The boardroom door has just closed. Joanne, the new head of sales, has just exited after presenting her situational assessment to the CEO and company board members. In short:
- She needs to replace two-thirds of her sales vice presidents (direct reports),
- The company needs to reduce the amount of time sales people are spending on non-sales-related tasks such as providing data to corporate,
- The middle 50% of account manager performance needs to be raised by 10 percent,
- As much as half the sales force needs to be top-graded because of the movement to cloud,
- There needs to be a new approach to channels.
Joanne predicted it would take 12 to 18 months to re-engineer all this, at which time the sales force would begin to trend toward target productivity.
With only the CEO and board members present after Joanne’s departure, the chairman turns to the CEO and remarks that the good news is the new sales lead has a clear point of view and brings new energy to the role. However, the disquieting reality is that Joanne is the third sales lead in five years. Each prior regime came in with very similar views and left without completing the initiatives and without impacting the arc of sales productivity. This time, says the chairman, our new sales leader better work out.
After the CEO leaves, the board members lament the familiarity of the circumstance. The company has grown, but at an unpredictable and lower-than-expected pace. Moreover, the ongoing churn of sales leadership has created a lack of continuity that has obstructed accountability. It was an operational cul-de-sac where the neighborhood was familiar – perhaps even comforting – but unsettling to a board that wants to drive valuation improvement.
This situation is one that will be recognizable to many. Metaphorically, the growth of a company within advancing markets requires a flight plan that comprehends constant and, ideally, proactive transitions to maximize the experience of the flight. Companies and markets tend to follow a bell curve over time, like a plane that takes off, ascends, levels off and eventually descends and lands.
Initially, a market is defined by a product or service that meets the needs of a clearly defined customer segment. As the numbers of customers grow, the market grows and the product, services and paths to market all evolve in order to maximize reach. In other words, they reach cruising height. When the market slows, emphasis may shift to selling more content to an increasingly static universe of customers. In short, as time marches on, the sales strategy and operational plan requires constant adjustment and realignment which in turn pulls the company forward. However, there are three problems that thwart alignment:
- Sales leader churn
- Sales force churn
- Sales force resistance or inertia
In the scenario above, the board has just heard from the third sales leader in five years. This is not unusual. In a January 2018 LinkedIn article (“VP Sales Job Tenure Has Shrunk 7 Months – This Trend Explains Why”), Chris Orlob, senior director of product marketing at Gong.io, says the average tenure for VPs of sales has steadily declined from 26 months in 2010 to just 19 months in 2017. With only a year and a half in the role, it’s no wonder sales leaders like Joanne aren’t able to see their initiatives through and impact sales productivity.
This churn has been accompanied by a similar decline in the percentage of reps attaining quota. According to CSO Insights and The Alexander Group, just 50% of reps on the average B2B team made quota in 2017, down from 63% in 2011. This trend creates the second problem that thwarts alignment – sales force churn – which is highly prevalent in companies transitioning from high-priced one-time sales to cloud or subscription-oriented commerce. In 2015, for example, The Bridge Group predicted 34% of SAAS sales reps would not finish the year. The high rate of sales force churn leads to problem #3: those who choose to remain at a company tend to reflexively hold on to the status quo and resist change. This combination of unwanted churn and resistance to needed change creates a concert of lower productivity.
The conflation of these three problems makes it difficult to complete new initiatives developed to facilitate needed realignments with an ever-changing market. Minimally, it is near-impossible to be proactive. Churn further has an adverse impact on productivity and sales growth due to the entropy of the ramps for new personnel. In the end, there is no accountability for the ongoing alignment of the sales operation with market changes and the plan. Increasingly, the numbers fail to work.
Going through a reset every two to four years with a new sales leader is likely to keep a company in the same cul-de-sac of underwhelming value. Instead, leadership transitions should be undertaken proactively to align with market maturity and company growth. The chart below illustrates the bell curve of market evolution over time and underscores why sales execution must constantly evolve to sustain growth.
A sales leader with the right skill set to lead a $1 million start-up is likely not the right person to lead the organization when it has grown to a $100 million global operation. While there is no hard and fast rule for replacement at certain revenue milestones, alarm bells should sound when leading indicators of growth start to flatten out.
Company boards need an antagonist who asks the tough questions and sifts through the excuses about why leading growth indicators are flattening and what is being done about it. They need to dig into the root causes, develop solutions and support implementation. This remedy period needs to be short. And if leaders determine it’s the right time for a sales leadership transition, it’s important to hire forward to where the company is going, not backward, which is likely to replicate mistakes. In this way, transitions that are trended as well as episodic (such as M&A integration) can be undertaken in proactive rather than reactive postures. When done right – when there is continuity of leadership between well-considered, proactive transitions – the results show up in improved sales growth outcomes and in increased valuation.
One of the ways in which sales leaders shorten their tenures is by making the wrong calls on episodic transitions such as integrating the sales team of a new acquisition or introducing a new channel program. At critical junctures like these, the wrong decision can result in half a sales force leaving in less than six months or in a decline in sales and/or margins. The chart below shows the 15 episodic choice points which most commonly place the longevity of a sales leader at risk.
To foster better outcomes and create greater continuity in sales leadership, boards and CEOs must ensure these decision points are executed with full understanding and consideration of best practices – and avoidance of the mistakes that occur most frequently there. Shared accountability improves momentum and avoids unnecessary setbacks.
If perpetual motion in the cul-de-sac is unwanted, CEOs must intervene. Admittedly, this is sometimes easier when the CEO has a sales background. But a Stuart Spencer study pointed out that only 17% of top CEOs have direct experience leading a sales organization. While a sales background can lead to stronger discussion of sales operation strategy and stronger execution plans, it does not always translate into effective intervention. The performance gap can remain very large. The key point here is there is sometimes a bias for constant engagement and intervention when sales is the familiar territory of the company leader. When that bias is not present, CEOs and boards need to ask:
- How do we improve the dynamics for improved sales leader longevity in order to reduce churn and improve accountability?
- How do we establish a detailed sales strategy and operations plan that is aligned with the stage of the market of episodic transitions? Can this be managed so it is independent of sales leadership change versus held hostage to sales leadership change?
- Can the frequency of adjustment to the sales operations plan increasingly become proactive?
- Can the board and CEO create an environment for sales to change the arc of valuation?
This is the challenge. The best CEOs and boards will exit their cul-de-sac and build the capability for sales strategy and operational plans that survive churn and in turn reduce churn.