IT companies world-wide, and he is one of the subscribers. I've expended no special effort to land this client. He's come to me on his own volition.

But realistically, to me, the sales cycle started when, after reading my stuff for three years, he contacted me out of the blue and sent me the money after a short email exchange and we started the project. I didn't do a dickybird of selling. So is my sales cycle three years or a few hours? I suggest it's the latter.

Summary

Business development can be either a killing field where your salespeople are aggressively hunting for clients in pursuit of their next commissions or it can be a watering hole where self-qualified prospects come to you on their own volition in search of solutions and expert advice to their issues?

The problem is that the killing ground approach positions your prospects as hunted animals and, based on my limited knowledge of hunting, hunted animals try to run and hide from their hunters.

But later the hunted become the hunters by not doing business with these aggressive companies.

Business development ought to be a combination of system- and human-based interactions. Systematising the interest and humanising the commitment.

That is, until and unless prospects make conditional commitments to doing business with us (condition: We can fulfil their buying criteria), we keep them in an automated lead-nurturing system but don't invest human effort in them. That is, we don't make one-sided commitments of meeting them and solving their problems for free.

This is not about being nasty but about carefully screening prospects and accepting only those who fall in your Perfect Client Profile.

And the ones that we're meant to work with appreciate the way we do business, and if they want to work with us, they accept our idiosyncrasies.

So, look at your whole client acquisition process and evaluate how human- or system-dependent it is. Look at the attrition among your salespeople, and try to evaluate the consequences. This is hard because traditional accounting fails to account for this, but it's vital to evaluate it.

After all, traditional accounting fails to look at one of the most important success indicators: Revenue per employee.

But for you, as a business owner, this is what really matters.

Yes, conventional wisdom focuses on gross revenue, but what is the success in 100% revenue growth if you have to quadruple your headcount, thus operating costs, to pull it off? It's not what you make but what you keep that counts.

Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.